EMC IT Leadership Council
Thursday, October 20, 2011
What Is Your Digital Business Model?
Content
Experience
Platform
Dr. Peter Weill
Chairman & Senior Research Scientist
Center for Information Systems Research (CISR)
MIT Sloan School of Management
Phone: (617) 253-2348, Fax: (617) 253-4424
pweill@mit.edu; http://cisr.mit.edu
This research was made possible by the support of MIT CISR sponsors and patrons.
The research team included Peter Weill, Jeanne Ross, Stephanie Woerner, Peter Reynolds,
Erika Larson, and inspiration from John Sviokla
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
5 Cambridge Center
NE25–7th Floor
Cambridge, MA 02142
Ph. 617-253-2348
Fax 617-253-4424
cisr@mit.edu, http://cisr.mit.edu
MIT CISR gratefully acknowledges the support and contributions
of its Research Patrons and Sponsors.
CISR Research Patrons
The Boston Consulting Group, Inc.
EMC Corp.
Gartner, Inc.
CISR Research Sponsors
IBM Corporation
Microsoft Corporation
Oliver Wyman, Inc.
A.P. Moller Maersk (Denmark)
CHRISTUS Health
AECOM
Chubb & Son
Aetna Inc.
Commonwealth Bank of Australia
AGL Energy Limited (Australia)
Credit Suisse (Switzerland)
Allstate Insurance Co.
CVS Pharmacy, Inc.
AMP Services Ltd. (Australia)
Danfoss A/S (Denmark)
ANZ Banking Group (Australia)
DWS Advanced Business Solutions (Australia)
Australia Post
Embraer – Empresa Brasileira de Aeronautica
Australian Dept. of Immigration
S.A. (Brazil)
& Citizenship
Encana Corp. (Canada)
Australian Taxation Office
ExxonMobil Global Services Co.
Banco Bradesco S.A. (Brazil)
Fidelity Investments
Banco do Brasil S.A.
FOXTEL (Australia)
Bank of America
France Telecom
BBVA (Spain)
Grupo Santander Brasil
Biogen Idec
Holcim Brasil S.A.
Blue Cross Blue Shield
International Finance Corp.
of Massachusetts
Itaú – Unibanco S.A. (Brazil)
BNP Paribas (France)
Johnson & Johnson
BP (U.K.)
Leighton Holdings Ltd. (Australia)
BT Group (U.K.)
Level 3 Communications
Campbell Soup Co.
Marathon Oil Corp.
Canada Pension Plan
MetLife
Investment Board
NASA
Canadian Imperial Bank of Commerce
Nomura Research Institute, Ltd. (Japan)
Capital One Services, LLC
Origin Energy (Australia)
CareFirst BlueCross
BlueShield
Brinckerhoff
Center
for Information Parsons
Systems
Research (CISR)
Chevron Corp.
PepsiCo
International
© 2011 MIT Sloan
CISR
- Weill
PwC Diamond Advisory Services
Tata Consultancy Services
Pfizer Inc.
Principal Financial Group, Inc.
Procter & Gamble Co.
Raytheon Company
Reed Elsevier
Schneider Electric Industries SAS
Sears Holdings Mgmt. Corp.
Standard & Poor’s
State Street Corp.
Sunoco, Inc.
Swiss Reinsurance Co. Ltd.
(Switzerland)
TD Bank (Canada)
Teck Resources Ltd. (Canada)
Telstra Corp. (Australia)
Tetra Pak (Sweden)
Time Warner Cable
Trinity Health
USAA
VF Corporation
Westpac Banking Corp. (Australia)
Woolworths Limited (Australia)
World Bank
MIT CISR’s Mission


Founded in 1974, MIT CISR delivers practical,
research-based insights on how digitization
enables enterprises to thrive in a fast-changing
global economy.
MIT CISR engages its community through
research, electronic research briefings, working
papers, meetings, and executive education.
2011 MIT CISR Research Projects
Designing Organizations in a
Digital Economy




Digital Business Models
Enterprise Architecture and Competitive
Strategy
Collaboration Technologies: Changing How
People Work
Governance of Emerging Organizational Forms
Designing World-Class IT Capabilities



Total Digitization: The New Frontier
Integrating “the Cloud” into the Digitized
Platform
The IT Unit of the Future: Leading Change
Driving Superior Value from Information



Mobility: Innovations to be
Reckoned With
Working Smarter at a Larger Scale: Using
Analytics for Global Solutions
Working Smarter: Developing the Information
Savvy Organization
© 2011 MIT Sloan CISR
1 October 2011
1
Agenda
 Digital business model framework:
– Marketplace to Marketspace
– Examples: Google, Apple, Amazon, DirecTV, Netflix,
USAA, CBA, Bloomberg, Franklin Templeton, LexisNexis
– Discussion: How do you create value by interacting
with your customers digitally?
