An overview of business model research

The term ‘business model’ first appeared in the 1950s but rose to prominence only towards the end of the 1990s with the advent of the Internet boom (Osterwalder et al. 2005;

Casadesus-Masanell & Ricart 2010). Since then, BMs have been studied in an explosive number of peer-reviewed academic publications as well as popular business press. Over the past two decades, researchers have been investigating BMs across a wide range of fields including technology and innovation (Chesbrough & Rosenbloom 2002; Chesbrough 2007;

Baden-Fuller & Haefliger 2013), business strategy (Yip 2004; Casadesus-Masanell & Ricart 2010; Teece 2010) and sustainability (Schaltegger et al. 2012; Boons & Lüdeke-Freund 2013;

Short et al. 2013; Schaltegger et al. 2016; Bolton & Hannon 2016).

Despite extensive and intensive research on this subject, there seems to be a lack of consensus towards a widely accepted language that can be used by researchers and practitioners to describe BMs from different perspectives (Magretta 2002; Zott et al. 2011; Massa et al. 2017).

At a general level, BMs are broadly defined as the logic of how a company does business, creates and delivers value to customers, and earns a profit from delivering that value (Magretta 2002; Teece 2010). Every business enterprise operates under a certain BM, explicitly or implicitly, that explains the value creation, value delivery and value capture mechanisms of its business (Casadesus-Masanell & Ricart 2010; Teece 2010; Richardson 2008).

The pervasiveness and extensive use of the term business model suggest the significance of the concept, but the lack of consistent definitions and construct boundaries have caused some criticisms of the term (Porter 2001; DaSilva & Trkman 2014; Massa et al. 2017). It has been frequently confused with other popular business terms such as strategy (DaSilva & Trkman 2014). To clarify and defend the BM as a distinct concept, some studies investigated the differences and relationships between the BM and strategy (Yip 2004; Spieth et al. 2016;

DaSilva & Trkman 2014; Teece 2010; Casadesus-Masanell & Ricart 2010). In general, despite some overlaps between the two concepts, the BM is considered to be more generic than a business strategy and tackles some issues overlooked by the traditional strategy literature (Massa et al. 2017). For example, the BM emphasises value creation in the first place and is constructed around creating and delivering the value to customers or all the firm’s exchange stakeholders, thereby capturing benefits for the company itself (Zott & Amit 2010). Strategy, on the other hand, has stronger focus on value capture and sustaining the firm, and is more inclined towards shareholder value rather than the creation of value for the business and its stakeholders (Chesbrough & Rosenbloom 2002).

To understand why some BMs outperform others, researchers have moved on from the definitions and taxonomies to study the elements, frameworks as well as applications and conceptual tools of BMs (Osterwalder & Pigneur 2010; Johnson et al. 2008; Al-Debei &

Avison 2010; Morris et al. 2005). These studies are interrelated and complementary, and

provide more comprehensive insights into this important concept. Building upon central ideas and theories in business strategy, Morris et al. (2005) introduced an integrative framework to characterize BMs. The framework comprises six elements: offering, market, internal capability, competitive strategy, economic and personal/investor factors. Osterwalder &

Pigneur (2010) proposed a BM canvas that has been widely adopted in strategic management and lean start-ups. The BM canvas comprises nine building blocks: value propositions, customer segments, customer relationships, channels, key partners, key activities, key resources, cost structure and revenue streams. Johnson et al. (2008) described BMs as consisting of four interlocking elements: customer value proposition, profit formula, key resources and key processes. Richardson (2008) proposed a widely accepted BM framework around the concept of value which consists of three elements: value proposition, value creation and delivery, and value capture.

Although oriented towards different purposes in the context of different domains, those frameworks converge in some key themes, for example, the existence of value proposition, value chain configuration/value network, value creation, and the revenue models. Moreover, the BM is emerging and being acknowledged as a new unit of analysis (Zott et al. 2011).

One criticism of much of the literature is that BM has been regarded as a property of the firm and the BM literature is largely examining BMs at the firm level, which fails to consider the influence of the business network (Mason & Spring 2011). Some researchers pointed out the importance of extending the focus of analysis beyond the entity of the firm to include the interactions between stakeholders and their relationships. For example, Bankvall et al. (2017) claimed that the firm-centric perspective of BM is problematic wherein it is impossible for individual firms to govern all relevant resources and activities. Taking a network perspective, Palo and Tähtinen (2013) examined network-embedded BMs where “a net of companies will create customer and network value by developing collective understanding of the business opportunities and shaping the actions to exploit them”. Mason and Spring (2011) claimed that the firm-centric perspective has restricted the “flexibility and creative ambiguity” of the BM

analysis – firm, network, industry or market”. These studies exemplify an emerging view that BMs need to be developed beyond the firm-centric perspective.

The activity system perspective of BMs is proposed by some researchers to encourage systemic, holistic thinking on BMs (Afuah & Tucci 2001; Zott & Amit 2010; Zott & Amit 2007). Zott and Amit (2010) conceptualized a firm’s BM as an activity system “of interdependent activities that transcends the focal firm and spans its boundaries”. The activity system view emphasises the interdependencies among activities and stakeholders and is

“geared toward total value creation for all parties involved”. The activity system perspective of BMs extends beyond the company focus (Zott & Amit 2010) and allows a wider set of stakeholders to be included, necessitating a broader system-level perspective of value creating logic.

In summary, BM has been widely used as business jargon for a long time but it is often misused and its meaning poorly understood. In the academic world, the BM is still an emerging research topic and is not yet mature. The studies are mostly based on the authors’

perception of the concept or the analysis of some classic business examples, but rarely on empirical studies. The significance and pervasiveness yet lack of unifying language of the BM concept demonstrate the need for more in-depth studies on BMs based on empirical cases.

In this study, BM is examined from the value perspective and is defined as the logic of value exchange within the network of stakeholders. The dominant views adopted for this research are Zott and Amit's (2010) activity system perspective of BMs that transcends the focal firm and spans its boundaries, as well as Richardson's (2008) framework consisting of the three BM components – value proposition, value creation and delivery, and value capture. The construction of a BM analytical framework based on the literature will be explained in detail in Chapter 3.