7 - Pricing

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Advanced Internet Business Model

15-07-2015 14:26
U p d at e d :
02-08-2015 17:34
Simon Bach Bjerring
"Free", free, Grizzly Bears, Internet, Internet Business, Price Discrimination, Ted La

Grizzly bear story!

-> Two guys walking in woods, they see a grizzly in a clearing, a grizzly is eating and sees
them, growls and hungrily run towards them. The hikers runs away, but one falls to the
ground, takes off his shoes and puts on his sneakers! "This is stupid, you can't outrun the
grizzly bear, it's too fast!" "I don't have to outrun the grizzly, I just have to outrun you"
--> Everyone who didn't find that funny is on the shit list for today. Everyone who found it funny
has to pay him 2kr! Wait up, if he just added surprise value (fun) to our day, why not pay him?
He's now pissed!
---> Issues around pricing, especially around free pricing. Why is this problematic?
Recognise: Not everything is a market exchange. Some things are social exchanges
-> His grizzly story we believe is a social exchange. When your price is 0, it's hard to know if
it's a social or market exchange. Hard to know if you're a consumer or just a generous
recipient!
-> Price of free -- context is much different!
--> Are we irrational just because we don't want to pay? Not really, but there's an interesting
thing in moving outside things from microeconomics
The penny gap
-> Moving from 0 to 0,01 is a huge marginal change, now we suddenly have to examine our
indifference curves, "Is what I got really worth 1/100th of a fruit?"
--> The demand curve still applies, the second you put a price on something, no matter how
small, you still move down the demand curve.
-> Chocolate example with student campus. One day the price was 0 (only a few people took
chocolates, people thought it was a social exchange, didn't want to abuse people's
generosities) and another the price was 0,01 (people just took a 100 for 1 , suddenly the loss
was on some supplier, not the general good)
Marginal cost of information -- functionally 0, price of delivering another song/ebook/front page
text to another user is just about 0
-> Go back to micro, price = MC = 0, if the theory holds up we can never escape 0. That is, if
it's perfect competition
--> Cournot competition is that if you have multiple firms, they compete by restricting
quantities, keeping the price high enough (like oil, thanks OPEC, and maybe diamonds)
--> Bertrand says they compete on price, and it drives down price. This seems much more
prevalent in information markets.
---> Conclusion is that prices can drop to 0
-> Limit pricing -- price is not just based on MC, but on competitive moves on others. Bertrand
with some inspiration. It's a scheme where price is just over the margin, but low enough to
keep new entrants out. MC just needs to be lower than those of new entrants.
--> Microsoft did this all the time (server market, application market, etc.). They dropped their
prices all the time, investors would say "Wait a minute you can't do that, MS is making more" -problem is that if there's a larger one then fuck.
---> It does not dissuade free, the problem is that MC is 0, but a competition of free is hard to
compete against -- Google docs is doing this to Microsoft office atm

Price discrimination (PD), we know this, different price for same products
1> Type 1, perfect price discrimination for each individual. Practically impossible. Amazon tried
it 6~7 years ago, charging 10~20 for the customers. Used algorithm to how long you look etc.,
people demonstrating their price sensitivity. It's great micro, but it's awful PR.
--> IT is starting to get there! Uber is trying, it has the info of when/where/how you want to
go/from (surge pricing)
2> Type 2, charging a different price for bulk purchases.
3> Type 3, charging a different price for different groups/segments (this is pissing him off).
The kid who got in the cinema with a student discount is taking up the same space (but he has
less )
-> To practice PD, you need some things
1-> Figure out the groups you want to arbitrage
2-> You need to be able to identify and separate them out
3-> You cannot allow arbitrage
--> The internet and internet businesses allow price discrimination! This might be the solution
to the conondrum of "free", it can help you keep prices above 0 for some of your revenues
"Free" vs free -- free with hidden costs, or just free
-> 2 for 1 is not free, free is only if you get something of value for truly nothing
-> In order to have a truly free item, you have to cross-subsidise. Charge for something/-one
else
-> Monetising free
--> Max strategy: If free accelerates your userbase, and those are providing more value to
others, free can provide an installed base, and later on you can maybe charge an installed
price.
--> Charging for a complement, an associated value with additional value
-> Who do you charge? Which side?
--> Not at all internet example -- nightclubs! Chicks don't pay, dudes do. Sexual attraction is
undermining our price sensitivity, charge for those who are insensitive, but give for free to
those who are sensitive
---> Assuming the night club is a 2-sided market, if we want to match men with women. For
men, there is no network effect of more dudes entering the night club, but there is an indirect
network effect from taking in chicks, since they'll eventually bring in more men, right?
Cost of free
-> If you charge nothing, there is venture unprofitability. You drive yourself out of business
since there is no network effect, nothing for it to bring up.
-> Signal of poor quality -- efficiency wage theory. You yourself understand your value to a firm
the best, and if you say you work for almost nothing, it's a bad signal (I'm worth almost
nothing)
--> Free means that the people selling it (who knows quality the best) is giving it away!
-> Anchoring expectations for other products. The dip (free) might never recover, people may
never accept a higher price. People (esp. digital generation(?)) expects everything to be free
-> Monopoly power, if someone uses free to scale up hard, the first-mover took everything in
the winner-takes-all markets. Monopolies aren't really legal and controversial
-> Exacerbate inequality. The rich get richer, kinda tied to monopoly power.
Team exercise: Talk about physical realms, how can a real item be free? What business model
can we offer to the CBS canteen in order to freely give food? (extra points for making them
give us food now!)
-> Think complements, advertising, partnerships, price discrimination
--> It has to be free, not "Free".
Solutions

