A business model describes the rationale of how an organization creates, delivers, and captures value (economic, social, cultural, or other forms of value). The process of business model construction is part of business strategy.
In theory and practice the term business model is used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies. The literature has provided very diverse interpretations and definitions of a business model. A systematic review and analysis of manager responses to a survey defines business models as the design of organizational structures to enact a commercial opportunity. Further extensions to this design logic emphasize the use of narrative or coherence in business model descriptions as mechanisms by which entrepreneurs create extraordinarily successful growth firms.
Business model is a buzzword that everybody used (or overused) during the dotcom boom. In fact, poorly thought out business models were the downfall of many dotcoms.
However, the business model dates back to the earliest days of business; it merely describes the way in which a company makes money. A business model can be simple or very complex. A restaurant's business model is to make money by cooking and serving food to hungry customers. A website's business model might not be so clear, as there are many ways in which these types of companies can generate revenue. For example, some make money (or try to) by providing a free service and then selling advertising to other companies, while others might sell a product or service directly to online customers.
There are seven basic components of a business model:
1. Reaching customers. Ralph Waldo Emerson famously said, “Build a better mousetrap, and the world will beat a path to your door.” The reality is that even if you did, no one would find you. Even when you know who your prospects are, it’s usually difficult and costly to reach them. You have to find them via the Internet and e-mail, or the old-fashioned way—through broadcast media, print ads, direct mail, telemarketing, or references or by cold-calling. And these potential customers are not likely to be waiting to hear from you and may not respond to you. So be sure you know how you are going to find and reach them.
2. Differentiating your product. You think you’ve got the very best solution, but so does the other gal (or guy). There’s always competition, whether you realize it or not. Smart marketing executives know how to develop unique product-positioning strategies that highlight a product’s true value. You need to thoroughly understand the competition and effectively communicate the unique advantages of your product.
3. Pricing. One of the most basic decisions you have to make is how much you’re going to charge for your product or service. Giving your stuff away is the way to go on the web, but remember that you still need to figure out how you are eventually going to make money—you can’t make it up on volume. Start by understanding how much customers value what they’re gaining from you. Then you need to estimate your total costs, analyze the competitive landscape, and map out your long-term strategy. For your company to survive, your product’s price must be greater than its overall cost.
4. Selling. Persuading customers to buy a product that they need is one of the most important skills an entrepreneur must learn (read It’s All About Selling for Survival). You’re going to be selling at every juncture. So you have to understand what it takes to close a deal and put together the necessary sales process. And this process has to be perfectly conceived. Be sure you test your selling strategy as you would your product.
5. Delivery/distribution. This is easy on the Internet. But for big-ticket items, you usually require a direct sales force; for mid-range products, distributors or value-added resellers; and, for low-priced items, retail outlets or the Internet. It’s different in every industry and for every type of product, but you have to get this right. Your products need to be designed and packaged for the channel through which they will be distributed to customers.
6. Supporting Customers. In addition to teaching customers how to use your product, you need to ensure that you can deal with defects and returns, answer product questions, and listen to and incorporate valuable suggestions for improvement. You may need to provide consulting services to help customers integrate and implement your products. If your product is a critical component of a business, you may also need to provide 24/7 onsite or web support.
7. Achieving customer satisfaction. The ultimate success or failure of a business depends on how much it helps customers achieve their objectives. Happy customers will become your best sales people and buy more from you. Unhappy customers will become your biggest liability.
The WiMAX Business Model
Multimedia services and Internet applications have been the primary drivers in growth and demand of mobile broadband. It has ensured the operators to innovate and upgrade to newer technologies and architectures to offer services at lower cost but at the same time with improved user experience to the end users.
The transition to the next generation network has been already envisioned by the industry players and the move has been outlined to meet the set objectives. The higher level objectives include offering higher data rates, greater system efficiencies, increased data capacity, highly scalable and flatter all-IP architecture with successful interoperability with mobile devices across different networks and technologies. This leads to advent of next generation networks like Mobile WiMAX (Worldwide Interoperability for Microwave Access) developed jointly by IEEE and WiMAX forum based on IEEE802.16e-2005 global standard and LTE (Long Term Evolution) developed by 3GPP in its Release 8.
