Business Model Overview

Technology changes of the sort we have examined at length represent one strand of innovation—a better mousetrap, as it were. But for technological innovation to make its way to people in the marketplace, a second factor is required: a business model. That is, there must be an organization of resources that facilitates an exchange of value, often monetary, in order that technology artifacts can find users.

For most of the mass production era, business models have involved capital-intensive factories or collections of infrastructure that generated products or services consumed by paying customers. With information goods in a digital era not necessarily requiring the same capital intensiveness, business models have proliferated: One professor who has studied Internet commerce has organized dozens of examples into nine families.*1 Thus, (1) packaging the right technology into the right market offering (product, service, or hybrid), (2) creating a compelling exchange proposition, and (3) organizing resources to make the trades happen requires additional types and layers of innovation, capital, and management. The better mousetrap, in short, requires a mousetrap store, collective, foundation, or other arrangement to connect the product with people's needs.


While the term “business model” is widely used,* I follow the definition of my previous coauthor, Henning Kagermann, the former chief executive of the German software company SAP. A business ...

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