-> Sponsor food -- companies branding their brands, student awareness

-> Donation box -- support the staff/people in need
-> Advertisements -- bombarded with ads where they sit, pay a fixed costs to not get
advertised, pro/version
-> Chef-student tuition is free
-> Complements, very salty/spicy food where they then charge for drinks
--> Companies who try this usually run into trouble with converting "free to pro", it might just
be inadequate -- e.g. for Linkedin it's hard because it does not seem very distinct between
free/pro
-> Collect data and then sell it -- to restaurants, facebook/social media, grocery stores, food
dudes, hiring companies, utensils
--> INSURANCE COMPANIES! They are (in US) not allowed to ask you questions, and they'd
love this data!
-> Food made by restaurants, caf is just there to give it out
--> Who should be subsidised? Restaurants probably, the students are less price sensitive and
will bring in people (network effect)
-> Price discrimination based on time
-> Students-only and limited quantity (by scanning your ID or so), against arbitrage somehow,
and only students eat free (others might have lower sensitivity than students)
-> Express (like Comcast who're reducing prices to make the other products look good, and are
now getting sued af)
-> Forced cooperative, making people pay for all of it, huge freerider problem
-> Turn it into a casino, free food/drinks if you gamble, prints
-> Catering, price discrimination based on time and location
Final presentation is like a pitch to investors
-> There is a prize for the best team!
-> You do not need to show a business canvas, but it's probably important to have it done/in
the back of your head when working it out
Final exam is spooky
-> Multiple choice might have more options that you can choose. You get +1 for every correct,
and -1 for every wrong
--> Won't be a trick with subtle words, but we can't just randomcheck everything
--> It'll literally be in word a .docx fuck lol
-> Goal of class isn't to remember what Airbnb was selling, it's about applying new ideas and
cases will help you
--> If we haven't read cases we should, but we shouldn't memorise facts
REMEMBER SOME OF THAT GREAT CORPORATE STRATEGY KNOWLEDGE
-> NEVER JUDGE SOMETHING BY IT'S OUTCOME(S), ONLY THE APPLICATION OF THEORY

8 - Palm case and more

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Advanced Internet Business Model

20-07-2015 14:26
U p d at e d :
Simon Bach Bjerring
Mobile technologies, Palm, Ted Ladd

02-08-2015 17:34

So some more backstory about the Palm case.

-> The guy who made it complained that there wasn't enough standards, meaning it was hard
to make it properly integrated
--> He slept with a block of wood which was the size of what he wanted. The thing he wanted
was to see if you could hold a conversation/carry it/comfortably use it on everyday things. The
prototype was the block of wood.
---> Great product prototype testing, but he remembered absolutely nothing after sawing it off
the next day :<
-> He ran out of cash though, and venture capitalists did not enjoy hardware, margins usually
low as opposed to software
--> He needed to find a strategic investor, a hardware supplier who would "get money back"
since they supply him with things
---> They did "the Apple business model", having interknit hardware and software to capture
the entire business.
----> The guy in charge did not like this, he didn't want the hardware part, too slow
penetration. He just wanted to outsource (using the Windows/Google/Android model), and
thereby get more moneys
-> Ted loved the Palm Pilot, so he called up the marketing guys saying that it would be super
cool if the business schools used the Palms, wouldn't that be cool? Every time they'd say "Who
is this guy I don't have time for this shit he's so annoying". He just kept stalking her and calling
and eventually went there for Spring Break.
--> He eventually got a job in software, they got bought up, and eventually he got a job there
in Palm. If he's this persistent, surely he can be used to bug people to do things -- he was then
told to go bug develpoers to make more apps!
---> He did market development. (in the tech industry it's) Making people do things for the
promise of a glorious future. Here's a ton of buzzwords and convincing them that this will be
great, spin the network effect for the company and get the ball rolling!
Team exercise! 3 teams (think of network effect, switching costs, standards, revenue model,
customer segment, 5F)
1-4> For Palm as a stand-alone company who does not license. What are the pros and cons
P> First-mover, quality control, higher switching costs for having control over the product,
create your own standard 100%
--> But don't you already lose quality control when you let people make apps for it?
C> Upgrades are slow, slow adaptation
5-8> Should palm license its operating systems and keep the hardware company producing
P> Improving the position in the market, higher switching costs/lockin, direct and indirect
network effects
--> 70% of current market doesn't matter, but when the market explodes and Microsoft is
blowing down their necks they need to be ready!
C> Diminished sales of own project, difficult/costly to negotiate, switching costs now mean
something else there is a difference between the hardware developers but not the OS
-> Intel has the little sticker on laptops. This is Intel's branding strategy, Palm could maybe use
the same strategy
9-12> Assuming they license: for the licensees, what are they thinking?
P> Direct access to your customers, by creating a standard that other companies should work
by is that they gain network effect, they can charge monopoly rent

C> The standard is now what everybody gets -- pushing the competitive spirit towards a small
space so they can only innovate on price/shelf space/etc.,
When the CEO says to license, some of the people left the company and created the first
smartphone using PalmOS (because they thought it needed a cellphone)
-> Limited licensing strategy. LG had hacked it and made it ridiculously good with smaller
things. They said let ud license and we'll make these nice things
--> No it was too nice, it would kill the rest of the market
--> Fossil wanted to make PalmOS watches, but nobody bought it because there were no
applications for it
--> First they said we'll make it work by strategy and management, then they said by
geography, started integrating between licensees but it didn't work, they eventually just split up
and stopped working together 3kom(?) saw that when they split up there would be possibillities
---> Palm had an IPO, Ted was the non-financial spokesperson talking about what handheld
computing could become! He had to dream and make the shit up!
---> Analysts did not like having more than one strategy in one company. They split up PalmOS
and PalmOne, they became two separate public companies and the lead had been blown so
hard that now Blackberry, Apple and Microsoft were starting to catch up. The network effect
went the other way around until PalmOS got bought by a private equity, HP bought PalmOne
and eventually PalmOS for almost nothing, they wanted to make cool phones but it wasn't
working, you can now get an opensource development kit for PalmOS if you want!
----> They went from having 75% of the market share to 0% of the market share. Ted believes
they lost it at the licensing. They picked the wrong strategy to create differentiation.
There is no one theory that dictates your business model, sadly.
One last unflattering story!
-> He got out of business school, looked at the strategy and applied theories
-> Lots of people did not like Microsoft Outlook (which they took the information from), and
therefore they supplied the Palm Personal Information Manager. This had about 90% market
share, almost everyone who bought a Palm used it even if they had Outlook. They didn't want
to make money on it, so they just gave it out for free
--> Ted's idea was that Palm should productise the Product Desktop Information Manager, a
platform where developers could create email/sales/etc. plugins, make the platform big and
such. At his first day after he was shown the ropes Ted showed the CEO the presentation.
About 2 hours later his boss came in and said he got a mail from the CEO down the chain
about Ted giving dumb ideas
---> Surely now Ted just had to explain the standards and network effects and such, but no! It
was not a business case, he was there to do a particular job. The boss said maybe we should
just fire you now, right at the first afternoon. He then apologised and said he'd do his job first
before all the other dumb ideas he has
----> You just became slappable. "When I slapped you, you had a change of behaviour",
therefore he was kept in the job
Morale: Just because you can analyse the business models doesn't mean you should. The
capacity to do all this isn't your value, you can do it in your spare time in order to move up, but
you should do your job first, that's what you're there for!

