March 19, 2007

Strategic Computing and Communications Technology

Business Model of Co-creation

STUDENTS:

Carlos Penzini
Grace Uang
Mark Shilmovich
Panagiotis Koumantanos
Shohei Ishiwata
Zach Gillen
Agenda
 Introduction
 Business models
–Business model categorization
–Case study
 Candidate products
 Risks & Challenges of Co-creation
 Conclusion

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What is Co-Creation? Introduction
- Co-creation is value creation by Firm and Customer
together
 “It‘s the democratization of industry…we are seeing the emergence of an
economy of the people, by the people, for the people.” --Prahalad
 Co-creation creates a new dynamic to the producer/customer
relationship by engaging customers directly in the production or
distribution of value

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 Locus of co-creation Introduction
-Co-creation has evolved from customization to experience creation
 Ubiquitous connectivity, Low transaction cost of idea and Globalization by
information technology enabled individual users to participate in value creation

PERSONALISED or Experience
UNIQUE CUSTOMER Innovation
VALUE (8) Personalised Value
Experience Value Creation
(7) Real-Time
and Knowledge In-Use
Marketing & Service
Co-Creation (unique
Adaptation IPOD, AMAZON (US), experiences)
CONTACT CENTRE DIALOGUE, MEDTRONICS, JOHN DEERE,
CEMEX and FEDEX TRACKING ON STAR
(6) New SYSTEMS
THEOMCGROUP
Service WITHIN
(5) Open Community MARKET and
Design
WITHIN THE TELIASONERA, ALARIS (4) Mass Ideation and Product COMMUNITY
MEDICAL SYSTEMS
FIRM Customisation Design and
ADIDAS, DELL, CAR
(2) New Product MANUFACTURERS
Development COMPUTER
GAMES MODS, LINUX, LEGO
Design and MINDSTORMS, FIRFOX,
(3) Existing Product INNOCENTIVE
Development
Adaptation
(Lead User)
P&G, SILICON GRAPHICS, (Customer Feedback
VOLVO XC90, HARLEY SONY ANTENNA SHOPS, CISCO
KNOWLEDGE CENTRE,
DAVIDSON, SATURN
MICROSOFT KNOWLEDGEBASE (1) Product
Value Creation “Finishing”
Pre-Use Customization STANDARD
(Fixed attribute
IKEA
By THEOMCGROUP
products)
CUSTOMER VALUE
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User-Created Content vs. Co-Creation Introduction

 Co-creation is broader in that it includes any kind of joint value

creation between a firm and its customer
– while user-generated content refers to content (information, or some
form of creative work)

 User-created content is one form of co-creation.

 User-created content is when an end-user uses a service to

mediate the creation and/or distribution of their creative work.

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Business model Business model

-Key question: What is the incentive and how to monetize?

 Conventional business model frame work only focuses on Firm,

because value was created mainly by Firm
 Value is co-created by Firm and Users together in Co-creation.
 We need to understand what value is created by each partner and
their incentives.
Revenue stream so far Revenue stream in co-creation

User
Firm
Firm User User

Third party Complicated..

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Business model categorization Business model

- Categorized by monetization of each parties

Yahoo Answers,
Innocentive,
Lego Mindstorm
iTMS+iPod, Ebay
Firm gains revenue by
Profit Firm gains revenue by
providing platform from user,
providing platform
advertisement, etc
User economically benefited
User mainly enjoys benefits
by playing on this platform
for free
Firm

Wikipedia, Linux, (Delicious)

Craigslist
Everybody takes part
No Profit Firm acts like NPO and
voluntarily. Value incentive is
supports users to gain
often personal.
revenue.

No Profit User Profit

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 Business model
Case Studies

Profit

Firm

Craigslist
No Profit

No Profit User Profit

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 Business model
Yahoo answers
Proft
Firm
Customers No proft

No proft Proft
User

• Users / Posting Questions

• Advertisers

Competitors Complementors

• Yedda • ISPs
• Oyogi • Browsers
• Askville (by Amazon) • PC
• Live QnA • Users / Answering
• Brainboost • Other Yahoo Services
• Wondir (del.icio.us, Flickr etc)
• Answerbug
• Answers.com

Suppliers
• Hardware
• Power Companies
• Employees
• Bandwidth

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Yahoo answers Business model

- Users more interested in non-economical benefit

- Company benefited economically from value of network

Incentives for Participation

Users
 Reputation management and recognition through
leaderboards
 Sharing of information and experience without
endlessly searching through the Internet
Company
 Pay-per-click advertising when using the search
option
 Bundling with del.icio.us and Flickr into fan sites
 Channeling to other Yahoo! services

Advertised
Suggestions for Remuneration through the
Word of Mouth search engine
 Yahoo! could try a hybrid method encompassing
elements of Google Answers. It could form a pool of Developing the
experts which the users would have to pay in order
for them to answer his question. value network
 More banner advertising

