TABLE OF CONTENTS

ABSTRACT ................................................................................................................................................................. 2
EMERGENCE OF THE BUSINESS MODEL CONCEPT .............................................................................................................. 2
BUSINESS MODEL DEFINITION ....................................................................................................................................... 2
KEY ELEMENTS OF A BUSINESS MODEL ........................................................................................................................... 3
BUSINESS MODEL INNOVATION ..................................................................................................................................... 3
HISTORY OF INNOVATION IN BUSINESS MODELS ............................................................................................................... 4
PRESENT DAY INNOVATION IN BUSINESS MODELS ............................................................................................................. 6
FOR-PROFIT SOCIAL/ECOLOGICAL ENTERPRISES ................................................................................................................ 8
GREEN MARKETING .................................................................................................................................................. 12
AGGREGATOR SERVICES ............................................................................................................................................. 13
HYPER-LOCAL SERVICES ............................................................................................................................................. 15
METRICS FOR INNOVATION ......................................................................................................................................... 15
FUTURE OF INNOVATION IN BUSINESS MODELS .............................................................................................................. 17
REFERENCES ............................................................................................................................................................ 20

ABSTRACT
Business Model, in this era of emerging start-ups and businesses is one of the most profusely used words, with a
categorization of almost being a buzzword. The following paper attempts to summarize the understanding of the term
and concept with the help of existing studies, journals, academic and business articles as well as modern-day examples.
The current and emerging literature on the Business Models is riddled with inconsistencies and several overlapping. By
amalgamating learnings from the texts, the following paper provides a structure to the concept and definitions. Along
with recent examples from modern day industries, the paper also establishes the use of frameworks and metrics to
certain the efficacy of Business Models new and existing.

EMERGENCE OF THE BUSINESS MODEL CONCEPT

The Business Model Concept has been gaining importance across the globe in the last one and a half decade. Such
traction has been observed in both arenas Practice as well as Management Literature.
o

Practice - With the emergence of the internet, a new medium for communication and services was
established which significantly changed the almost neglected concept of a Business Model.
o Management Literature Today, The number of new fledgling startups in the world exceeds the number
of businesses established in the last century. New businesses and trade require newer research into the
fundamentals that drive their growth and ensure continuity. Such research roots new Management
Literature about Business Models and the concept.
Though Business Models have been fundamental to trading and economic behavior across the globe since pre-classical
times, the Business Model as a concept and subject of study became predominant with the introduction & innovation
of the Internet in the 1990s. From then on ideas associated with business models have resonated with scholars,
academicians, entrepreneurs, managers and business practitioners. Business Model has been well documented in
publications, including journals, research papers, books and articles in the business press.

BUSINESS MODEL DEFINITION

As Paul Timmers states, a Business Model can be defined as an architecture for product, service and information
flow, including a description of various business players and their roles.[1] It is a description of the potential
benefit for the various business players and revenue sources.

Since the beginning of the 21st century, several Management Gurus as well as eminent Academicians have
interpreted and propagated a Business Models definition differently. These definitions can be broadly broken
down on the basis of their scope.

Narrower in Scope

A model of business processes, in one

organisation, or across organisations
(Papakiriakopoulos et al. 2001)
The Value-Creating Business System behind the
Business Processes (Petrovic et al.)
The Method by which a company generates
revenue (Rappa 2001-03)

Broader in Scope

The Architecture of an Organisations Products,

Services, Actors, Info Flows (Timmers, 2000)
The link between Strategy and Business
Processes (Osterwalder & Pigneur, 2002)
Business Rules, Trading Mechanism, Trading
Protocols (McGann & Lyytinen, 2002)

KEY ELEMENTS OF A BUSINESS MODEL

CUSTOMER VALUE PROPOSITION

Customer Value Proposition refers to the set of benefits that a firm seeks to deliver to its potential customers. In other
words, it is the set of reasons which make a customer choose a particular brand over the others. It is targeted only
towards the viable set of customers and not the market as a whole.

KEY RESOURCES
Resources refer to the tangible and intangible constituents that a firm exploits so as to deliver the Customer Value
Proposition in totality. Resources include Channels, Technology, Equipment, Information etc. Key resources may need
to be altered regularly so as to ensure concordance with the other elements of the Business Model. For instance, a new
machine may need to be added so as to ensure a better process.

KEY PROCESSES
Processes entail a set of norms, rules, defined pattern, method and metrics that make an efficient & profitable delivery
of the product/brand. Process entails several business aspects including Sourcing, Manufacturing, Marketing, IT, Hiring,
Training, Product development etc.

PROFIT FORMULA
Profit Formula here refers to a unique attribute within the Business Model which ensures sustained competitive
advantage for the business. This Profit Formula can range from an organizations talent advantage and technological
advantage to its financial backing and robustness.