9 - Overview + Lean startup method 2.0

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Advanced Internet Business Model

22-07-2015 14:26
U p d at e d :
02-08-2015 17:34
Simon Bach Bjerring
Entrepreneurship, Internet Business, Lean Startup Method, Startup, Ted Ladd

All of these theories are arguments and none of them are final answers for anything
THE OLD WAY, A BUSINESS PLAN
A business plan is on his opinion a total waste of time. It's a plan you make in advance where
you don't really know what you'll learn etc.
-> If anyone without anything good to offer you wants you to write a business plan, don't do it
--> Ironically it's just banks who do it, even if they have the most to gain from losing the
business plan?
-> You get and you spend them on people etc.
--> You only see at the end of spending all your money that you see if you earn money. Usually
customer feedback is binary (yes they bought it/no we didn't)
Traditional way of de-risking (he's contrasting this process to the value line, which both go the
opposite ways)
-> Example of his smartwatch, where they have a tons of apps in the store but no customers.
There was absolutely no user testing prior to launch, which is dumb
Lean startup motion (seems quite intuitive, and it's much better than the business model
apparently)
1> Business model
--> Brainstorm
--> Hypotheses
2> Customer discovery - you have to build customers before building the company. Pivot: If a
hypothesis is wrong, go back to hypothesisbuilding, it's not a bad thing, you just go back with
--> Problem interviews
--> Solution interviews
3> Experimentation
--> Minimum viable product - comparing the minimum viable product (not a smaller/cheaper
product) and the hypothesis you made
--> A/B testing -- offering customers two types of products, and see which part they like
---> Facebook does this with different colour palettes or interfaces, they then see if the people
exposed to the testing have better results
-> Implication of LSM on venture capital: If you already made a prototype of the product, you
are much closer to a sale, and reduce delusion because you already made it
Exercise: Design a minimum viable product to test Binnj for about under 10dkk/experiment
-> Large chalkboard or screen in the restaurant with an "updating" prices, items, etc., test like
this to see how people react
--> Improving it with TWO large chalkboards!
--> Remember that the hypothesis we're testing is the business model and how it works
-> Propose that the MVP is having a menu on the iPad (just a .pdf or whatever) -- suddenly the
MVP is in the channel, how the value reaches the client, does the diners or owners have.
--> But why not just a link for people's own smartphones. Well the userflow might be terrible,
but the value at the end could be worth it? Does the interactivity matter, depends on the
hypothesis we test
--> We can test it very cheaply with using blocks of wood instead of a printed .pdf menu,
seeing if waiters will carry these things around
-> REVOLUTIONARY: We print the menu out on PAPER! Then we give different people different

menus - this lets us test whether additional information generates different results, and can we
maybe price discriminate?
--> The point is to get more granular with our value proposition. Test these in more detail
POINT IS, the MVP is not the most shrunken down thing we can get, it's just the simplest
version
-> He also teaches social entrepreneurs, they get it WAY more. The MVP should not even
involve technology, you suddenly put a bunch of different aspects of the business canvas into
the experiment, and you are now mixing things up and confusing the experiment. Suddenly
there are more hypothesis that might be tested and it dilutes your results, and therefore if we
can keep it lowtech then it's usually good! Also cheaper
Undergraduate ideas and questions: If your intention with the MVP is to collect data from the
customers and what they think about it, why not just put questions on the menu, take the
menus back, and track this together with what they ordered?
-> Could be cool yo
Him and his smartwatch thing wanted to work in stealth. This is worrying, because you should
probably tell more people about it.
-> That way if people steal the ideas, at least the IP is worth something. It's always worth it to
do proper betatesting and customer idea brainwash etc.
-> Pebble was kind of a kickstarter idea that came after they launched. They just kinda met up
in a warehouse now and then and made watches for people, but now suddenly on kickstarter
they earned several million $ in just 1 day.
--> The great thing with kickstarter is that you can do surveys and ideas just at the start of
development, and find out what people want and if people want.
--> His company was then the first company to be embarrassed at a kickstarter
--> 2 months after Apple announced the 400-17k Apple watches, they did another kickstarter
for 1~200$ watches to see if people liked it, with colour screen (Pebble time)!
---> They then raised $20m+ in 30 days, on an EXPERIMENT, before they even had to spend a
single themselves
Critique of the Lean Startup Method
Confirmation bias
-> Ideation as evolution - Variation => selection => retention
-> Also heuristics
-> When your subconsciousness doesn't want to accept some external information
--> Entrepreneurs are optimistic, prone to biases and
LSM
Pros:
-> Kills myth of "a single killer idea"
-> Pivots are part of the lexicon, the culture does not dislike error or uncertainty
-> Reducing confirmation bais about solutions, it's outsourced to the customers
-> Kills myth of "entrepreneurial personality", anybody can be an entrepreneur if they are
taught this iea
Cons:
-> Iterates ideas
--> Becomes churn, if they do too many interviews and experiments, they might start seeing
too much bad information and poor hypotheses. That way they might lose too much optimism
and will stop going
-> Retains confirmation bias
-> In math: The LMS assumes that customer interaction and experimentation helps each
others, they are complements. The curve "bulges out"
--> His research shows the opposite. You start having too many pieces of feedback, looks more
simple on the .PPT

