Business Model Alchemist

This late evening I sat down to do some brainstorming on the characteristics of
Web2.0 Business Models. The outcome can be found in a simple graphical mindmap form on Flickr – a Web2.0 business model I used the nine business model building blocks of my business model framework to classify the characterists.

I have to admit that I was a bit tired when I came up with the map and definitely too lazy to write down my thoughts – that might come later when I re-digest the mindmap…

I just came across the news that Google and Nike conjointly and quietly launched a social networking site for soccer-fanatics last week (read the news). The platform called Joga.com is a free, invitation-only website where members can create their own websites, add photos, clips and videos, as well as access Nike content related to its sponsored stars (Have you seen Ronaldo’s Nike-advert lately or have you heard about US wonder kid-kicker Freddy Adu?). The concept of the site is very similar to the highly successful and much discussed mySpace.com (which is currently adding 250′000 people per day!!!). However, contrary to mySpace it targets only one specific group: soccer fans (well, that’s quite a large group…).

This tactical move of Google and Nike is particularly interesting in light of the upcoming FIFA World Cup 2006 that is taking place in Germany this June. Neither Google nor Nike is an official sponsor of the World Cup and therefore neither of them can use the World Cup in their advertising or communications. Legally they are not even allowed to hint towards the World Cup, except, of course, by showing their sponsered stars in advertising. The official sponsors for the Cup are the tandem Yahoo! and Adidas, which FIFA tries to protect at any price since they pay huge sums for the exlusive sponsorship.

However, since it will be Joga.com users that will create and post content on the Google/Nike backed social networking site it is highly probable that intensive discussions among fans will evolve around the FIFA World Cup. It seems unlikely that FIFA or Yahoo!/Adidas can prevent this from happening. Legal actions such as shutting down Joga.com would probably be even more unpopular than the music major’s fight agains illegal online file-sharing platforms. Unpopular because online discussions and fan websites on Joga.com do not break any laws unlike sharing copyright protected music files.

From a business design perspective Joga.com makes a lot of sense. Nike creates a cheap and permanent fan-connection to the World Cup 2006 without bearing the costs of an official sponsorship. Similarly, Google gets a potentially huge online community to sign-up to its joint venture with Nike while not paying Yahoo!’s hefty price for becoming official sponsorship.

But this clash between Google/Nike and Yahoo!/Adidas is more that just one between two business ecosystems. It could be stylized as a clash between Web2.0 (the second generation Internet) and Web1.0 (1st generation Internet). The former, new generation of web stunts, is based on participation. Joga.com lets users create the content. It is potentially chaotic, but will be right from the grassroots, right to the point, and will address the soccer community’s present concerns, hopes and hot topics. The latter, old generation of web stunts, is based on an impressive website with tuns of editorial content, with a very nice face, but will risk being irrelevant to soccer fans beyond providing mere results, basic info and videos. It is true that the Yahoo! sponsored FIFA website looks pretty beautiful, but there is just no substantial participatory element… Is that still good enough in the age of collective intelligence and grassroots journalism where everybody can have a say (even if it is still hard to get heard ?

I find Joga.com an interesting experiment and really wonder if it will take off. It might depend how ready people and soccer-mads are for the participation age…

I’ve been more deeply into the topic of design thinking for several months now. One thing I have always wanted to do was to compare more traditional “business thinking” with the “design thinking” trend that is currently captivating the business world. Luckily, Luke Wroblewski has given this a try on his blogpost title “A Difference of Design“.

I really like the table in which he opposes the “business approach” with the “design approach”, though I don’t think the world is as black and white, as Luke describes it.

I copied the table below (though the formatting didn’t really want to follow my design wishes

I think this reflection on the difference between business thinking and design thinking is a good start to understand how strategy, business and management is shifting information age (numbers, facts & info dominate) towards the conceptual age (relationships and understanding dominates). I will come up with more indepth reflection when I have the opportunity to dig even deeper into this topic in the coming months.

I’ve always found the author tandem John Hagel and John Seely Brown interesting to follow. In a recent article they made a particularly interesting point related to business design: They outlined that in the 21st century we must shift our attention from “invention” to “innovation”. They stress that nowadays competitive advantage increasingly comes from the ability to creatively combine new and existing things in order to innovate rather than from trying to invent a new “silver bullet”. This is pure business design:

If we shift our attention from invention to innovation, we begin to see a much broader horizon. Innovation — the ability to create and capture economic value from invention — is what really drives both the economic prosperity of nations and the shareholder value of corporations.