BUSINESS MODEL INNOVATION

According to Professors at the worlds most renowned Business School. Harvard School of Business, Business Model
Innovation is about delivering existing products that are produced by existing technologies to existing markets. And
because it often involves changes invisible to the outside world, it can bring advantages that are hard to copy.[2]

Business Model Innovation is about fundamentally rethinking a business around a clear customer need, then realigning
the business resources, processes and profit formula with the newly defined value proposition. It's not easy and can
take decision makers out of their comfort zones.
In its Award Winning Article written for Harvard Business Review, Innosight provides a structured and methodological
approach towards Business Model Innovation.[3] Business Model Innovation can thus be defined as anything that helps
in one or more of the following:

IDENTIFYING GROWTH OPPORTUNITIES

Tapping into a new customer opportunity with a previously non-existing business model so as to change and transform
the existing competitive landscape.
GENERATING NEW IDEAS
Conceiving valuable new ideas for engaging customers and consumers, designing new or transformed business models
that fulfill customers need more effectively, efficiently and profitably.
SUCCESSFULLY ENTER EMERGING MARKETS
Re-conceiving businesses that recognize the unique required needs of consumers in untapped markets, profitably and
efficiently.
CREATING NEW SYSTEMS, RULES, AND METRICS
An act/process that enables companies to organize, establish and implement new businesses successfully.

HISTORY OF INNOVATION IN BUSINESS MODELS

Innovation in business models is a misnomer. This is because an innovative business model, if successful, becomes
commonplace in a matter of years. The innovative business models of yesterday are the conventional business models
of today if they are successful and relevant. If they are not, they disappear into thin air.
In his book, The Innovation Machine, Dr. Rolf Christian Wentz says that there are two basic types of innovation which we
typically distinguish:

Innovations within the existing business model: Nintendos Wii is an example of this type of innovation. It is a typical
(radical) product innovation within an existing business model.
Innovation through a new business model: Zara, with low prices and advertising expenditure but a high fresh product
offering, revolutionized the fashion industry with small batch sizes and high profits, is an excellent example of an
innovation through a new business model.

In his book he says that Innovation and innovation management are only concerned with product innovations, i.e.
innovations within the existing business model. This is a very short sighted approach and as a result of this, business
model innovations, a major source of innovation would not be a part of the company strategy. It is important to
understand that a product innovation is only a subset of a business model innovation. Historically, many business models
which were innovations have now become the norm, albeit with a lot of modifications.
Innovation in business models have revolutionized many industries and changed the way people think by altering
consumers expectations from the products. We will now look at a few examples of influential business models from the
past and how they have evolved to suit the current times.

FROM ASSEMBLY LINES TO LEAN ASSEMBLY LINES

An assembly line is a series of operations, linked in physical space. In itself, it is a very simple concept, but Henry Ford
revolutionized manufacturing with this simple concept. One hundred years ago, Henry Ford and his team at Highland
Park assembly plant launched what perhaps is the worlds greatest contribution to manufacturing the first moving
assembly line. Due to it, the assembly of Ford Model Ts was simplified tremendously. The assembly consisting of 3,000
parts was simplified by breaking it into 84 distinct steps performed by groups of workers as a rope pulled the vehicle
chassis down the line.[4]
The assembly line changed the face of production by cutting down on the assembly time for one Model T from 12 hours
to just 90 minutes.
By cutting down on the money, time and manpower Henry Ford improved the assembly line over the years, Ford was
able to decrease the price of the Model T from $850 to less than $300. For the first time, quality vehicles were affordable
to the masses. Eventually, Ford built a Model T every 24 seconds and sold more than 15 million worldwide by 1927,
accounting for half of all automobiles then sold.
Fords new approach spread rapidly, not only to other automakers but also to manufacturers of phonographs, vacuum
cleaners, refrigerators and other consumer goods, said Bob Casey, former curator of transportation at The Henry Ford,
and author of The Model T: A Centennial History. The assembly line became the characteristic American mode of
production.
With passage in time, assembly lines became synonymous with mass production throughout the world. Soon, the focus
shifted from cost and quantity of production to quality of production. To serve this need, Toyota applied the ideas of lean
manufacturing from their textile mills to manufacturing of cars, giving birth to concepts like Just in Time, Jidoka, PushPull, 8 wastes, etc. All of this is called the Toyota Production System (TPS) which has now set new benchmarks for the
manufacturing sector to live up to, hence revolutionizing it with a new improved business model.

THE MODERN FRANCHISE: MCDONALD'S CORPORATION

With the idea of combining the assembly line with restaurants, McDonald brothers created the fast food industry as we
know it today. A salesman, Ray Kroc then came along to help this industry realize its full potential. Kroc started the
McDonald's Corporation, a company dedicated to franchising the restaurant. Franchising wasn't the big idea that Kroc
had, McDonald's and other restaurants had been doing it before Kroc came along. But Kroc took a different view on the
concept.
Kroc kept strict control over his franchises, he made sure that every restaurant across the country was standardized
and upheld his business practices and standards of cleanliness. His business methods angered large investors, and the
cost of leasing land made it hard for Kroc to turn a profit. So he adopted a policy of subleasing his properties to the
franchisee. Real estate provided the cash flow Kroc needed for more down payments on additional land for his growing
franchises.
As a landlord, McDonald's Corporation has built the largest restaurant chain in the world, and its business model inspired
enough imitators to launch the fast-food industry.[5]
The franchise model has now become very common in food and many other sectors.