 Self assessment: How will you create value
with customers digitally circa 2014?
 Early survey results
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
3
Finding your digital business model:
Interacting with your customers digitally
Customer
Value Proposition
Brand, trust,
relationship
Content
Context
Infrastructure
PLACE
Information, products
Packaging, format, tailoring,
service, community, tools
Platforms of services including
infrastructure, technology, data,
and know how
Tangible
Product - Paradigm
Physically Based
Traditional Economics
Customer Transactions
Integrated
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
Content
Experience
Platform
SPACE
Intangible
Service - Paradigm
Information Based
New Economics
Customer Relationships
Modular
Source: Adapted from Place to Space: Migrating to eBusiness Models, P. Weill & M. Vitale, Harvard Business
School Press, April 2001 and “Managing in the Marketspace,” J. Rayport & J. Sviokla, Harvard Business Review ,
November–December 1994.
5
What is your competitive advantage?
Customer
Value Proposition
Brand, trust,
relationship
Content
What is
consumed?
Experience
How is it
packaged?
Platform
How is it
delivered?
Product information, price, and use details, etc.
Information
Product
Customer
Experience
Digital products, e.g., ebook, e-saver account, movie, software
Experience including customer facing digitized business processes,
community and customer input, expertise for informed decision
making, recommendations, tools, my history, interface
Internal
External
Other business processes, customer data, technology
Proprietary hardware, public networks, partners
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
Source: Adapted from Place to Space: Migrating to eBusiness Models, P. Weill & M. Vitale, Harvard Business
School Press, April 2001 and “Managing in the Marketspace,” J. Rayport & J. Sviokla, Harvard Business Review ,
November–December 1994.
6
Digital business models
A digital business model is how your businesses
engage with your customers digitally and create
value, e.g., Amazon, UPS, eBay, Bank of America,
Chevron, Australian Tax Office
What are the challenges your enterprise faces
with optimizing your digital business model?
?
What is digital content in your enterprise that your
customers do and would find valuable?
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
7
Apple






2010 Revenue US $65.2B
Net Profit Margin 21.2%
Industry average 8.2%
In 2Q2011, 7.5M iPods 9.3M iPads, 20M iPhone, 4M Macs sold1
4.0% of all mobiles sold but 50% of mobile industry total profit2
500k+ apps3—$24B revenue so far from 16B donwloaded4
 Projected to reach $21B annually by 20137
 More time daily on apps (81 mins) than search (74)10
305M iPods, 108M iPhones, 19M iPad sales so far8
60% of iPhone 4s bought from Verizon so far were online9
41 percent of mobile users in the U.S., Mexico, and Canada say they will buy the iPhone511 but 4S
released
Apps by anyone but must be to standards
Apple brand magic and “walled garden” ecosystem
Design by Apple: iPhone, iPad, Macs
Manufactured by partners (e.g., iTunes)
Employees 49,400
5 year compound annual
growth rate 36.2%
Content
What is
consumed?
Experience
How is it
packaged?
Platform
How is it
delivered?
“I’ve always wanted to own and control the primary technology in everything we do.” —Steve Jobs5
“It is not the one who owns the content who wins in the future, but who holds the keys to the content.”6
Source: Adapted from Place to Space: Migrating to eBusiness Models, P. Weill & M. Vitale, Harvard Business
School Press, April 2001 and "Managing in the Marketspace," J. Rayport & J. Sviokla, Harvard Business
Review, Nov-Dec 1994.
Financial data: www.hoovers.com
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
1 http://images.apple.com/pr/library/2011/07/19Apple-Reports-Third-Quarter-Results.html
2, 3, 4 http://en.wikipedia.org/wiki/IPhone
5 BusinessWeek Online, Oct. 12, 2004
6“Apple's Competitive Advantage,” Ben Bajarin, 15 March 2010.