-> Experimentation will show which house is better, but not which neighbourhood is the best.
You should do customer development first (to find the neighbourhood/segment), then do
company development to find a good house (product?)
The new way: Lean 2.0
1> Passive observation - don't make a business plan, just start finding out how to base your
hypotheses
2> Proble hypotheses - several!
3> Forced alternatives for the problem - which conflicting hypotheses could we also
hypothesise? The hypotheses do not need to be mutually exclusive, just like in science. Lean
2.0 emphasises the problem resolution before the business model, it also lets you test different
alternatives first off!
-> There are more but we didn't really go through them :<
Team exercise! What are the hypotheses around the problems that Binnj customers face?
-> Problems that there could be for customers when entering the restaurant
--> Menu uncertainty, out of stock, language, quantities, wrong food, finding the optimal
combos, nutrition facts, sharing menus, waiting times, coordination, waiting for the waiter,
previous favourites
---> Now, with all these problems, we can make way more measured hypotheses that we can
test and do shit with, super good!
Lean metrics, how do we know where we are in the processes?
-> Shift emphasis from revenue to product/market fit
-> Track progress through the Lean method
-> Embed customer development into execution
-> Continually test hypothesis, ambidexterity - the ability to both run what you have and
meanwhile find new ideas. Usually something you shouldn't be able to but you never know
NASA/DOD technology readiness level - 9 levels from "this is a cool idea" to "this is now ready
for where human survival depends on it"
-> Now taken from here to applied to the canvas! First take the right side of the canvas, then
afterwards the rest. Nobody has any idea whether it's right, and nobody tested it yet. A
company in high levels are in no way (surely) more investable.
-> Has to do with defining metrics that are related to your business. Added to the segmentation
criteria, we also need different hypotheses and metrics about where people are in their sales
cycles.
--> This comes from Dave McClure. Why is it called the Pirate Metrics, it's the AARRR
(acquisition, activation, retention, revenue, referral), obviously! There is a different set of
metrics used to test the customers in each different level of the AARRR
-> Sales funnel: Get-, keep-, grow customers. You act differently to those three, people in
these behave in different ways. It's a good way to see differences between the people in the
different steps in our sales funnel.
His point with Lean Startup 2.0, is to expand the 3-step process into an 8-step process emphasising testing and alternatives to what we're doing. Also adding metrics to what you're
doing (a 'how' to do your idea)
For final pitch: Go through what we went through in the course and use these to justify the
business model we recommend. It's to review for the exam really
-> Nothing with financial viability
-> It's a pitch, assuming people in the audience are potential investors

10 - Presentations
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Advanced Internet Business Model

27-07-2015 15:11
U p d at e d :
Simon Bach Bjerring
Improvisation, Presentations, Ted Ladd

30-07-2015 14:23

Improvisation exercise!
-> Go in pairs, say a word simultaneously, wait a few seconds, then say another word, see
how many times it takes to get the same word
--> Me and Alice did it in 5 (I think), woohoo! (And just in ONE TRY the second time, with
"pizza"!)
Improvisation is a practisable skill
-> Improvisation is not an experiment, where you construct before the execution
-> Adaptation is changing construction over time to meet challenges, you have time to
contemplate and adapt between actions
-> Improvisation is construction, adaptation and execution simultaneously! Learned behaviours
like listening, reflecting, changing and contributing. It's almost instincts!
Causal chain (for any social science)
-> Trait => Practice => Activity => Outcomes
--> Trait is just something about you that never really changes, they result in
--> Practices, and heuristics, some kind of result of your traits, which makes you do
--> Activities, what you do and then lead to some certain
--> Outcomes, something happening from your activities
---> A causal chain!
-> How does this relate to entrepreneurship? Well, it must be related to venture growth
--> Research suggests that improvisation can be learned and applied in order to help you do
the Lean Startup Method even better -- in turn improving your venture outcomes!
---> Some traits might make it more likely for you to be good at some certain practices
----> In other words, this causal chain lets us determine whether some traits etc are good or
bad for your entrepreneurial spirit
Traits -- the big five: (psychometric traits)
-> Openness
-> Conscientiousness
-> Extroversion (getting energy from people or ideas)
-> Agreeability
-> Neuroticism (only one that's a negative, how emotionally stable you are)
--> Unstable people are frequently better entrepreneurs, especially in unstable markets!
There is almost no perfect personality profile for the perfect entrepreneur
-> However, we find significant links between traits and improvisation, and LSM, and success
-> What world-view? If you have an affectuated mindset you will do better as an entrepreneur
The future is predictable, and if so then you can do better businessplanning
-> Do you believe the opportunities exist out there already? Anyone asking you to write a
business plan will assume this
Effectuation
-> This says that opportunities are not out there, your job is to create opportunities
-> Five sub-principles.
-1> Bird in the hand, what you have for sure is better than what you might have outside
(Sarah's Bathe wrote about this what?). The ideas you have in front of you are better than

what might be out there

-2> Affordable loss. Directly contradictory to finance, you don't maximise profits, but at the
start the entrepreneur should just minimise losses. Limit downsides rather than maximising
upsides. You are probably not a risk-taker, but you want to know what you lose
-3> Lemonade principle (embrace surprises). Also almost in direct contradiction. If you have
surprises (unaccounted risks), your discount rates go up, therefore NPVs are worth less.
Surprises in finance are bad, Sarah's Bothe(?) says that people who think entrepreneurs who
like surprises do better! If you walk into the LSM and say "I'm gonna run this process but
expect to get this in the end, if I get contradictory info during customer research, then that's
bad. The point of LSM is to learn surprises, get what they know in your heads -- you need to be
welcome to surprises
-4> Patchwork quilt. Build partnerships, you shouldn't attempt to do everything in the start of
your startup. Having partnerships expos yourself to other relationships, but it will be helpful to
your venture. Directly contradictory to the Palm case, but welp
-5> Pilot. You should just care about what you have control over, what you can predict and
what activities you practice (how you work with teams, how you run experiments, etc.). This is
what you can control, and therefore you should focus on it. Control >> predictability. You can
pick whether the pilot has control over the plane, or just gets you down on the ground
somehow.
We assume that all these lead to a different outcome. As you contemplate entrepreneurship,
always consider that(?)!
Recap is he tries to make up entrepreneurs

2 - Internet of things and bitching about Porter

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Advanced Internet Business Model

01-07-2015 14:31
U p d at e d :
30-07-2015 11:19
Simon Bach Bjerring
Five Forces, Internet, Internet of Things, Resource-Based View, Ted Ladd

WHAT IS THE INTERNET OF THINGS?