GROWTH FIRST: AMAZON.COM

In the mid-1990s, entrepreneurs were scrambling to find ways to take advantage of a tool emerging from infancy and
bound for great things: the Internet. Although it was thought to be a considerable gamble at the time, Jeff Bezos's plan
was one of the few that ultimately worked. His business model proved the axiom "slow and steady wins the race" -even on the information superhighway.
Challenging brick-and-mortar bookstores, Bezos started Amazon, an Internet company that sold a wider collection of
books than stores could carry. Bezos bought warehouses to hold a vast inventory so Amazon could offer direct-toconsumer service. The catch? He and his investors had to postpone seeing profits. Bezos allowed readers to criticize
products through reader reviews, and he built a faithful community of users. And like Dell, Amazon earned interest on
immediate customer payments before paying its suppliers.
Putting off profits for the sake of growth earned Bezos plenty of critics, but his model ultimately paid off. By creating a
business that sought customer convenience first and foremost, Bezos defied the odds and came out swinging. [5]

THE EVERYTHING STORE: WALMART

The advent of supermarkets in the 1930s proved to the business world that cutting costs to deliver low prices can turn
a profit. Retailers brought this logic over to general stores soon afterward. By sparing the frills and getting back to the
bare necessities, stores could save money on presentation. They also saved money by cutting back on personnel, which
meant less personal service. But saving money in these areas meant the store could charge competitively low prices,
which drew customers in despite the bare-bones setup.
Walton saw that general stores were turning a good profit, but he found a way to perfect the business model. Instead of
catering to heavily populated areas, which conventional wisdom would advise, Walton started building stores in rural
areas. Specifically, he built stores in towns with populations of 5,000 to 25,000 people. Customers preferred to shop at
these stores rather than drive to the nearest city. Because Walton was the first to go after these small markets, he had a
significant advantage over any competitor that dared enter that terrain afterward. Today, Walmart wields so much power
that a company's survival may depend on landing a deal with the retailer. [5]

PRESENT DAY INNOVATION IN BUSINESS MODELS

With the advent of the internet and technology, business and commerce is seeing Business Models that were
unprecedented till two decades back. These business models have been bucketed into certain Generic Categories.
These models can be implemented in a verity of ways. Moreover any given firm may combine different models as a part
of their Web business strategy.
Briefs about these categories are mentioned below. The paper also explores 5 specific Business Models which have
been conceived and successfully executed within the last few years in greater detail.

ADVERTISING
Advertising as an innovative Business Model entails extension of traditional media broadcasting model. Broadcaster
may or may not be creator of content. Useful model for high volume viewer traffic or specialized content.
Example: Google Adwords secures most of its revenue through online advertisements promoting specialized content
to a targeted group.

INFOMEDIARY
Info-mediary involves collecting and selling information about consumers and their buying habits to other businesses.
The buyer may offer free Internet access or other product/ services in exchange of information.
Example: AC Nielsen collects, process, analyzes and disseminates market information to its various clients. Such
information is critical to many of its clients for success.

MERCHANTS AND MANUFACTURERS

Manufacturers/Merchants, wholesalers and retailers have started to shift from a Brick and Mortar model to an online
model which saves resources. However, recent studies has shown that the best of innovation in this the one which
amalgamates Brick and Mortar with the Internet. Such models are allowing manufactures to reach buyers directly
eliminating middlemen (wholesalers and retailers).
Example: Indias top online retailer Flipkart is making many a merchants combine their physical businesses with a one
driven by the internet.

COMMUNITY
These business models leverage the possessions and experiences of a larger pool and dissipate information as well as
resources. The success of such models dependent on user loyalty, user attachment and emotions as opposed to high
volumes. Users of community models are regular contributor of content.
Example: Just Dial a part from being an info-mediary, leverages experiences of its consumers to build better value and
attract more consumers.

AFFILIATE/LOCALIZATION
Such business models make use of the convenience established due to better locations of a business/service.
Merchants are able to deliver and present their products where the consumers want them.
Example: New Cab Aggregation platforms like Uber and Ola make sure that their services as near as possible to the
consumer during the time of purchase intention.
UTILITY
Pay as you use and Pay Less for Less sum up the thought and ideation behind these models. Such models have
brought about a paradigm shift in the meaning of Consumer Economy or Value Products, by exacting their prices to the
degree of usage of their services by the customer.
Example: Oyo Rooms helps its customers get exactly How Much they want at a matching price.

BROKERAGE
Such businesses bring together buyers and sellers in a marketplace so as to facilitate trade and transactions, thereby
earning a fee or commission. While such a model has been in existence since long, they are shaping and consolidating
in almost every industry today because of the increase in number of buyers, sellers and faster speed of operations.
Such firms might interact between Business to Business, Business to a Consumer or Consumers to Consumers.
Example: Intermediaries like OLX and EBay are helping generate trade of second-hand goods/used goods between
consumers.

FOR-PROFIT SOCIAL/ECOLOGICAL ENTERPRISES

In his paper published[6] in 2009, Dr. C.K. Prahalad (Author of Fortune at the Bottom of the Pyramid) obliterated the
myth associating sustainability practices by a brand with high costs and low returns. Establishing a new perspective, Dr.
Prahalad made way for viewing green marketing and socially diffused products as the future of investments and business
models. The following explains the current movement from acknowledgement of this to exploiting it for deriving brand
equity.

