Business Model Generation

Authors: Alexander Osterwalder, Yves Pigneur
Year: 2010

Business Model Generation

Summary

This excerpt introduces Business Model Generation as a practical handbook for understanding, designing, analyzing, and implementing business models. It defines a business model as the rationale for how an organization creates, delivers, and captures value, then presents the Business Model Canvas as a shared visual language built from nine building blocks. The text explains each block, common business model design questions, revenue and pricing mechanisms, resource and activity categories, partnership motivations, cost structures, and the Canvas as a hands-on tool for discussion, innovation, and alignment.

Important Keywords

  • Business Model Canvas: a shared visual language for describing how an organization creates, delivers, and captures value through nine building blocks.
  • Customer Segments: the different groups of people or organizations an enterprise aims to reach and serve.
  • Value Propositions: the bundle of products and services that create value for a specific customer segment.
  • Channels: the communication, distribution, and sales routes through which a company reaches customers.
  • Customer Relationships: the types of relationships a company establishes with customer segments.
  • Revenue Streams: the cash a company generates from each customer segment.
  • Key Resources: the most important assets required to make the business model work.
  • Key Activities: the most important things a company must do to operate its business model.
  • Key Partnerships: the network of suppliers and partners that help the business model function.
  • Cost Structure: the major costs incurred while operating the business model.
  • Pricing mechanisms: fixed or dynamic ways of determining what customers pay.

  • Business model innovation: redesigning the logic of creating, delivering, and capturing value.

  • Customer: actor who pays for or procures the product/service.

  • User: actor who actually uses the product/service.
  • Value proposition fit: alignment between user/customer need and the offered benefit.
  • Revenue logic: explanation of how value is converted into income.
  • Business viability: whether the concept can be sustained economically.

Important Concepts

  • A business model describes how an organization creates, delivers, and captures value.
  • The nine building blocks cover customers, offer, infrastructure, and financial viability.
  • Customer Segments require conscious choices about whom to serve and whom to ignore.
  • Value Propositions solve customer problems or satisfy needs through bundles of products and services.
  • Channels connect companies to customers through awareness, evaluation, purchase, delivery, and after-sales support.
  • Customer Relationships can range from personal assistance to self-service, automated services, communities, and co-creation.
  • Revenue Streams may be transaction-based or recurring, with fixed or dynamic pricing mechanisms.
  • Key Resources, Key Activities, and Key Partnerships make the model work and shape costs.
  • Cost Structures may be cost-driven or value-driven and include fixed costs, variable costs, economies of scale, and economies of scope.

  • The Business Model Canvas is intended as a visual, collaborative tool for sketching, discussing, analyzing, and innovating business models.

  • The Business Model Canvas connects product concepts to business viability.

  • Start with customer segments, then value proposition, then revenue streams, because the model must show who receives/pays for value and why.
  • Customers and users are not necessarily the same; this affects value proposition, channels, relationships, and revenue.
  • Each revenue stream should be checked against the value proposition: what value is someone actually willing to pay for or support?
  • The activity tracker example distinguishes general public, fitness enthusiasts, special movement needs, and sleep-problem users, with value propositions such as more movement, better sleep, data access, social fitness, and nudging.

Examples

  • Apple combined iPod devices, iTunes software, and an online store to create a seamless digital music experience while earning most music-related revenue from iPod sales.
  • Amazon diversified from retail into cloud computing by using its IT infrastructure to serve Web companies with online storage and on-demand server usage.
  • Credit Suisse is cited as segmenting customers by asset levels, with implications for value propositions, channels, relationships, and revenue streams.
  • NetJets created accessibility by offering fractional private jet ownership to customers who previously could not afford private jets.
  • No-frills airlines such as Southwest, easyJet, and Ryanair illustrate low-price value propositions and cost-driven business models.