-> Products connected to things, syncs in any way really. It's under one big umbrella, data are
comparable under a single flag
--> Lets you (Porter et. al. gives some steps: (1) monitor, (2) control, (3) optimise, (4)
autonomy
2--> Control is about setting up rules and making sure it does what you want
4--> The system can set up its own objectives and achieve them. It knows when to turn on
heat, it knows which kind of music to play, it sees what you're doing etc.. This is where it gets
a bit creepy, "in the future robots will treat humans as pets" -- Wozniak
----> We might be running strategies that we don't know of already, because the computers do
it for us
---> Disintermediation also, cutting out the middle man? No, we have new intermediaries,
controlling data rather than just creating contacts between people or using them as retail. Ladd
said that this would happen, new data intermediaries since so much data will be created, and
the skills and technologies to look into it are simply too much for most companies -- new
outsourcing of that is gonna be big, and the companies will have "newfound power" in the
internet of things.
Systems of systems -- Changing the boundaries of industries
-> If you have a single product, it won't just be its own system, it'll have the
control/monitoring/customer systems integrated in it -- which will be connected to other
systems as well!
--> Porter's argument. It undermines his own argument in 5F? The structure of the industry
dictates the profitability of the industry, and the first step is to define the industry you're in.. If
this is true, either the system of system or 5F are irrelevant now.
Open vs closed innovation (back on Friday)
-> Use or follow?
Assume we know 5Fs
-> You want to create standards for your suppliers, but not for your buyers. You can
differentiate yourself this way without losing bargaining power towards your suppliers
-> Raise barriers to entry by raising fixed costs (your cost structure!), while changing your
economies of scale
--> Economies of scale in production is in your cost structure, while economies of scale in
selling goes in your value proposition(right?)
--> What does differentiation mean in the canvas? It means changing the right-hand side!
--> Buyer power (talked already)
--> Supplier power also
--> Intra-industry rivalry is again about differentiating
-> We take the 5F, a framework for seeing how profitable industries are, and use it to
advocate for certain strategies. Is this right? Well, there weren't all that many back then, but
what does it recommend?
How does IoT change the 5F, related to the canvas
-> Disintermediation, reducing buyer power
--> This goes into the channels

-> Reducing rivalry -- differentiate, extra value proposition,

--> Value proposition ofc.
-> Less new entrants -- fixed costs up
--> Porter says you should spend money on R&D, that's very general, you should always be
using your costs for something ofc.
--> This is in your cost structure
-> Reducing substitutes -- broader functionality, "new business business models by replacing
ownership (renting, product-as-a-service)"
--> Change the revenue model (streams).
-> Porter's 5F is directly relatable to the business model canvas
The point of strategy is to get away from Ricardian profits (getting from just doing things),
trying to go away from equilibrium models (like 5F). Assume disequilibrium like Schumpeter
says
-> We need to be better at doing it than the other companies
Resource-based view again
-> Heterogeneous resources in companies, hard-to-copy resources gives advantages
--> Valuable, rare, inimitable, embedded into the organisation
--> In rapidly-changing industries the VRIO resources might not be that good, changes fast
---> There should only be one category of resources that matter, tangible assets should not
matter. Processes, that are repeatable within the firm, that consistently help you
outperform should be what matters if we can use them to keep up with the world.
Big data is like teenage sex lolwat
-> Everyone talks about it, nobody knows how to, everyone thinks everyone else is, everyone
claims they're doing it. This is why we should be better at trying to defining terms in business
really
Team exercises! Talk about University of Phoenix (does online college-level courses)
Using 5F
-> Basic online courses, differentiating prices
--> Are there students with different needs or bargaining powers? Yes! Low-income, working,
older!
Using Resource-based view
-> VRIO tells us what to focus on, and it sounds like it's the V(aluable)
-> Reputation is a hurdle, by selling their platform to other universities (with their own
reputations). Change the customer segment altogether
--> Even if they do not own it themselves or made it themselves, they have built the platform
themselves, and have become tough to replicate (arguably right) -- maybe it's what they're
doing, rather than what they're using that adds the value
Using dynamic capabilities view
-> Get to know their students and customers, what courses/formats do they want, use data
collection, maybe set a lower tuition for people based on some of this?
-> Disconnect between value propositions and the customers.
--> The cultures and routines can be extremely hard to put into these capabilities and values
How come education has not changed in so many years? It's always the ivy league at the top?
What should happen before the big guys are overturned?
-> Nobody found out how to customise well here, everyone in each course/uni gets the same
Christensen: A new entrant coming in with better service, or the same at a cheaper price
(technical capabilities), means the performance in a certain technology or sector will get better

-> Maybe it'll get better way too fast! Then people won't actually know what to do with it
anywhere
-> Incumbents will usually get annoyed at new disruptive innovations and such
-> We're trying to maximise return on assets, margin and moving to higher margin customers
and services and beating history!
--> It all adds up to "sunk cost thinking" -- we're making the first mistake by basing future
decisions on things in the past (sunk costs here), but we're not trained to treat them as
irrelevant, therefore chasing these slight things we're doing incremental innovation! So where
does the big disruptive innovation come from?
---> New entrants, innovators/entrepreneurs, do not care about numbers or revenue, they just
want to create customers and make history so they can go towards from there.
----> This is where disruptive innovation comes from. Marginal cost thinking, we want to move
forward, move past the inevitability for all business managers of being complacent (?)
-> Capitalist dilemma: Big companies focus on incremental efficiency/innovation, they make no
big leads, they won't invent new industries, the employment bases for economies do not grow
too rapidly, stagnates. This is a (vague) way of explaining why industrialised countries move
slower.
--> This is why we should pay attention to the bottom of the pyramid market here. Most
companies do not sell here, since these people can't pay us. Christensen says we should pay
attention, not just is it a new market, but it's also where disruptive innovation is coming from.
New metrics is just revolutionising it!
---> He assumes that change in technology is periodic (upsets -> stability -> upsets -> repeat,
punctual equilibrium).
Porter 5F assumes that customers is just one thing
McGrapf says customers are close and innovations do not matter (?)
Get to him if you want to drink a beer and talk about the industry or careers or such!