1. How Brand Managers today are acknowledging the growing trend and awareness about Sustainability among
the consumers from all segments.
2. How Marketers across the globe are moving from acknowledgement towards establishing Sustainability
Programs as a Brand Contact Point.
3. How such Sustainability Programs are helping them position their brands as more responsible and sensitive to
the consumers and the societys needs at large.
4. How such imagery and efforts are helping them build a desired brand equity.
With the above as an edifice, many modern day entrepreneurs are choosing to amalgamate the their motive of
Profitability with Social/Ecological good to serve the needs of the 21st century customer who is aware and sensitive to
sustainability initiatives by brands and businesses.
On one hand, a usual for-profit enterprise looks at Profit through creation of value as its cause of existence. On the
other, a Not For Profit organization shuns profit and looks for social/ecological/societal change as its motive. However,
a For-Profit Social/Ecological Enterprise lays almost equal weightage to both the aspects, sustainable change as well as
Profits through Value creation. This can be better understood through the diagram below.[7]

EXAMPLE MILAAP.ORG
ABOUT MILAAP
Launched in June 2010, Milaap.org (website) is a For-Profit Social Enterprise that delivers Microfinance for social
change in the Rural corners of the country.[8] Within a span of 5 years, Milaap has already established itself as the
largest fundraising platform for Social causes. Fundraising through Milaap helps support Individuals and Organization
deliver better and much needed facilities within the villages of India. These supported causes include Education, Water,
Energy, Entrepreneurship, Vocational Training and Sanitation. With a successful start in India, Milaap is expanding to
USA to help firms and individuals on the developed side of the world help those on the developing so as to ensure a
sustained and equitable growth.

BUSINESS MODEL
Funds are raised, disbursed, utilized and recollected through Milaap through the following four step procedure.[9]

STEP 1: CHOOSING A BORROWER

Milaap lets the providers/visitors choose a borrower to lend to from the list of profiles. One can choose
a borrower based on their story or from an impact area that they feel strongly about (Sanitation,
Education, Energy etc.).
STEP 2: MAKING A LOAN
The visitor makes a loan on the Milaap website through an online transaction. The amount of loan is
disbursed to a Field Partner on the ground. Borrowers receive 100% of the money lent by the website
user and use it for the specific need they were given the loan for.
STEP 3: GETTING REPAID
As the borrower repays the loan, the Field partner collects the repayments from the ground. These are
accumulated in the users account on Milaap.org as 'Credits'. The Provider/User receives updates from
Milaap through email about the status of the repayment from the borrower.
STEP 4: RE-LEND
Users can withdraw the accumulated Milaap Credits or re-lend it to another borrower listed on Milaap.
By choosing another borrower, the user can keep her impact on change continued.
STEP 5: VALUE BOOKING
Borrowers are required to pay an interest which is substantially lesser as compared to that provided by
other micro finance institutions in India. A component of this interest is received by the field partners to
sustainably ensure smooth running of their operations while the other component is booked by Milaap.

IMPACT
In his Interview at Yale School of Management, Dr. Griffith mentions how business models like Milaap are also
becoming attractive to investors who now have ways to measure the impact in terms of not only Value Generation but
also the social change created.[10]Milaaps reach, impact and growth advocates the strength and future of this business
model (For-Profit Social Enterprises) in a world of reducing resources and increasing wants .[9]

CROWD FUNDING
Crowd funding is the practice of funding a project or venture by raising monetary contributions from a large number of
people, today often performed via internet-mediated registries.
Gone are the days when a good idea went to waste due to lack of funds. With crowd funding, people get a platform to
showcase their idea, and if people like it, they contribute towards the product. But crowd funding isnt easy. Some
projects fail because there isnt a place in the market, others fail because they cannot convince people to jump onboard.
According to Adam Sager and Jon Troutman in their article in entrepreneur, the five steps to crowd funding success on
the different crowd funding websites like Kickstarter, Indiegogo are[11]:

1. CLEARLY DEFINE PRODUCT AND GOALS: All good ideas dont receive funding. A well-defined product with clear goals
will always get more attention and hence funding.
2. TELL A STORY ABOUT WHAT YOU CAN DO FOR OTHERS: Before parting with their, money people will want to know what
you can do for them. Hence, a proper rewards system and a streamlined story of how our product can help them
is very important.
3. SPEND MONEY TO MAKE MONEY: Yes, the goal is to raise money. However, there are ingredients so critical to a
successful crowd funding campaign that they justify throwing down some cash for. A powerful video is crucial.
4. SHOW YOUR SUPPORTERS YOU APPRECIATE THEM: Find ways to make your supporters feel loved and important. Answer
each comment or question as quickly as possible. Be honest and give people straight answers to difficult
enquiries. Even if the crowd funding site doesnt provide the option, if someone wants to change their order or
make a return, make it happen.
5. CONSIDER FEEDBACK BUT STAY TRUE TO YOUR VISION: If you execute well on all of the above and supporters start lining
up, you will likely get feature requests. Some of that feedback might be subtle and friendly, some of it will be
loud and demanding. Regardless of tone it's important to listen and react to all of this feedback: consider

suggestions, discuss as a team, and respond to people sincerely. Inviting people into your process is part of the
fun of crowd funding. But through all of it you must stay true to your product vision. Don't feel pressure to bend
the product to the will of the loudest voice in the room.

