Tag Archives: business models

Why e-business changes the rules…for everything

Last week, the Financial Times reported a milestone in the growth of technology companies (paywall). For the first time ever, the five most valuable companies in the world were from this sector – Apple, Alphabet (owner of Google), Microsoft, Amazon and Facebook.  As a business educator who is also into technology, I find this fascinating. In particular, I am struck by the way these companies not only use new technology to deliver services, they have also invented new ways of making money out of them, in other words, new business models. As I will attempt to show in this blog post, these new business models have surprisingly big implications.

 

I had been using the idea of new business models in my teaching for a while before I came across a paper that added a whole new dimension to my understanding. According to  DaSilva & Trkman (2014), the term “business model” was first used in 1957, but featured in very few academic papers until the 1990s. Usage of the term started to grow significantly in 1999 and, with some blips, has grown ever since. The authors convincingly link this to the rise in digital technologies and e-business. In the days before the web, it was fairly obvious what businesses did – they produced goods and/or services which they then sold to customers. But the web enabled new types of businesses where it was much less obvious how they were creating and capturing value. This meant we had to start examining their business models. Some of them, such as pets.com, discussed in the paper, turned out not to have a workable business model at all. Others, such as Google, invented successful new ones and made vast profits in the process.

 

The authors also argue that, despite the popularity of the term, “business model”, it does not have an agreed, useful definition. But the fact that we are having this debate illustrates for me how fast the world of business has changed. The old rules simply do not apply any more. For example, the laws of supply and demand taught in every economics course are not relevant when it comes to digital goods – supply is, to all intents and purposes, unlimited and without cost. It does not cost Google anything much to deliver a search result or Facebook to supply you with a profile. That’s one reason why they don’t charge for them, instead making money by selling information about you to advertisers.

 

And this leads on to a second important characteristic of much e-business. Traditional economics generally assumes the existence of a number of competing providers. When businesses get too big, they become vulnerable to challenge by nimbler rivals. Where there are exceptions, “natural monopolies” such as telecoms or water, these are closely managed and regulated to ensure they do not abuse their power.

 

But the uncomfortable truth about e-business may be that natural monopolies are the norm, not the exception. There is no real benefit in using competing search engines when Google gives you the best results, no reason to be on a social network other than the one everyone else is using, no reason to use other online retailers if Amazon uses its scale and marketing savvy to deliver everything you need at low prices. This is not to say that e-business is a bad thing, just that it seems to be becoming clear that the rules of economics are changing. And history shows us that when the rules of economics change, everything else changes too.

 

This is not my original idea, of course – there are many others exploring this territory and publishing books on it. Two I have read recently are Jaron Lanier‘s Who Owns the Future?  and Paul Mason’s Postcapitalism. I enjoyed both of them, partly because they range so widely over technology, economics, politics, sociology and history. This holistic perspective is surely necessary to contemplate the scale of changes underway. Broadly, Lanier is something of a pessimist, believing that “Siren Server” businesses are sucking value from the economy. A different approach, based on micro-payments and clearer ownership of information, is possible but, in his view, most probably will not be implemented until the current system has collapsed. By contrast Mason is generally an optimist, believing that the growth in the “networked economy” and non-monetary exchange shows a path by which we may deal with the challenges of climate change and demographics.

 

But they, and others, agree on one point. The capitalist system that has, one way or another, brought increased prosperity and wellbeing to the world over the last 200 years or so is no longer fit for purpose, and has started to collapse. The financial crisis of 2008 was an obvious sign of this, as is our inability to recover from it by using the traditional tools of monetary policy. Politically, the signs of collapse can be seen in revolts against our ruling elite, such as the Brexit vote and the rise of Donald Trump. Such pains are to be expected if we are indeed starting to move towards a new type of economy. But if these writers are even partly right, and I think they are, then surely our most urgent task is working out what will replace our current system and, in small-scale experiments at first, starting to feel our way towards it. This, I suspect, will be humanity’s greatest challenge, and greatest opportunity, for many decades to come.