6 - Presentations
No t e b o o k:
C re at e d :
A u t h o r:
T ag s:

Advanced Internet Business Model

13-07-2015 14:25
Simon Bach Bjerring
Presentations, Ted Ladd, Vivino

Wow that was exciting

I spoke multiple times

U p d at e d :

14-07-2015 11:48

5 - Sharing economy, 2-sided business models

No t e b o o k:
C re at e d :
A u t h o r:
T ag s:

Advanced Internet Business Model

08-07-2015 14:26
U p d at e d :
08-07-2015 16:46
Simon Bach Bjerring
2-sided business models, Airbnb, Sharing economy, Ted Ladd, Uber

2-sided economies are based on coordination costs being lowered by this! (it's user to user? At
least right based on the network economy)
-> This is so important that when Coase dictated that "coordination costs define the boundaries
of the firm"
--> Think about this, what is the most efficient organisation of people? The question to be
answered is what is the optimal size and function to put inside the company
---> Coase said that this is driven by coordination costs, finance/marketing/HR/etc. should be
under one big umbrella, coordination costs is how people drove businesses
-> This has been changed by the internet (of things), you can conduct coordination without the
people being in the firm! This is completely revolutionary, business processes are new.
--> Example (?): Budget, in the 1950s it was extremely difficult, how did you count things, what
did you count, how do we estimate, now we have a process called budgeting, a repeatable task
that every student learns. We do not even need internal budgeting, since we all know what
they do etc.
-> New theories of the firm, you only bring together people that are in the business model
canvas! This is a very new way to think about the firm
--> Dynamic capabilities, things that you can do within the company. It's possible that the
theory of the firm should say "you get/pick one of these, and that dictates what's in/out of the
firm"
-> Coordination costs are now low, but there are still all other kinds, search costs, transaction
costs, quality costs, post-sales costs
--> This is, in his opinion, the last wave of internet business models. The purpose of 2sided is
to reduce coordination costs. These companies create the value of liquidity
---> Examples are taskrabbit (time) and eBay (used goods)
Sharing economy
-> Collaborative consumption, peer to peer, mesh markets in order to use things that other
people have already used.
-> Big example is Uber, Uber is only there to put them together. Where it starts to get
interesting, is that Uber is not just a taxi company, but it can be "the last mile" transportation
company that works with everything. In addition, it might allow people to share everything?
They have the data of what people use right, what if Uber and Airbnb were competitors?
--> Also, imagine all the businesses that the sharing economy can open up for! Farm Share is
his example!
-> Limitations to it are rivalrousy and excludability. See PPT. for it. You can maybe not show
this to others, or you could maybe not both consume a thing at the same time. Tragedy of
commons is relevant (resource depletion from using the same common goods)
--> "Club goods" are things that you can prevent people from using, but does not necessarily
lose out of sharing. Examples are IP, songs, art, etc.. This is where the potential for sharing
the sharing economy is at
-> What is shareable?
--> Something that's normally at low utilisation (not PCs e.g.)
--> Non-urgent uses (not defibrilators e.g.)
--> Durable (not rivalrous, food, etc.)
--> Those were the regular ones, some others he added are for example:
---> Low/manageable emotional attachment (financially replaceable but the emotions, e.g. not
a wedding dress)

---> Have well-known quality indicators for efficient search (you need to be able to easily see if
it's a good thing, Airbnb are tackling it by giving floor plan and pictures) -- related to
coordination costs of course!
---> Price of sharing has to be higher than the cost of searching, transaction, depreciation,
expensive items (powertools are also right on the edge)
---> Critical mass of both buyers and sellers for all geographies (might require proximity, Uber
does
Airbnb
-> The point is that they create the market, they own no accommodation and they do nothing
else
-> What is the business model? They take out transaction fees, a bit from both buyer and
seller, the economies do not matter it's a matter of psychology, but not until another lecture
-> Airbnb pretty much covers the prerequisites. Positive externalities are of course the cheap
price (nobody had to buy the assets, so the quality is usually good), and you get a real kitchen,
etc.
--> They also create value for external users like restaurants and/or residential areas, but
capture none of it (also there's negative for hotels etc.)
Parking by the people example
-> Temporary excludability by renting out parking spots. It was shot down really hard, and it
goes to show that sharing economies still have some huge social and economic problems, that
we have not at all found an answer to.
How does Uber exhibit the network effect, what is microeconomic here and how is the market
clearing, and talk about some social connections that Uber creates
-> We discussed it but it wasn't that groundbreaking
Suggestions for presentation
-> Do an extra level of segmentation
-> Animate your canvas
-> Recommendations are good
-> Value per user over quantity graph -- should they charge users for services question?
Implication is seen pretty quickly. If you can implement verification, as airbnb does, it reduces
the network effect -- however, the long-term effect may be good since you add value much
faster with verification or such
-> If 5F dont work, mention dynamic capabilities or such. Match assumptions and etc., we do
not need to see the picture of the model, but show us the implications
Actual Uber discussion
-> Hard to say if market clears, price elastic, but does it go against how microeconomics work?
-> In general the market is efficient? If supply and demand are at a huge mismatch, there is
arguably an inefficiency
--> IS UBER PROFITING FROM TERRORISM?!?! FIND OUT MORE AT 7
Oranges negotiation thing!
-> I bought 40 oranges for $1,5 each, and sell them as scones at $2 each, great deal
-> This better be on the exam
-> The risk was to share information and expose your own, in this case it would have paid off,
but yeah you know whatever
--> Oh boy the example was not actually based on buying oranges, but about creating peace in
Israel, oh no!
--> Some people say that if you share more information you're generally better at negotiations

This is not at all only 2-sided markets, but multi-sided markets. The orange example was a 3sided market, and the same rules still apply!