EXAMPLE OCULUS VR
ABOUT OCULUS VR
Oculus Virtual Reality is an American virtual reality company. Their first product, the Oculus Rift is still under
development. The Oculus Rift is a virtual reality head-mounted display. For the Oculus rift, after the prototype launch in
the E3 technology conference, the company announced a kickstarter campaign to further develop the product.

BUSINESS MODEL
Oculus demonstrated the prototype at the E3 conference to the world. It was an innovative technology in the sphere of
gaming which could impact the computing system as a whole in the long run. It caused a huge wave in the market, and
taking advantage of that, Oculus launched a kickstarter campaign for an intended amount of $250,000. Oculus announced
that the "dev. kit" version of the Oculus Rift would be given as a reward to backers who pledged $300 or more on
Kickstarter. There was also a limited run of 100 unassembled Rift prototype kits for pledges over $275 that would ship a
month earlier. Within four hours of the announcement, Oculus secured its intended amount of US$250,000. In less than
36 hours, the campaign had surpassed $1 million in funding, eventually ending with $2,437,429.
IMPACT
The impact of the crowd funding was tremendous. Asking for $250,000, they ended up with an astronomical $2,437,429
due to word of mouth publicity by the current investors, which made more people pitch in. When the investments were
finally stopped, people who were unable to invest wanted to get their hands on the product, in a way the crowd funding
made the oculus rift a highly sought after product.
Oculus acquired so much credibility, that recently, Facebook had acquired the company for a whopping $2 billion.

GREEN MARKETING
According to many research studies, 60-90% of the consumers are concerned about how their purchases affect the
environment[12]. The onus on the marketers to convert these concerns to actual purchases. There is a segment of
responsible consumers in a size that is large enough to pay attention to and this is the basic premise of green marketing,
marketing of products that are presumed to be environmentally preferable to others. With green marketing, marketers
can make create a differentiation for their products and if their products are similar in other features with their
competitors, green products have a better standing in the market due to their higher environmental performance. The
four steps in green marketing are:

1. Credibility: To be an effective green marketing company, the strategy and messages have to be convincing. To add
to that, the company should also function in an environmentally friendly manner and this should be well documented
and an integral part of communications.
2. Relevance: In this step, we need to ensure that our strategies create value for the stakeholders. The strategies need
to be sustainable from a business perspective.
3. Effective Messaging: We need to make sure that our messages are not complicated and can be understood easily.
Also we need to communicate the other benefits of the products as well, not just the green ones to avoid green
marketing myopia.
4. Differentiation: This is how we can set our products apart from the competitors by showing how we do things
differently.

EXAMPLE TIMBERLAND
ABOUT TIMBERLAND
Timberland is an American manufacturer and retailer of outdoors wear with a focus on footwear. Timberland footwear
is marketed towards people intending outdoor use. Till the 2000s, Timberlands products were a huge success and its
products were adopted as a fashion statement of many music artists and other celebrities. But with a change in fashion
trends, the company was caught unaware and their sales fell drastically. In 2008, the companys stocks fell to an all-time
low. Christmas was coming and the company was frantic to develop something that they could sell. So what did they do?
They turned to sustainability and green marketing.

BUSINESS MODEL

MANUFACTURING WITH RECYCLED MATERIALS: Timberland used recycled materials like used tires to make boots under the
EARTHKEEPERS brand. This was coupled with marketing campaigns like tread lightly and what kind of footprint will
you leave. These were coupled with promotions and a lot of data for consumer access to support how Timberland
was helping the environment. They started an innovative practice by putting nutrition labels on the shoe boxes,
showing the environmental impact in manufacturing that shoe. All of this covered the credibility portion of the green
marketing strategy.
LOWER COSTS: Due to the use of recycled materials in shoes, the costs of production of the shoes decreased, this was
the relevance part of their business strategy.
EFFECTIVE MESSAGING: Instead of using promotions filled with environmental jargon, they kept it simple. Here are some
examples.

DIFFERENTIATION: Being the first fashion company to use recycled materials was a huge innovation in their business
model, which was a big differentiator for Timberland.

IMPACT
The impact of all of this was that Timberlands sales picked up, and the share prices also reached an all-time high within
2 years. Timberland also became a pioneer in the fashion industry due to the use of recycled materials.

AGGREGATOR SERVICES
In most marketplace scenarios wherein the product and service delivery is not through corporates and proper market
channels, the suppliers and the consumers are dispersed (for example, transportation business, restaurants). There are
huge anomalies in meeting demand and supply due to lack of information and communication. Aggregator services match
demand with supply by creating a common pool of suppliers and giving the consumers access to this pool. This is enabled
through improved and timely sharing of information between all the stakeholders involved.