7 http://arstechnica.com/apple/news/2010/01/apple-responsible-for-994-of-mobile-app-sales-in-2009.ars
8 http://ipod.about.com/od/ipadmodelsandterms/f/ipad-sales-to-date.htm
9 http://online.wsj.com/article/SB10001424052748704150604576166694202120296.html
10 http://techcrunch.com/2011/06/20/flurry-time-spent-on-mobile-apps-has-surpassed-web-browsing/
11 http://news.cnet.com/8301-13579_3-20113250-37/iphone-5-tops-many-a-mobile-phone-shopping-list
10
Amazon - Kindle
2010 Revenue US $34.2B
 67% market share for black and white e-readers from $139.1
 Kindle—Estimated 8M sold in 20104
 Now apps for iPhone, BlackBerry, etc.
 36 of the top 100 bestselling ebooks in the Kindle Store are published either by indie,
direct-to-Kindle authors or by Amazon publishing subsidiary programs3
 May 2011 Amazon sold more Kindle than print books in the last three months5
 Kindle Fire $199 including Amazon silk cloud browser – video, shopping, fast, subsidized?
Net Profit Margin 3.37%
Industry average 2.1%
Employees 33,700
5-year compound annual
growth rate 30%
Broad base of content: Amazon launches
a 70% of revenue to publisher option
Strong price and format control
Amazon brand and customers
Reviews and recommendations
Content
What is
consumed?
Experience
How is it
packaged?
Proprietary device and (ATT) network; now more open
Designed by Amazon
Platform
How is it
delivered?
Even if Apple could offer a full library of books, it can’t offer the decade’s worth of reviews, comments and community
connections that Amazon’s bookstore has .. “If you’re an iPad buyer, chances are about 90% that you’re also a book
buyer on Amazon. Amazon has your credit card on file, they know what you like. ...That relationship is the key to selling
books.”2
Source: Framework adapted from Place to Space: Migrating to eBusiness Models, P. Weill & M. Vitale, Harvard Business School Press, April 2001 and “Managing in the Marketspace,” J. Rayport & J. Sviokla, Harvard
Business Review, Nov-Dec 1994.
Financial data: www.hoovers.com
1 http://www.bloomberg.com/news/2011-02-22/barnes-noble-falls-after-dividend-halt-same-store-sales-rise.html
2 “Why The iPad Actually Strengthens Amazon’s Position,” J. McQuivey (analyst at Forrester Research),
http://paidcontent.org/article/419-why-the-ipad-actually-strengthens-amazons-position/
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
3 http://seekingalpha.com/article/250507-amazon-positioned-for-50-overall-market-share-by-end-of-2012
4 http://www.crunchgear.com/2010/12/21/2010-kindle-sales-may-be-as-high-as-8-million/
5 http://en.wikipedia.org/wiki/Amazon_Kindle
12
Netflix
Over 2M discs shipped daily to more than 20M subscribers
Feb ’07, 1B DVDs shipped: Apr ’09, 2B DVDs shipped
ForeSee Results’ Top 100 Online Retail Satisfaction Index
Spent $700M on 2011 streaming video rights, $1.2B in 20121
24M customers with access to 10,000 movies and streaming
“[we’re] focused on making our service better and better. And that’s more content, better
personalization, better U.I.”—CEO Reed Hastings
 Chooses what content to buy based, in part, on customer preferences
 New pricing model – separating DVD and streaming met with push back6






2010 Revenue US $2.1B
Gross Profit Margin 35.38%
Industry average 30.95%
Employees 4,329
5 year compound annual
growth rate 16.8%
Content
What is
consumed?
Experience
How is it
packaged?
Platform
How is it
delivered?