Channeling through other Yahoo! services

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 Business model
Craigslist
Proft
Customers Firm
No proft

No proft Proft
User

• Users / Sellers

Competitors
Complementors
• Evite
• Friendster
• Lavalife • ISPs
• LinkedIn • Browsers
• Meetup • PC
• Monster • Users / Buyers
• MySpace
• Spring Street
• Tickle
• Tribe Networks
• Yahoo!
Suppliers
• Hardware
• Power Companies
• Employees
• Bandwidth

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 Craigslist Business model

- Philanthropic policy attracts users by Anti-eBay

style and users trade solid products for profit
Incentives for Participation

Users Company
 Anti-eBay architecture  Philanthropic purpose
 No advertisement banners  “serving customers come first and worrying about
 Public service culture attracts a fanatic base revenues comes second”
 Sense of community

Word of Mouth
Suggestions for Remuneration
 If Craigslist were to change philosophy and become
more commercial it could use the following revenue
mechanisms:
Developing the
– Posting fee
– Transaction fee value network
– Subscription fee
– Advertisements

Indirect promotion through Craig’s personal interviews

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 Business model
Innocentive
Proft
Customers Firm
No proft

• Pharmaceutical Companies No proft Proft

• Consumer product firms User

• Industrial chemical organizations

• Rockefeller Foundation
• Advertisers

Competitors Complementors

• ISPs
• yet2.com • Browsers
• Nine Sigma Inc. • PC
• InnovationXchange • Solvers / Users
• R&D labs

Suppliers
• Hardware
• Power Companies
• Employees
• Bandwidth

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 Innocentive Business model

- Users have solid economical incentive to participate

Incentives for Participation

User “Solvers” & “Seekers” Company

 Solvers – Recognition, Monetary rewards, Possible  Posting fee for “seeker” company
Relationship with seeker company  Annual fee for “seeker” company in order to access
 Seekers – Benefit to Cost Ratio = 20:1 for R&D specialized scientific staff
 Success commission when a solution is chosen

Suggestions for Remuneration Present in

Sponsorship Conferences
 Instead of basing the remuneration on the “seeker” of Relevant Where Solvers
companies it could be based on the 110,000 Events attended
scientists and scientific organizations that make up
the solver community: Developing the
– Subscription fee (Versioning based on usage value network
of system)
– Fee for access to the detailed problem
statement
Posted selected challenges in scientific publications

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 Business model
Wikipedia
Proft
Firm
Customers No proft

No proft Proft
User

• General public

Competitors Complementors

• Britannica.com
• Columbia Encyclopedia • ISPs
• Encyclopedia Drammatica • Browsers
• Encyclopedia.com • PC
• Information Please • Users / Posting
•How Stuff Works • Other Wiki projects
•Encarta Online
• Citizendium
• xrefer
Suppliers
• Hardware
• Power Companies
• Employees
• Bandwidth

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 Business model
Wikipedia
Philanthropic interests attracts users quickly

Incentives for Participation

Users Company
 Status, reputation  NPO
 Heritage to the world (through Wikipedia users are  Based on donations and fundraising efforts
`immortalized`)
 There is tracking system to highlight contribution

Suggestions for Remuneration Word of Mouth

? Developing the
value network

Bundling other Wiki projects

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Summary of business models Business model

• Users more interested in

non-economical benefit
Earn profit • Users have solid economical
• Company benefited incentive to participate
economically from value of
network

Firm

• Philanthropic policy attracts

users by Anti-eBay style
• Philanthropic interests attract
No Profit users quickly
• Users trade solid products
for profit

No Profit User Earn profit

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Characteristics of Businesses with New
Opportunities in Co-creation
 Common characteristics  Possible candidates
– Product – More opportunities in Co-
 Easy to modify or customize by creation at existing co-creation
customer product
– Such as hardware that  iTMS
previously shipped hardwired,
but now comes with – New candidated for co-creation
reprogrammable circuitry.  Industry Robotics
 Existing online service  Cellular phone
– This makes the cost of
communications infrastructure
low.
– Customer
 Large user community
– Easy to capture contributors.

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 Risk and solution
Risks & Challenges of Co-creation
 Privacy
 Legal
 Brand

 Goal divergence & Define objectives.

 Initial Effort & Investment to Provide Capabilities for Co-
Creation.
 Equity of returns & Manage Incentives.
 Be careful about who you ask to co-create.
 Clarify Rights & Acceptable Use.
 Control the channels.
 Granularity and Cost of Management & Assembly
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Conclusion
 Technological advances are enabling newly
economical applications of co-creation
– Co-creation (partnerships with customers) have
always been around
– As transaction costs fall due to ubiquity of information
technology and the marginal costs of forming a
partnership decreases, the applications of co-
creation begin to include
 finer granularity contributions
 access to a larger network of potential contributors,
(globalization)
 increased specialization
 community quality monitoring and metrics via reputation
systems, attention information, and user ratings.

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Thank you
Q&A
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