BUSINESS MODEL
Aggregator services have different variants of models but the core structure remains the same and is based on pooling
of resources. There is availability of services without transfer of risk of ownership. Customer can avail services such as
transportation without undertaking the risk and cost of ownership of resources (vehicles) by communicating with those
who already have (taxi owners). Aggregator services can also aggregate information about services being provided by
others and facilitate transaction between the provider and the customer (travel aggregator sites). They can also be
aggregators of information (review aggregator sites). The medium of communication can be the net, telecommunication,
etc. with use of technology such as mapping, tracking, etc. for sensing and monitoring demand and supply.

IMPACT
For service provider:
Better utilization of resources which would have been idle if not matched with demand in a timely manner.
Reduced costs due to better utilization and scale of operations.
Avenues for newer markets, broader customer base
For customer:

Timely access and availability of services

Guarantee of services
Assurance of a threshold level of quality in service
Variety in terms of location, price, etc.

THE UBER BUSINESS MODEL

One of the pioneers of the aggregator model has been Uber, the worlds largest taxi aggregator service (and by virtue
of the business model, owns no taxi). Ubers business model has been explained in the flowchart given below:

HYPER-LOCAL SERVICES
Hyper-localisation refers to services which identify existing range of services within a concentrated community and
deliver them to the customer who demanding it. Hyper-local firms facilitate product and service delivery connecting the
consumer with the local provider through various mediums of communication. Such firms can be of different variations
depending on the range of services, the region to which they cater to and the mediums through which they connect user
and provider.

BUSINESS MODEL
Hyper-localisation is founded on the emergence of the On-Demand Economy, also known as the Sharing Economy. This
type of economy is characterized by time sensitivity (delivery when required), right quantity (delivery of quantity as
demanded by customer), reliability of service and appropriate pricing. Hyper-localisation model is basically a merger of
aggregator services and delivery services. It uses the web to host information about a variety of services and local service
providers on their site. The customer looks up the site and chooses the services required with the appropriate
specifications. The hyper-local company then collects the product and then delivers it to the customers location. These
setups are dependent on mobile transport units working throughout the day with high movement efficiency. Hyper-local
firms charge a part of the amount of the transaction as commission. Online payment gateways facilitate the transactions.
In conclusion, they match immediate demand with the nearest source of supply in the most optimized manner.
IMPACT
Hyper-localisation has proved to be a symbiotic initiative for all stakeholders. It helps brick & mortar stores to compete
with e-tailer's in a robust manner by expanding the business draw area, & endowing it with many advantages [4]. By
giving access to the web, these firms have increased the visibility and penetration of these stores. Increased volume has
translated to higher revenues. These stores have also made drastic quality improvements to compete with the standards
of other players hosting their services. This concept has offered more variety to the consumer. Also, ease of access to
even non-standard and non-essential services has improved. Certain categories have moved from high-involvement
category to low-involvement category. Availability of services (round the clock service, guarantee of service) is ensured.
Most importantly, search cost for various products have drastically dropped, giving economic and value benefits to the
consumer.

METRICS FOR INNOVATION

With the advancement of technology and systems, everyday new business models are seeing light. With such continuous
expansion and innovation, it is imperative for all stakeholders to ensure sustainability and relevance of all developing and
fledgling business models. While several metrics are developed within and outside of different companies, in the
following examples we state two of the most popular metrics: Business Model Canvas and Four Paths to Business
Innovation. These two contemporary metrics help in development and resurgence of any business model and are widely
used among the business community.

BUSINESS MODEL CANVAS

The business model canvas is a management tool for developing or documenting existing business models. With the help
of a business model canvas, we can document a business model effectively under nine building blocks, and then analyze
the business model effectively to identify and understand the innovations in business models.

The framework for the business model canvas is illustrated below.

By applying the above framework to an organization, we can understand the innovations that they have made across
their value chain, hence placing us in a better position to comment about the innovations in the model. Hence, Business
Model Canvas is an appropriate metric for us to understand innovations in business models.

FOUR PATHS TO BUSINESS MODEL INNOVATION

In their article Four Paths to Business Model Innovation, Karan Girotra and Serguei Netessine present a framework to
help in analysis and application of innovation in business models. They ask four basic questions on the basis of which
the entire exercise is conducted.
1. What Mix of Products or Services Should You Offer?
Not knowing the exact demand is a challenge that every business faces. This is a major risk and companies should
recalibrate their product or service mix through one of the following options:

Focus narrowly: Distinct market segments with clearly differentiated needs.

Search for commonalities among products

Create a hedged portfolio: Select an assortment of products or markets to reduce the overall riskiness of the
business model

2. When Should You Make Your Key Decisions?

Making decisions without enough data is a norm in many industries. To counter this we have the following options:
Postpone the decision till the time you have enough information.
Change the order of your decisions to make the ones that can be made with the available data first.
Split up the key decisions so that they can be analyzed in a better fashion.

3. Who Are the Best Decision Makers?

Who makes decision in each step of the value chain is very important for the companys decision making process.
Companies have the following options:
Appoint a better-informed decision maker.
Pass the decision risk to the party that can best manage the consequences.
Select the decision maker with the most to gain.
4. Why Do Key Decision Makers Choose as They Do?
When decision makers collaborate to create value, they must also be able to pursue their private objectives without
damaging the value chain. Many business model innovations, therefore, come from adjusting decision makers
motivations. There are three ways of doing this:
Change the revenue stream: Changing the revenue stream to align the interests of a decisions stakeholders
works best when performance can be fully and unambiguously defined
Synchronize the time horizons.
Integrate the incentives.