Movies, TV shows, Information: DVDs, streaming
Low monthly fee, no due dates, no late fees
Customized recommendations and customer/critic reviews
User friendly with great search
Disc or instant streaming; Netflix can be viewed on nearly 200 different
devices in the US and Canada
− "Soon, nearly every TV sold anywhere in the world will have built-in WiFi
and Netflix.”5
“Netflix used an open-source network, the Postal Service, to launch an alternative distribution business
. . . now they are using another open-source network, the Internet, to transform the business.’’2
—Tim Wu, “The Master Switch: The Rise and Fall of Information Empires”
“It’s a little bit like, is the Albanian army going to take over the world?” said Jeffrey L. Bewkes, Chief Executive
of Time Warner, in an interview last week. “I don't think so.”4
1 http://www.hollywoodreporter.com/news/hollywood-execs-privately-netflix-71957
Stirs Rivalries,” November 25, 2010, New York Times
industry evolves, success of Netflix is its biggest threat,” Washington Post, 3/ 6/11
2 “Netflix’s Move Onto the Web
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
3 “As telecom
4 http://www.nytimes.com/2010/12/13/business/media/13bewkes.html?ref=netflixinc
5 http://www.fool.com/investing/general/2011/04/27/this-is-netflixs-secret-weapon.aspx?source=iaasitlnk0000003
6 http://online.wsj.com/article/SB10001424053111904060604576572322651549428.html
14
USAA






2010 Revenue US $17.9B
8M members, 8% increase in 2010, 98% member retention
Member-owned, 50% members active military, now 4th generation
Customer interactions initially by phone & mail, now mobile & internet
Often #1 in customer service, 97% member satisfaction
15,000 logins to USAA Mobile every hour, 175% increase
1st bank to develop mobile phone check deposit by photo
Net Profit Margin 14.7%
Industry average 9.4%
Employees 22,600
5 year compound annual
growth rate
Property and casualty insurance, banking and investment products, financial advice
and info, car buying service
Channels and call centers consolidated into a unified Member Experience organization, focusing
on members’ life events (not LOBs). Using Twitter and Facebook to deliver customer service to
USAA clients. Member Experience an EVP position, reports to CEO. 12,000 Member Service Reps.
Single customer info file, includes customer asset info. 50% Run/50% Build, continuing to
drive down run costs. Reusable infrastructure, data, and application services. Business
architecture outside IT. Digital product platforms for each of the 3 major business units.
6.0%
Content
What is
consumed?
Experience
How is it
packaged?
Platform
How is it
delivered?
“We have made it part of our commitment .. to truly embrace the opportunities offered by new technologies.”1
— Kevin Bergner, EVP and CAO
“.. a visionary CEO who saw what was happening in his own household. He said, ‘This is happening with or without us. In these channels we
have to be proactive, we can’t wait.’”2
— Rhonda Crawford, VP, Digital Media and Innovation
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
Sources: Industry averages from www.hoovers.com; Jeanne W. Ross and Cynthia M. Beath, “USAA: Organizing for Innovation and Superior Customer Service,” CISR WP
No. 382, December 2010; USAA 2008 and 2010 Reports to Members;
1 http://www.bizjournals.com/sanantonio/print-edition/2010/10/29/usaa-is-making-social-media-part-of.html
2 http://www.banktech.com/blog/archives/2010/05/citi_usaa_execs.html
16
Top Ten NPS Scores in the USA
Rank
Company
NPS
1
USAA-Banking
87%
2
Trader Joe’s
82%
3
Wegmans
78%
4
USAA-Homeowners Insurance
78%
5
Costco
77%
6
USAA-Auto Insurance
73%
7
Apple
72%
8
Publix
72%
9
Amazon.com
70%
Kohl’s
70%
10
Center for Information Systems Research (CISR) Source: Satmetrix 2011 Net Promoter Benchmark Study of U.S. Consumers
© 2011 MIT Sloan CISR – Weill and Woerner
17
Franklin Templeton Investments







5th largest asset manager in U.S.
Active-management funds
Derive nearly all of fund sales through third-party broker/dealers
130,000 financial advisor relationships in U.S.
Offices in over 30 countries, clients in more than 150 countries
Manage over $703B in investments
5 of their open U.S. funds are 22% of their assets under management
139 mutual funds, 21 insurance funds
Net Profit Margin 26.6%
Industry average1 8.1%
Employees 7,900
5-year CAGR 5.2%
Retail financial firms:
Fidelity, Vanguard etc.
Content
Interactive online presentations, portfolio
Experience
manager webcasts, emerging markets blog
Security pricing, client transactions,
report processing
2010 Revenue US $5.8B
Platform
Content
Experience
Platform
“[Templeton] has made a range of content available online. Charts and interactive graphics are used to make the case for equities . . . Interactive quizzes are sprinkled
throughout the content.”2
— David McSpadden, SVP, Global Advisory Services, Franklin Templeton
"Broker-dealers and custodians are realizing that better technology can free up advisors to spend more time attracting new clients and servicing existing ones.”3 — Joel Bruckenstein,
financial advisor and journalist
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
Source: Adapted from Place to Space: Migrating to eBusiness Models, P. Weill & M. Vitale, Harvard Business School Press, April 2001 and "Managing in the Marketspace," J. Rayport & J. Sviokla,
Harvard Business Review, Nov-Dec 1994. Company financial information from Hoovers.com and company web site
1 Yahoo! Finance, http://biz.yahoo.com/ic/422.html
2“Templeton Trying Education Push Vs. Market Fear,” Steve Garmhausen. American Banker. New York, N.Y.: Dec 1, 2010.