An example that nicely illustrates this and which I have described on this blog before is the business model of VoIP provider Skype. The company has taken several different inventions that have been on the market for a while and creatively mixed them together to build an innovative business model. They combined Peer-2-Peer (P2P) technology with free Voice over Internet (VoIP) and Instant Messaging (IM) and commercialized the whole thing in a viral manner over the Internet. The lego pieces that Skype used to build its business model weren’t all that new, but it was the way they put them together that allowed them to disrupt the telco market.

It is this ability to innovate and come up with new business designs that will be the driver of success in the 21st century:

Innovation isn’t just confined to commercialization of new products. It can also build upon creative new practices, processes, relationships, or business models, and even institutional innovations such as open-source computing — invention occurs in all these domains. And while breakthrough innovations can generate significant economic value, sustaining that value requires a capacity for continual incremental innovations.

So while some companies are still trying to invent new products and processes to gain a competitive edge others are trying to innovate through careful business design that fits all the pieces together. Successful examples of the latter category are:

• Apple (http://www.apple.com) that combines Hardware (iPod) with Software (iTunes) to succeed in the music business
• Arvind Mills Ruf n Tuf Jeans (www.arvindmills.com) that sells stylish jeans to poor Indians by using innovative distribution channels and which makes a profit based on scale.
• Grameen Phone (www.grameenphone.com – my all time favorite) that combines micro-credits and women entrepreneurship with the teleco business to sell telecommunication services to rural Bangladesh.
• Tecnovate (http://www.tecnovate.co.in) that brings young Europeans to work in call centers in India to sell multi-language outsourcing back to Europe.

The last few days I have been wondering what impact a venture capital fund specifically dedicated to development and health issues could have on pressing global issues such as malnourishment, HIV/AIDS or malaria. It might seem like a crazy idea since today’s development & health is still mainly dominated by charitable approaches characterized by giving. However, social entrepreneurship characterized by the appliation of business techniques and principles is on the rise.

I discussed this idea of a development & health venture fund first on a Chiang Mai rooftop bar with Tim France, a friend who has built up a successful global NGO working on HIV/AIDS. We asked ourselves things like why there is still so little innovation in the development & health field despite decades of meager results, or why management capacities in this area or comparatively weak, or why nobody has taken on disrupting this multi-billion dollar industry or why there haven’t been any mergers & acquisitions in this field.

Business Model Innovation in Development & Health

The reason why I find the idea of a venture capital fund interesting is because it could bring fresh live to an otherwise rusting industry. New, promising, but risky approaches with potentially huge impacts have to be tried out to disrupt this field that is experiencing a fatigue of decades of large amounts of almost sisyphus-like work. So let me oppose the traditional donor-funding approach to a complementary venture funding approach:

Characteristics of donor-funding in relationship to development & health projects:

* risk averse: failure is inacceptable
* as a consequence little innovation: funding of traditional approaches
* project oriented with start and end date
* fragmented
* relatively large administrative overhead
* limited support to management
* donors often drive/own the project process

Characteristics of venture funds in relationship to entrepreneurs & startu-ups:

* entrepreneur-driven
* a strong (financial) interest of the VC to see a project succeed
* risk oriented: acceptance of x failures for 1 huge success
* innovation oriented
* growth oriented
* return oriented
* extensive help and management support
* sharing of VC’s partner networks
* clear exit strategies

Clearly the former follows the model of providing subsidies while the latter follows the investment model. Of course the real world is not so black and white and we find the investment model also applied in the health and development field. However, I am not aware of any venture fund style investment model applied to this area. Yet, such a fund could be a very powerful complementary tool that could boost impact in the development field by fostering new and innovative approaches. Nowadays these approaches have virtually no chance to find funding.

Imaginary case:

Let us imagine an imaginary fund to boost impact in the development and health field: Richard Branson sets up a Global Health & Development Venture Fund worth USD 20 million. The fund would globally screen new and innovative business models that could potentially make a huge difference regarding some of the world’s most pressing global issues (e.g. based on the Copenhagen Consensus). Selection criteria would be:

a) potential impact on a selection of global issues
b) potential financial sustainability & growth

Then the fund would invest USD 1 million in 20 start-ups. It would actively coach these ventures and provide them with management support as well as access to valuable partner networks. Because of the risky nature of the innovative ventures many of them will probably fail – yet, while having done good.

But failure is OK for venture capital funds if on the other hand they can get some of their ventures to grow exponentially. Let’s say the goal of the fund would be to have 4 of the start-ups succeed while 16 fail. The 4 successful ones would have to show an impressive track record of growth, impact and financial substainability to really proclaim that the venture approach works – particularly if the other 16 have had little impact on development and health issues. But since the fund has invested in 20 risky and innovative high potential projects there is a big chance that some will make a real difference…

So does anybody out there have USD 20 million to give me in order to make a difference in the world?