Reference:

DaSilva, C. & Trkman, P. (2014), “Business Model: What It Is and What It Is Not”, Long Range Planning 47, 379–389

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Issues with costs, free and open in education – formulating some ideas for a project

We are currently working on ideas for the topic that we will use in our H818 MA project, so I am using this blog post to “think aloud” about what mine might be.

I think it will be something that builds on two strands which I believe are related:

1) I have previously written about the lack of understanding of the costs of online education and the implications to the education sector that are likely to result from the increasing adoption of new technology. As a Chartered Accountant with a commercial background who now works in higher education delivery and management, I bring a particular perspective to this. My blog post on this topic is by far my most viewed, suggesting to me a widespread interest in the topic that is not being generally met. Since writing this post, I have come across very little recent work on the subject – a paper by Rumble (2012) which notes, among other things, the general lack of interest and evidence in this area, and the work of Paul Bacsich, much of which is now quite dated.

2) Like many others, I am increasingly bothered by the proliferation of “free” services, which seems to me to often result in an opaque charging structure and unintended consequences. I have recently read Jaron Lanier’s (highly recommended) book (Lanier, 2013) which deals with this topic in some detail so I will just illustrate briefly with a couple of examples. Facebook is the most obvious example, to me, of a “free” service which we pay for in hidden ways – by providing lots of personal data to be sold to advertisers, having our behaviour modified and even allowing them to reshape our attitudes as a society to privacy. This may or may not be a price worth paying for free photo-sharing and chat, but the question is not raised often enough. For me personally, the price is too high for what I get in return.

Another example has been highlighted in our module discussions. Our module chair posted a video of Luis von Ahn’s TED talk about his work with Captcha and Recaptcha. It’s fascinating stuff, and I did not know that the Recaptcha tool is enabling the digitisation of the world’s books, or that the model is now being extended so that users can learn a language for free while at the same time translating large volumes of web content. By the way, Recaptcha is also now owned by Google.

Again, there are some issues here – issues that don’t receive enough consideration in the general enthusiasm for “free” and “open”, and certainly aren’t being considered by the TED audience if the wild applause is anything to go by. Money payments have their downside (excluding those with no money for a start), but one advantage of them is that they are reasonably transparent – if I am paying money for something I generally know how much and can judge whether it is worth what I am being offered in return. But with Recaptcha, we pay for access to “free” sites by contributing our labour towards Google’s digitisation project. Is this reasonable? I don’t know, but I wish we were able to make the choice.

Within education, this leads us inexorably to the MOOCs, the providers of “free education”, currently hunting for a business model. In the process, some of them, including Coursera and FutureLearn, have pulled off the remarkable feat of persuading universities to contribute staff time, resources and IP towards their commercial ventures in exchange for some brand-building of unproven effectiveness and a “feel-good” factor. Does “free” here really mean piggy-backing off the general funding of the HE sector? Maybe this is a good idea, maybe it isn’t. Keep in mind that, as I have previously noted, 80% of Coursera students already have a degree and 40% a postgraduate degree, so all this resource is mostly going towards those are already well educated.

You get the idea – there are some questions here that aren’t being addressed much, which is where I think the two issues are related. I wonder whether the general lack of understanding of costs, value for money and business models within has left the field open to those who, for various reasons, want to claim that they can offer it for “free”, even though the truth is that costs need to be recovered somehow and the real question is how. Can good education really be delivered for low cost at scale by using technology? This would certainly help the case that costs can be recovered by other channels, perhaps using a freemium model. Is there any actual research available into cost structures that might help us determine this? What are the ethical issues in the MOOCs finding a business model – for example, is advertising acceptable? A link posted in our tutor group shows that at least one provider is going down this route.

So the general area is understanding costs in online education and why “free” is an idea that needs to be evaluated critically. This is a big topic so for the purposes of this project I will need to narrow it down. Maybe it would be most practical to consider the following, as an implementation topic:

“Costs, business models and sustainability in open education – is ‘free’ viable?”

In the spirit of open, all feedback and reactions are welcome and will be credited if used!

References:

Lanier, J. (2013) Who owns the future? Penguin, London.

Rumble, G. (2012), “Financial management of distance learning in dual-mode institutions”, Open Learning, vol. 27, no. 1, pp 37-51.

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