3 “Tech Futures; Advisors look to technology as demands increase for greater efficiency and smarter ways to compete,” John McCormick. Financial Planning. New York: Feb 2011.
20
How will your firm look in 2014?
Rate your firm today in each of the
three areas — on a scale of 1, “does
not create business value” to 10,
“creates significant business value.”
Given the issues we have discussed today,
rank (1, 2, 3) the importance of each of the
three areas for success in your firm in
2014? Enter 0 if not relevant.
Information
Product
Customer
Experience
Internal
External
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
Content
What is
consumed?
Experience
How is it
packaged?
Platform
How is it
delivered?
Source: Adapted from Place to Space: Migrating to eBusiness Models, P. Weill & M. Vitale, Harvard Business School Press,
April 2001 and "Managing in the Marketspace," J. Rayport & J. Sviokla, Harvard Business Review, Nov-Dec 1994.
32
Industry: Effectiveness of content,
experience, & platform
FinServ &
Insur
Manu &
Chem
HiTech &
Teleco
Healthcare
IT Soft &
Servs
Other
Servs
Energy &
Mining
Total ForProfit
Content1
7.4
6.4
7.6
6.8
8.2
8.2
6.4
7.2
Experience1
6.6
6.0
7.0
4.4
8.6
6.6
4.4
6.4
Platform1
6.0
6.2
6.6
6.0
7.2
7.2
5.2
6.4
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
Source: MIT CISR 2011 Digital Business Models Survey, N=78
1 Effectiveness measures are averages of questions assessing effectiveness of different aspects of each construct (Content=10 questions,
Experience=9 questions, Platform=8 questions). Effectiveness is measured on a 10-point scale with 1=Not effective to 10=Very effective.
2 Content and Experience are significantly correlated at the 0.7 level, Content and Platform are significantly correlated at the 0.6 level, and
Experience and Platform are significantly correlated at the 0.7 level.
33
Effectiveness of Content, Experience and Platform all
predict different measures of performance
EFFECTIVENESS
% of Revenues from
digital products and
services
Content1
✔✔
Experience1
✔✔
Platform1
% of Revenues from
online channels
% Revenue Growth2
% Net Margin3
✔
✔
✔
✔
 Strong content drives online profits and revenue growth
 Strong customer experience drives online revenue
 Strong platform drives margin
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
Source: MIT CISR 2011 Digital Business Models Survey, N=78. Ticks are statistically significant at the p < .1 level, double ticks are strongest correlations
1 Effectiveness is assessed by averaging a series of questions on different aspects of each construct (Content=10 questions, Experience=9 questions,
Platform=8 questions) on a 10-point scale with 1=Not effective to 10=Very effective.
2 Revenue growth is sample industry adjusted. Results are same for both adjusted and unadjusted figures
3 Unadjusted for industry differences
34
Discussion challenge
 Explain your 2014 ranking to your neighbor(s)
 What is one aspect of managing your firm’s digital business
model that you should do differently?
 What should your IT unit do to help optimize your firm’s digital
business models?
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
38
MIT CISR digital business models survey
http://bit.ly/MITCISR_DBMSurvey
Need the link or have questions? Email Stephanie Woerner at woerner@mit.edu
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
39
Next steps?
Customer
Value Proposition
Brand, trust,
relationship
Content
What is
consumed?
Experience
How is it
packaged?
Platform
How is it
delivered?
Information
Product
Customer
Experience
Internal
External
Does your budget for next year reflect the importance
of content, experience, and platform? How do you
govern this?
How do you get/create value from your content? Who owns
content and digital products—are they different?
How do you manage these interfaces?
Do you know how good your customer experience is? Who owns
it?
How good is your platform? Who owns it?
How can you expose your platform so customers leverage
(e.g., co-create on) your platform?
How do you better leverage the market—cloud, SaaS,
partners, external data?
Center for Information Systems Research (CISR)
© 2011 MIT Sloan CISR - Weill
40