Business Models Essays

Business Models Essays Business Models Essay Business Models Essay Cost per call: Per 3 minutes: 55 As can be seen, the price of using the substitute is relatively lower than the mobile handset; hence this factor also works in favor of the fixed landlines market. AS of 1999, Market Share of Landlines: 60. 38/ (exhibit 1) Growth rate of Landlines: 1. 5% From the market share it can be gauged that the customers of the fixed landlines were satisfied with the performance of the fixed landlines and it was exhibiting slow and steady growth. Substitutes like Pager and internet communication wasnt high at the moment. Bargaining power of suppliers: Since, the suppliers are government supplying spectrum and also because spectrum is a rare natural asset, bargaining power of supplier is high. Due to strong factors like lobbying by corporate and other government regulations, the bargaining power of supplier of spectrum, the government would always remain strong. The other suppliers, which are the manufacturing partners, also have high bargaining power as the carrier operators dont have their own manufacturing operations and hence rely on these suppliers big time. Bargaining power of buyers: Many network providers (5 in number) give the buyers enough opportunity to switch twine operators making their bargaining power high The telecoms business by the end of 1999, became a highly volume dependent business. Also, there was a huge decline in Average Revenue Per User (ARPA) of the customers which also meant the operators had to fight on volumes. This definitely made the bargaining power if buyers high. Threat of new entrants: High capital expenditures meant the entrants had to have deep pockets before entering the industry. Deregulation of the industry was done at a fast pace which lead to a large number of foreign carriers, and competition increased many times. But as mentioned, the market was soon moving towards saturation due to maturity which could hence see lower new entrants in the future but for the time, the threat of new entrants could be considered high due to enormous growth opportunity. 2 3 Intensity of rivalry: The structure of competition Dotcom 50%, 13% Did, DID 8%, J Phone 14% Tuck 7%. Hence, implying higher rivalry since the competition structure is concentrated and not fragmented. The structure of industry costs Industries with high fixed costs encourage competitors to fill unused capacity by price cutting. Cape/Sales ratio is 25% implying high fixed cost component which leads to higher competition intensity. Degree of differentiation Since the telecoms services are standardized, the degree of differentiation is less thereby suggesting a higher rivalry intensity. Switching costs rivalry is increased where buyers have low switching costs I. E. There is a low cost associated with the decision to buy a product from an alternative supplier Exit barriers here barriers to leaving an industry are high then competitors tend to exhibit greater rivalry. Overall, analyzing the industry forces, one can easily see the wireless telecoms industry is not attractive at the time of the launch of the I-mode services. 4 Q (a) How did Dotcom create distinct value at low cost? Dotcom created distinct value by the following strategic choices which they made: Active partnering with handset manufacturers and information providers lead them to create a Win-win partnership network. They shared the technology and know with partners to help them stay ahead of competition. Dotcom adopted c-HTML for its new service, which is compact version of HTML. Displayed on the new Dotcom service. For subscription only websites, Dotcom collected fees as part of its monthly bill. It saved transaction cost and time to customer. Deregulation has lead to entry of many equipment manufacturers. It resulted into high competition among them and low cost. Unlike mobile services, charges were based on amount of data transmitted, rather than time of usage. Dotcom didnt purchase content providers but accredited official websites and mobile phones to be used with new service. Buying content providers could have imposed more fixed cost on Dotcom. They had secondary sources of revenue like advertisements on on mode. They could therefore provide services to customers at subsidized rates. Further the advertisement business attracted addition content providers to the network. They had an established distribution network which they used to deliver mode phones and services at small marginal costs. All these choices lead Dotcom to differentiate itself sufficiently from its competitors and lead to higher WET of the customers hence creating value. Q (B) How did Dotcom Combine the strength of Mobile Phone and PC Internet? Dotcom combined the strength of mobiles (Portability) and PC Internet (Information on web) in I -Mode. Dotcom collaborated with Sun Microsystems developing a new application that allowed Video games and financial services on I-mode. Both PCs as well as mobile phones. Moreover, I-mode was launched at a time when most telecoms operators were focusing on technology races and price competition over voice based wireless devices. Regular mobile telephony had reached a high level of sophistication, but it offered few data based services such as e-mail, news and games and transaction capabilities. The I-mode succeeded in bringing together the key features of both these industries and hence created unique utility. Q(C) How did the value curve of Dotcom Differ from Mobile phone and Internet? Value Curve for mobile phones and PC internet: Value Price Youth Focus Customized service Ease of use Voice call and video telephony Penetration rate Access to internet (games, email, news etc) 70 50 20 10 Mobile Phone Low High Not available PC Internet Available Mobile Fig: value curves 5 Difference between I-mode dotcom value curve and those above: The value curves of the general mobile phone and the PC internet are shown graphically above. BY combining the key advantages of the two industries of cell phone and PC internet, the Dotcom, with its I-mode service, created a totally different value curve for itself. For the a small premium of 25% more than regular phones, the users could buy mode handsets. It gave the users access to I-mode network through a monthly rental and access to subscription sites by extra fees. The value curve of the I-mode dotcom handsets would the best features of both mobiles and PC internet, although the price would be higher than the mobile phones due to extra fees. It has high ease of use, youth focus and customized service, making it the best value curve available at the time. The prices set for the content sites were benchmarks against weekly magazines most Japanese pick up, hence the customers loud shift from magazines to the online content service, leading to no extra cost to them actually. Q) How did Dotcom make profits out of its I-Mode services? We have explained this answer in two ways, first by explaining the business model of Dotcom I-mode and second by the Blue Ocean Idea Index. Blue Ocean Idea Index BOO Index Utility Cost Adoption Dotcom I-Mode ANT Doctors I-mode was launched in Japan at a time when most telecoms operators were focused on voice based wireless devices. I-Mode was launched to offer the Internet on cell phones. The I-mode service brought together the key advantages of he cell phone industry and the PC internet industry. This created unique and superior buyer utility. The services offered by the I-mode were made available at a price which was accessible to the mass of buyers. The various fees/charges involved were in a zone where it reached the masses quickly. ANT Dotcom also worked hard to obtain the capabilities needed to deliver the service within its cost target in order to turn a profit. By creating a good partnership network with its manufacturing partners, the company achieved its target costs. Also, collaborative arrangements with key foreign partners reduced developmental costs. Finally, a special team was created with young people and a new head was given mandate and autonomy and the team head held open discussions with the team members on how to create the new market for mobile 6 data communications. All this created a favorable corporate environment for the adoption of I-mode. As explained above, the I-mode service passed all four criteria on the BOO index, hence it was able to capture market and generate huge revenues and profits Business Model of Dotcom I-mode 7 Dotcom made several strategic choices to help it create and capture value to make refits out of I-mode project. The strategic choice lead to important consequences which lead to more tangible results and created a value loop leading to more profits. The important choice of accreditation of official websites and phones to be used with the new service lead to high volumes of customers and which lead to more content which lead to more customers and this formed a virtuous circle. The choice of autonomous team made of young employees and appointment of a new dynamic head of the team lead to more innovation which lead to a better product, leading to an increase in the WET of the customers. The choice of using widely adopted technologies lead to easy flow and conversion of data which lead to more easy partnering with content providers and hence lower costs to them. Partnerships with Sun and Simian lead to lower development costs and faster launch time leading to more reliability, eventually leading to more volumes and higher profits. Electronic concierge along with many other choices led to easy to use products, which lead to higher acceptability among the customers and hence higher volumes and higher pay for the customers and hence higher revenues and profits. 8