FUTURE OF INNOVATION IN BUSINESS MODELS

As we have seen from the previous sections, challenging and manipulating existing business structures to create models
with a unique value delivery mechanism has enabled both corporates and consumers to reap economic and utilitarian
benefits. The businesses ecosystem is well established to propel this perpetual process of innovation into the future as
well.
Apart from business models, the next phase of innovations is going to be in the process of innovation itself. When new
technology develops, the first business models will imitate the old technology experience within the new medium. As the
new industry matures and the new medium is better understood, new business models emerge, often led by smaller
startups. Future opportunities are likely to be found in the intersection of current trends, questioning current
assumptions and conventions.

DRIVERS OF FUTURE INNOVATION

SHIFT FROM INSIDE-OUT INNOVATION TO OPEN INNOVATION: Firms are no longer developing core competencies and working
on change organically and internally. Instead, the process of innovation is being outsourced through open and
connect model by linking with other agents of change. Firms tend to hunt for potential change agents and then
cannibalise them to inculcate the same into their model. For example, P&G was once upon a time a pioneer in
marketing innovations which came from inside the organization. However, of late, they work in close association with
specialized think-tank firms for the same.

QUANTUM INNOVATION: Also known as disruptive innovation, this driver deals with a drastic change in existing products
and processes to achieve a higher context of goals. This usually deals with revamping the companys organization
and philosophy to achieve a redefined sense of purpose. For example, Googles goal to design the knowledge
economy or Teslas objective of energy solutions is disruptive models for both themselves and their competitors.

NEW ORGANIZATIONAL FORMS: If we analyze the culture of startups nowadays, they are a clear break away from the
culture prevalent in established traditional corporates. The same can be extrapolated to the future wherein there
will be changes in work environments, approach to customer relationship management, focus on products, etc. These
changes are catalyzed by the differing expectations and qualifications of this generations workforce.

REVERSE INNOVATION: This driver pertains to the flow of ideas and information across the globe. Earlier, research was
a one-way process with ideas flowing from the West to the East, with the East being a mere facilitator of production,
assembly and trade. However, as human knowledge improved in these regions, innovation has become delocalized.

Also, since certain geographies are subjected to constraint in the form of resources, capital, etc., the ideas stemming
out such areas tend to be optimal and sustainable which further lead on development of robust business models.

HISTORY AS A TEACHER: There is a vast pool of knowledge available from past and present business models which can
be scavenged for building models in the future. Through a constant process of developing, testing and iteration, we
can build models suited to meet the needs of the firm, market and the consumer.

SUSTAINABILITY OF BUSINESS: The environmental and economic feasibility and viability of a model will also be a strong
determinant in the future. With various stakeholders gradually becoming sensitized to the need for striving for
equitable long-term growth, businesses will have to align their strategies and innovations for the same.

Other factors such as enhanced human leadership, entrepreneurial skill, political factors, world economic prosperity,
etc.

SERVICES BUSINESS INNOVATION

The frontrunner in the business model innovation domain in the future will be the services sector. This is primarily due
to science and technological advances being concentrated in this sector which aid disruptive innovation and definitions
of new business models.

Changes in services undustry are backed by a combination of innovation trends and recognition of customer needs. Both
of these are external stimulus which the companies constantly look out for to harness to reap benefits. Further on we
develop strategies which are aided by these technological trends. These strategies can give and build the organisations
core competency in that particular business model. We will now look at the types of services business innovation
strategies and major megatrends which will be lending impetus to this domain in the future.

INNOVATION STRATEGIES
The four business model innovation strategies are: 1. Attribute Based Innovation 2. Knowledge Based Innovation 3.
Mobile Web Based Innovation 4. Solution Based Innovation [2].
Attribute Based Innovation: The onus in this type of innovation will be on the product itself. The product development
will focus on disintegrating the product levels, namely core, actual, augmented, expected and potential, redesigning each
level to match specifications and then integrating them to give a new product identity. This category can be of three
types:
-

Time based Model On the basis of value of time to the customer. Eg:- Rolls Royce, instead of marketing its
aircraft engines as merely engines, positioned its product as uptime

On Demand Model Focus on accessibility and reach to customer. Eg:- Uber guarantees quicker access to
transportation
Product Transformation Models