4 - Switching costs
No t e b o o k:
C re at e d :
A u t h o r:
T ag s:

Advanced Internet Business Model

06-07-2015 14:39
U p d at e d :
Simon Bach Bjerring
Grexit, Lock-in, Switching Costs, Ted Ladd

08-07-2015 14:26

Moutain bike exercise!

Aspects of the business model that the company erects to dissuade customers from switching
Lock-in is the perception for the buyer that they are locked into one thing
-> Lock-in is the cumulative effect of creating switching costs
Oh Grexit, topical! What internet business models happen here? Digital currencies, that would
be cool right? Problems though!
-> Can't they just make infinite drachmas, since there is no actual physical limit? There has to
be a physical limit, or what? Well Bitcoin Dogecoin is an option, since there is a limit on how
much can be created due to computing limits
-> Balance legitimacy, how can you be sure that you don't just have it via hacking or such?
Block-chain! This is in Bitcoin as well, where every single part of the currency holds a part of
the history of the currency, in where lots of things can happen!
--> What is the future of Bitcoins? So many options!
-> Negotiation
Lock-in! Perception is that switching costs are high!
-> When you feel as if you are locked in, you buy more complements (by Porter's system of
systems)
--> Self-fulfilling prophecy of positively enforcing feedback loops, if you have an iPhone you buy
apps for it
---> Different things are happening between complementary and core, but they drive their own
values, and they accelerate each others
--> Your business model can't just say "We will sell this", but also "here are the complements"
---> Do your complements also have lock-ins? Which complements should you sell with?
If we now assume that the only profits in perfectly competitive markets are based on the
switching costs, then we need lock-in. Meanwhile, customers do not really want to pay for that,
since they are "losing". But is it ever good for the buyer?
-> Loyalty programmes? You feel paid to be locked in.
-> Synergies from complements
-> Network effect
--> When in doubt, answer with network effect, Ladd loves this
---> Disruptive innovation?
--> Increase the value exponentially woot
-> Maybe
-> There is a sort of direct bad part of lock-in right? When you're focused on locking into a
specific segment then you might lose out on others, and this is where innovation might be
straight up disruptive
--> If you lock them in with a promise and the market changes, it could be really harmful for
you
Choice architecture
-> Economics is founded on individuals being rational, and they're not! But now people are
starting to find out how? But no, people are being consistently irrational -- choice architecture is
here to fill in the gaps around rationality based on this new information

-> The experiments are hilarious though. So many things can be variables, sexual stimulation
is also powerful
-> Heuristics, rules of thumb. They can be misleading if you have incorrect information, or if
you are in a totally new circumstance! Basically, your environments change.
--> Simply complex information
--> Useful for repeated tasks
--> Codify biases
Fun examples of what's going on and heuristics and whatnot
-> People make decisions based on suggestive options, what is the price range, what do you
choose from, etc.
-> Hungry Jack's Grocer's, and his chili. He literally only sells the middle-range chili, since
nobody buys the cheap/expensive chili. We have a heuristic that we do not want to overpay or
want the bad quality.
--> And I guess it lasts forever so it's fine to have a bunch
--> Good-better-best strategy, good and best sell 5% each and better sells 90%
-> Similarly is the US presidential candidates. Jeb Bush looks fine if you compare him to Donald
Trump!
-> Oh hey the organ donor example again, people don't really want to check boxes off, they
just default to the current situation if needed
His company is HOMER Energy, woohoo!
Entrepreneur stories
-> He was ready to get some investor money, but there's this other smart guy who had
practically better tech and implementation. He bought Ladd in return for stock. It then turns out
that they absolutely hate each other, and they did not see that coming.
--> Ladd had a good lawyer though, so now that everything has fallen apart the other guy can
make decisions, while Ladd has some interest withheld. Lawyer walked Ladd through some of
the terrible scenarios
Resisting lock-in as a customer
-> Opting out
-> Bargaining for off-ramps
-> Reducing initial price to compensate
-> Maintain multiple suppliers -- "Yeah well I'm just gonna get that other guy make it"
--> You're also paying more due to lower economies of scale and whatnot
-> Sending credible signals -- you need to be credible when you say what you want, and
creating your scenarios, and of course act on what you say you want to act on
How do you promote lock-in?
-> Invest in early customers, the network effect increases switching costs!
-> Or invest in retention/entrenchment. If your business model is on high switching costs
SOMETHING
-> Increase switching costs (Amazon Prime more or less, increased prices)
--> Notorious little secret. When a company sells things through Amazon Prime, Amazon is
charging the seller for shipping. Your margin is a watch lower, Amazon is not taking the hit, so
it's free for them. I.e., the money Amazon charges for Amazon Prime is just free for them
Case of Dropbox + discussion
-> Lockin is also related to pro vs. non-pro, if you go from pro to regular it can be really hard
-> Space race and others, free lots of data but then you lose it and sad days
-> Inviting friends and sharing with friends, incompatible and forcing you to stay if you want to
NETWORK EFFECTS
-> Credibility issue, you can't just tell your friends to use dropbox and then not use it the next

