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Our group has decided to choose Paypal to analyse their business model canvas. Generally, business model describes the rationale of how organisation “creates, delivers and captures value” (Osterwalder, 2010).Therefore, Business model canvas is “strategic management” (Pigneur, 2014) tool. It is composed of nine building blocks.The reason we have chosen business model canvas because it helps organizations to conduct structured, tangible, and strategic conversations around new business or existing ones. Organisations such as paypal use the canvas to manage their strategy or create new growth engines.
The concept of business model canvas is to provide a “simple,intuitive and flexible” (Webb, 2014) tool that can be created quickly and applied to a ongoing or new business sturcture. It is used as a single page that displays overview of the business “offering,infastructure, market and finances” (Webb, 2014). There key advantages considered by our group are:
Business model canvas is designed to guide thinking through each of the key components. It allows business to understand how each aspect relates to the others. It allows to approach business in a systematic and formal way.The key principle of business model canvas is to concentrate on “quality rather than quantity”. Its main purpuse is to determine key inputs in each building block, its simple and focused.
The beauty of business model canvas is that it creates a common reference and language that can be used to articulate, share and gain feeback on each business model and its consitutent parts.
Critically, at the heart of business model canvas is the value proposition. Business model canvas addresses issues which are internal and external in nature and focuses on business ability to generate value. The ability to generate value is key component and all behaviours of a business focuses around that internal component.
Even with significant advantages of business canvas, there are dissadvantages which have to be taken into consideration.
The BMC has some important dissadvantages as well. It completely ignores competition, therefore will not help define differentiators and market share, among other things. It also doesn’t assist the user about roles and responsibilities in a business, or competence and capacity. It doesn't define measurable goals. Business model canvas excludes organistaions strategic purpose, their mission or vision.
The graph above indicates the nine building blocks which a user needs to consider before commencing and successfully completing their business canvas model. The pictures used below are from an actual group members account used in hopes to provide better understanding of business model of paypal.
Customers comprise the heart of any business. In order to better satisfy the customers business may group them into segments with similar needs. In the case of paypal, we have clearly distinquished different clientele base which is composed of business to business, business to customers and private merchants.
Value propositions is the entire product or service line offered to customers by the business. It solves customer needs and adapts to expectations. In the case of Paypal, they offer multi-currency online payment platform which is free for use.
Channels identify how company communicates with and reaches its customers segments to deliver a value proposition. Communication, distribution and sales channels comprise a company interface with customers. Paypals main forms of channels lies with online advertising and partners.
Also Paypal communicates with existing customers mainly through email. Phone conversations are possible for emergencies. All updates and new products made by paypal are communicated by email first to existing customer’s as it would be the cost effective
Customer relationships in BMC indentifies what form of relationships company establishes with specific customer segments identified above. Paypal offers easy account registration and inorder to retain customers Paypal provides discounts for their clientele, for example, reduction of commision.
Key resources identifies the necessary assets required to make business model work. Different key resources are required depending on the type of business. Paypal, as it is a e business requires an efficient and reliable paypal platform, further necessary requirements are partners such as ebay. Paypal has its own developer website where it announces its newest updates.
Key activities describes the most important actions a company must do in order to accomplish their business model. Key activities, similarly to key resources are required to create and offer a value proposition, reach segmentated market and their customer base. Paypal accomplishies this task by effective marketing campaign, a superb support for their services and by creating the most secure transaction system.
Key Partnerships describes the necessary “suppliers and partners” (Osterwalder, 2010) that make the business model work. The most significant partnership of Paypal is Ebay, which purchased PayPal after initial IPO for the price of 1.5billion dollars. Paypal has a direct link referring a payment for eBay.
Cost structure identifies all “costs incurred to operate” (Osterwalder, 2010) business. Every action taken by business has a cost attached to it. Creating value, maintaining custumer relationships all incur costs.Paypal main costs are maitining security for its transactions and maintenance of platform. Also new research and development, such as Mobile SDKs, which is a paypal platform for IOS and Android operating systems.
Revenue streams represents the income received from their customer segments. Successfully targeting a customer base increases the revenue generated from that base, making the business more profitable. Paypal main income derives from transactions. As they are free for use, it is extremely important that Paypal targets their customers accurately to generate higher amount of transactions.
The Business model canvas is, in our groups view a great starting point for brainstorming and creating an overview plan for the business. Althought, it has significant advantages where it allows to identify business revenue stream,costs and activities but it doesn’t include any notion of competion or any external environmental that could affect a business. Therefore, we believe that Business model canvas shouldn't be confused with a strategy tool. It's certainly very useful, but there are far more tools that business will need inorder to succeed in a competitive environment.
Osterwalder, A., 2010. Business model generation. Global: slideshare.
Pigneur, Y., 2014. Value Proposition design. 1st ed. Switzerland: Wiley.
Webb, J., 2014. Get 2 Growth. [Online] Available at: http://get2growth.com/business-model-canvas/ [Accessed 13 11 2014].