Rayna · business models & économie numérique

Teece (2010) — Business Models, Business Strategy and Innovation

Long Range Planning 43 (2010) 172–194. DOI 10.1016/j.lrp.2009.07.003.

Abstract

Whenever a business enterprise is established, it either explicitly or implicitly employs a particular business model that describes the design or architecture of the value creation, delivery, and capture mechanisms it employs. The essence of a business model is in defining the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit. It thus reflects management’s hypothesis about what customers want, how they want it, and how the enterprise can organize to best meet those needs, get paid for doing so, and make a profit. The purpose of this article is to understand the significance of business models and explore their connections with business strategy, innovation management, and economic theory.

Question

The paper frames one organizing question: what is a business model, and why does designing one well matter as much as the underlying technological innovation? Teece argues that a business model is the “design or architecture of the value creation, delivery and capture mechanisms” an enterprise employs — a conceptual, not financial, model of how the firm delivers value to customers, entices them to pay, and converts those payments into profit.

Three sub-questions structure the essay:

  1. Why has the concept of the business model had “no established theoretical grounding in economics or in business studies” , and what would such grounding look like?
  2. How does a business model differ from — and need to be coupled with — a business strategy in order to yield sustainable competitive advantage?
  3. Why is business model innovation itself a form of innovation, of “equal — if not greater — importance to society” than technological innovation alone?

Methods

This is a theoretical / conceptual essay, not an empirical study. Teece’s method is the construction of a definitional framework supported by an extended catalogue of illustrative business-history cases rather than by hypothesis testing on a dataset. The evidentiary base is threefold:

Evidence strength is moderate: the cases are richly described and internally consistent, but they are selected illustrations, not a controlled sample, so the claims are argumentative rather than statistically corroborated.

Findings

F1 — A business model is value architecture, not a spreadsheet. The essence of a business model is “defining the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit” — a conceptual model “rather than a financial” one . It articulates the logic and evidence for how a firm creates and delivers value and structures revenues, costs and profits.

F2 — The concept has no settled home in economic theory. Teece notes the concept “lacks theoretical grounding in economics or in business studies” — there is “no established place in economic theory for business models” . He attributes this partly to the perfect-markets assumption: where everything is priced (the Arrow–Debreu world), there is no design problem to solve.

F3 — A business model is more generic than a strategy, and the two must be coupled. Designing a business model is necessary but insufficient for competitive advantage because the gross elements of a model are “often quite transparent and (in principal) easy to imitate.” Coupling competitive-strategy analysis to business-model design — segmenting the market, building a value proposition per segment, and erecting “isolating mechanisms” against imitation — is what protects any advantage .

F4 — Three barriers impede imitation. Models resist copying through (i) systems/processes/assets that are hard to replicate, (ii) opacity (“uncertain imitability,” Lippman & Rumelt), and (iii) incumbent reluctance to cannibalize existing sales or upset key relationships .

F5 — Business models morph; learning is constitutive. “The right business model is rarely apparent early on”; entrepreneurs who are well positioned and “can learn and adjust” are likelier to succeed . The illustrative case: Netflix, which by 2007 served over 6 million subscribers [teece2010, p. 187] from a catalogue of 75,000 titles [teece2010, p. 187], reaching next-day delivery for over 90% of subscribers [teece2010, p. 187]. Its launch pay-per-rental pricing nearly failed; after re-inventing itself as a subscription “Marque Program” in 1999 , it reached almost $1 billion in revenue by 2006 [teece2010, p. 187].

F6 — Value capture hinges on the appropriability regime. The “Profiting from Innovation” framework yields two extreme modes for capturing value: the integrated model (the innovator bundles innovation and product and owns the value chain A-to-Z) and the outsourced / pure-licensing model (e.g. Rambus, Dolby), with hybrids in between . A licensing model only works under strong intellectual-property rights; otherwise “the licensee might well be the one who captures value, at the expense of the innovator” .

F7 — Some value cannot be captured by any private model (public goods). Basic research ends up in publications, spillovers are “simply too large,” and “there is no easy for-profit business model for capturing value from scientific discoveries” — hence government or philanthropic funding is required . This integrates the business-model concept into “almost a century of economic thought” about institutions and market failure.

F8 — Revenue-model archetypes recur across sectors. The “freemium” model — “give your service away for free … acquire a lot of customers very efficiently … then offer premium priced value added services” (Fred Wilson, on Flickr) — is shown migrating from Flickr to Adobe Reader, Skype, MySpace, and open-source vendors (Linux, Firefox, Apache) . The razor-and-blades revenue model recurs in jet engines (Rolls-Royce, GE, Pratt & Whitney sell engines cheaply, profit on parts/service) .

F9 — Models must morph with markets. Goldman Sachs illustrates forced model change: its investment-banking share of revenue fell to 16% by 2007 [teece2010, p. 176] while trading and principal-investment revenue grew to 68% [teece2010, p. 176], pushing it (and Morgan Stanley) to convert to federally chartered commercial banks in 2008 . Containerization is another: R.J. Reynolds bought McLean’s Sea-Land for $530 million in 1969 [teece2010, p. 175], of which McLean received $160M for his share [teece2010, p. 175].

F10 — Business model innovation is innovation. New organizational forms, methods and business models are “of equal — if not greater — importance to society” than technological innovation; without them “technological innovation may be bereft of reward for pioneering individuals, enterprises and nations” . Edison, Whitney, EMI (CAT scanner) and Xerox (PC) are offered as inventors who failed to capture value for lack of a viable model.

F11 — Competitive advantage requires more than good logic. “To be a source of competitive advantage, a business model must be something more than just a good logical way of doing business … It must be honed to meet particular customer needs” and be non-imitable in some respect .

Relation to the course’s central question

The Rayna thesis asks: « qu’est-ce qu’un business model, et en quoi la valeur est-elle un impact incarné chez un stakeholder ? » This paper is one of the load-bearing foundations for the first half of that question and offers a precise, if partial, stance on the second.

On “what is a business model” — Teece supplies the canonical architectural definition the course leans on: a business model is the design of the value creation, delivery and capture mechanisms, a conceptual model of how an enterprise organizes to meet customer needs and get paid for doing so. This is the vocabulary (value creation / value delivery / value capture) on which most of the course’s later distinctions are built.

On “value as impact incarnated in a stakeholder” — the paper is strongly congruent but does not use the word stakeholder expansively. Teece’s value is overwhelmingly value-to-the-customer: a good model “yields value propositions that are compelling to customers.” The “impact incarnated in a stakeholder” framing is visible in two places: (i) value is defined relationally — it only exists once a customer recognizes a benefit and is willing to pay, i.e. value is realized in the customer, not in the firm’s intentions; and (ii) the imitation barriers and Visa/MasterCard, Dell-channel, and razor-blade cases show value lodged in a web of stakeholders (suppliers, complementors, alliance partners, channel partners) whose relationships the model must not disturb. Where the course would say value is an impact incarnated in a stakeholder, Teece says value is captured only when it is first delivered to, and paid for by, a customer — a customer-centric specialization of the stakeholder thesis rather than its full multi-stakeholder generalization. The paper is therefore highly relevant as the definitional anchor, while leaving the broadening from customer to stakeholder (and to prosumers and platform sides) to be supplied by the rest of the corpus.

Open questions

References

chesbroughRosenbloom2002 teece2010