day
-> Pricing you pay every month, but you get locked for the entire year. Not only do they provide
value, but they will also make it sound cheaper and you don't have to make choices every
month.
-> Standards are usually implied to be something the company chooses. This is not the only
place where companies come from, they can evolve from what consumers expect. E.g. the
webpage logo in top-left that takes you to the homepage, this is expected from the user
Is the inclusion of messaging and notifications into most internet operatings the network effect?
-> By itself, messaging is not the network effect, it depends on what you are messaging, and
who else benefits from it
--> A particular type of messaging. AirBnB review numbers increased by 140% year over year.
Higher reliance on user reviews, based on the communications and needs for network effects
to strengthen the business due to the power of ratings and WHATEVER
---> Ratings are not just "average", but there is an algorithm and some other things (recency,
expertise, efficacy, reputation) that makes ratings more relevant
Limits of internet business models? No way!
-> Death of intermediaries
--> Yeah sometimes you might want to get to the physical stores
-> Death to big companies
--> The network effect is a reason for this, the bigger gets bigger, economies of scale in
production, demand, NETWORKS
-> Death of identity
--> Has this been a thing? A lot of free things on the internet have to be supported by
something, and this is currently done through adversiting based on our "customer segment",
they give 0 shits about if we're wearing pants (kinda), but they know what we buy and etc.,
Google was not forced to tag us, but it is a lucrative business.
---> Ladd personally is over it. Yes there will be costs to participating like this. He gets that
there's a cost to losing anonymity, but if they're gonna go get ads, might as well get good ones.
This is also a backlash to the NSA scandal
-> Death of distance
--> Location does not matter anymore? It does though. You can technically use 3D printers and
other interesting techs to overcome it, but it might be the fastest one that's gonna come up
---> Stores will probably be able to combat it with trying on the items + economies of scale
(almost always cheaper to not use 3D printer right?)

1 - Introduction
No t e b o o k:
C re at e d :
A u t h o r:
T ag s:

Advanced Internet Business Model

29-06-2015 14:28
U p d at e d :
Simon Bach Bjerring
Business Canvas, Internet, IT, Ted Ladd

29-06-2015 16:36

This guy is gonna swear

IT boom introduced the term "business model", as a reminder that e.g. you should probably
had revenues
-> Definition "The internal logic by which a firm creates and captures value"
--> Based on what the managers (think) they can control, and you have to do BOTH (creating
value without capturing it is pointless like Twitter does, capturing value without creating it is
just rent-seeking)
What is not in the business model?
-> Scenarios (what if...)
-> Contingencies (if ... then ..?)
-> Competition (at least not in this definition)
-> Any exogenous factors (only what managers can control)
-> Strategy
Theories of business models (Amit and Zoit)
-> Novel: Innovations
-> Lock-in: Switching costs
-> Complementarities: Bundles
-> Efficiency: Low coordination costs
But is it too vague?
Use business models to track manager decisions over time! (McGrath) -- doesn't care what the
business model is, but wants to see the changes over time
Normative prescriptions of elements (Osterwalder)
Who knows whether this is the best way to think of it? It's from the 1999ish and why did it
happen?
-> The genius of the business model canvas (to Ted) is what the graphic implies:
--> 1: The business model has to be logically coherent between all these pieces, they all had to
agree. This is what Porter kinda talked about back with excellence. Osterwalder showed this!
--> 2: The implications from proximity, if you change one the others will change as well (but at
first the ones closest). You must be coherent, but the biggest changes to make are the nearby
items
Protips and tricks for business canvas:
-> Separate canvas for each product, maybe even multiple canvases for different segments
--> Though it's tricky, good to crank the thoughts in your head and find out if you can merge or
meaningfully split segments
-> The right side is the value side and the left side is the execution side.
--> Costs aren't bad and profits aren't all good
-> Brainstorming rules -- add now, eliminate later
--> This is important, NEVER critique as you put the ideas on the canvas
-> Element interdependence again
Using the Apple example I think?
Customer segments
-> It is not the mass market
-> Geography/Demography/Psychography
--> Define income brackets, don't be vague and say "low-high"

-> Precondition, owns Mac/etc.

-> Behaviour and events are also relevant, businesses can be driven by e.g. sports, hobbies,
holidays, etc.
-> Each segment should be in a different colour. Toddlers blue, adults red, teens green. Be
consistent then
-> Avoid circular references (don't sell to people who want to buy it), not useful segmentation
Marketing:
-> Don't say things like "web" or "facebook", be less vague like "Google AdWords for 'phone',
Faccebook ads for Danish males who enjoy apps (and use some number of people reached)
--> ALWAYS be specific, where on the site/store are you selling this. Walk past the things you
don't really need to buy until you get to the things you want
--> WearableGadgets.com in geographies with median income of $$. You don't have to know
what's gonna happen, you just need to make a "qualified" guess
Value proposition:
-> Don't mention features. It's good but not great
--> Benefits are better, what do the customers get
---> And even better, what problems are you solving?
----> Features are the things you see. Work with problem > benefit > feature. Consumers do
not really respond to anything but solving their problems, that's why aspirins solve better than
vitamins
--> Extra: Data to prove it! The problem exists? It's painful? The solution solves the problem?
Do customers believe the solution?
---> Go against your cognitive biases in this, it's hard to go against your canvases
Revenue stream:
-> Pricing models, you might not need to have numbers, but it'll be okay.
--> What we want is the $/unit or however we earn moneys.
-> Multiple streams for each segment? Sales/ads/sponsors/data mining/etc., againt maybe not
numbers
-> Price discriminations probably
-> Don't be afraid to have a bunch
Customer relations:
-> Maybe a bit more obvious than you might think
-> Not a wish list though, you can't have 1-on-1 for every repeated sale to the mass market,
it'll be expensive and time consuming
-> Whatever type you choose must match and be in congruence with your other parts,
especially the cost structure!
Execution side, just a couple of comments
-> Partners
--> Equal exchange, their canvas? It's the kitchen sink, companies that might participate in your
business model. They might actually belong other places, if you can be more specific do that.
Only if you literally cannot find other places
-> Activities
--> At what stage?
--> For start-ups, lean steps! What are the steps, start with hypothesis-building, and finding
out how your customers work and reply to these things.
-> Resources
--> Assets, skills, team members
--> Valuable, rare, inimitable
---> These are the only ones you should focus on (according to resource-based view)

-> Cost structure

--> For fixed and variable (unit) costs
--> Early stage and/or at scale
He has some extras that he'd add:
-> Net social benefits
-> Net environmental benefits
-> Pricing
-> Social networks
-> Government regulations