Knowledge Based Innovation: Information and knowledge are the integral elements in this model. The procurement,
analyzing and insights from data collected through various platforms are used for better decision making processes
pertaining to product design, strategy development, etc. Data can be collected by the user of the information (Data
Aggregation models) or can be generated by the consumer itself (User-Generated models)[2].
Mobile Web Based Innovation: With the advent of mobile technology and internet, there is great focus on morphing
manual, physical and repetitive processes into interne-based virtual platform processes (Make It Mobile models Cisco
transformed its entire business by outsourcing operations through the web). The onus is on web-delivery and providing
a web-based experience. Another variant is Platforms as-a-Service Models which are basically aggregators and act as
platforms for the third-party developer to host their content on in a revenue sharing model (For example, iTunes,
Nintendo Wii).
Solution Based Innovation: This model demands the service-provider to acquire a position-of-view of the customer to
cater to their needs through their product portfolio. Product portfolio can be improved by either introducing new
complimentary services which reinforce existing purpose (Michelin introduced its own servicing facility, ViaMichelin),
experiential services (Harley Davidson global communities), third-party consultation, etc.
All these innovation strategies are based on certain caveats and assumptions. Since the main offering in question is
services (without any physical manifestation), it is necessary that the consumer will be willing to pay and be able to pay
for the content to avoid revenue leakages. Also, large companies, by virtue of their robustness and rigidity, find it difficult
to inculcate new technologies. Startups can achieve faster penetration and drive higher user adoption due to their
freewheeling approach to research and will be the harbingers of innovation in the future.

TECHNOLOGICAL ENABLERS OF NEW BUSINESS MODELS

We have seen that technology is going to be the main catalyst of innovation in business models. These modules of
technology, which hold great opportunities for the future and are growing exponentially in application and reach, are
also known as megatrends [2] .
CLOUD TECHNOLOGY: It is a virtual infrastructure which is based on a network of remote servers designed to store, host,
collect, manage and process data. It holds immense potential for pooling of technological resources to distribute
information, support application and lead to productive collaborations between various entities. It can be the backbone
of new products, services and experiences.
WEB-BASED AND MOBILE VALUE DELIVERY: This technology, though already exploited at a very high scale, still holds immense
potential to be the seat of other technologies. Most of the technological innovations coming up today are based on the
net and mobile technology.
EXPERIENCE DESIGN: This philosophy of Design Thinking is connected with the emotions attached to the final end-user
experience. The service interfaces are designed and developed on the basis if the final customer satisfaction.
SENSING AND MONITORING: This technology deals with capturing various parameters associated with a product and services
to gauge the input-output relationship and monitoring the system performance to take proper system control measures.
Other megatrends influencing business models developments are collaborative contributions between industrial and
research powerhouses, the power of social media and communication, sustainability, etc.

REFERENCES
1: The Business Model Theoretical Roots and Future Research Chriistopher Zott and Raphael Amit
http://www.iese.edu/research/pdfs/DI-0862-E.pdf
2: Four Paths to Business Model Innovation - Karan Girotra and Serguei Netessine for Harvard Business Review
https://hbr.org/2014/07/four-paths-to-business-model-innovation
3: "Reinventing Your Business Model" Johnson et al. / Innosight for Harvard Business Review
http://innovation.innosight.com/hbr-free-article-reinventing-your-business-model
4: 100 years of Assembly Line
http://corporate.ford.com/innovation/100-years-moving-assembly-line.html
5: Top 10 Influential Business Models" McGrath, Jane, and Jacob Clifton
http://money.howstuffworks.com/5-influential-business-models.html
6. Why Sustainability Is Now the Key Driver of Innovation - Ram Nidumolu, C.K. Prahalad, and M.R. Rangaswami
(Harvard Business Review, September 2009, pp 57-64)
http://www.billsynnotandassociates.com.au/images/stories/documents/sustainability_the_key_driver_of_innovation.p
df
7. For-Profit Social Ventures - J. Gregory Dees and Beth Battle Anderson, Duke University
http://catcher.sandiego.edu/items/soles/DeesAndersonCase.pdf
8. Hope is not lost: Green initiatives turn to Crowdfunding Times of India
http://timesofindia.indiatimes.com/city/chennai/Hope-is-not-lost-Green-initiatives-turn-tocrowdfunding/articleshow/49574361.cms
9. Making a Larger Impact Milaap.org
milaap.org
10. What is the For-Profit Social Enterprise By Yale School of Management and Forbes India
http://forbesindia.com/article/yale/what-is-the-forprofit-social-enteriprise/5142/1
11. "Crowdfunding Success in 5 Easy Steps"
http://www.entrepreneur.com/article/229436
12. Environmentally responsible purchase behaviour: a test of a consumer model - European Journal of Marketing,
723 - 746. Follows, S. B., & Jobber
13. The Future of Service Business Innovation
Tekes Review 272/2010 Helsinki 2010

Other references
14. Green Sales Pitch Isn't Helping To Move Products Off the Shelf
The Wall Street Journal. FOWLER, G. A. (2002)
15. Green marketing: legend, myth, farce or prophesy?
Qualitative Market Research: An International Journal, 357 - 370. Peattie, K., & Crane, A
16. The 5 Drivers For Business Models Kia Davis, Senior Strategy Manager at Visa Europe

17. How hyperlocal startups are giving e-com giants a run for their money Radhika Nair for YourStory
http://yourstory.com/2015/06/hyperlocal/
18. 4 Ways the Business World Is Going to Change in 2020 - Paul Schoemaker Research Director, Whartons Mack
Institute.
19. "The ultimate competitive advantage of continuing business model innovation" - Donald Mitchell, Carol Coles,
Journal of Business Strategy (2003)
20. Top 10 Influential Business Models" McGrath, Jane, and Jacob Clifton
http://money.howstuffworks.com/5-influential-business-models.htm