We will deep dive into the WiMAX business model analyzing the total cost of ownership, revenues and map the current state of WiMAX deployments around the world.
As a standards-based technology with wide industry support, a large ecosystem of developers, and a rapidly growing list of commercial installations, WiMAX stands to benefit from economies of scale and a vast embedded base of WiMAX enabled devices – driving down costs while spurring growth in subscriber adoption.
The other important factor operator is considering in how the platform fits into their existing short term and long term business model, measuring the total cost of ownership and with potential for harnessing time-to-market advantages to grow subscriptions and generate revenue. In the end, detailed business modeling customized to the operator’s market profile and service goals will provide the understanding of how to optimize the WiMAX investment to optimize the returns.
We will first identify the Cost Model for WiMAX concerning the operator’s investment.
As always done we will break the cost into two major components:
1. CAPEX: Capital Expenditure
2. OPEX: Operating Expenditure
The initial investment on a WiMAX deployment focuses largely on capital components associated with procuring the necessary equipment throughout the network and systems architecture. With the introduction of WiMAX service and subscriber adoption with growing usage rates the operating expenses will consume the growing share of total cost of ownership. The end-to-end deployment and operational efforts contributes to the cost of ownership.
The Total Cost of Ownership (TCO) of WiMAX network = CAPEX +OPEX
The Capital expense normally consumes a larger percentage of the total costs but the operating expenses will outweigh the initial capital outlay over time. With WiMAX it is estimated that over the course of 6 years the capital expenses such as infrastructure, core and backhaul equipment will contribute to roughly 25%-30 of the TCO while the operating expenses including IT & operations site maintenance, device subsidies, support and administration will account to roughly 70%-75% of the TCO.
Operating costs can be expected to comprise the largest share of the cost of ownership.
Operators will need to pay due attention to deploying a WiMAX service network that can be readily operationalized with effective management capabilities and strong integration to the systems architecture.
WiMAX offers significant cost advantages in either greenfield or overlay installations over traditional cellular or broadband alternatives. The economics of WiMAX deployment has been demonstrated as favorable to markets as diverse as emerging markets with challenging price constraints seeking access to basic voice and data connectivity to mature markets seeking to enhance existing broadband services with mobile broadband applications.
As a licensed spectrum technology platform, WiMAX investment decisions are predicated by access to appropriately regulated spectrum. Almost three quarters of the spectrum allocated for WiMAX globally is focused in the 2.5 GHz and 3.5 GHz bands.
WiMAX networks deployed at 3.5 GHz may require almost 30% more sites for a given coverage area than a 2.5 GHz installation. The increase in sites at 3.5 GHz results in approximately 13% increase in total cost of ownership for the system over 2.5 GHz. Fixed costs common to both a 2.5 GHz and 3.5 GHz network including such operational line items as subscriber acquisition, systems integration and network management results in the 30% increase of sites to contribute only a 13% increase in cost of ownership. It is important to note that over time as capacity increases and the 2.5 GHz system requires investments in new build out earlier than the 3.5 GHz system – both the 2.5 GHz and 3.5 GHz system will demonstrate parity in cost of ownership.
The WiMAX architecture can realize host of rich Web-based applications and enhanced Internet services as well as operator managed “walled garden” services in the same network, allowing operators to explore creative service offerings and Internet friendly business models. This may include personal communications, mobile entertainment, mobile commerce, enterprise applications and a rich mobile web with connections across a landscape of devices. To complement that, the over-the-air activation protocols and associated network conformance testing and certification in the WiMAX Forum are structured to ensure successful network entry and provisioning of a variety of mobile Internet devices, including embedded communications devices and consumer electronics distributed through retail channels.
With the all-IP flat architecture in the entire service delivery value chain has changed the relationship between the operators and end user. There are different actors like content providers, advertisers, application service providers playing different roles and sharing the stage with the wireless operator. Operators are collaborating with these different actors in driving differentiation through content, applications and high level personalization of products and services. Thus by providing the different mix of value added services, devices and plans for different end-user segments operators may realize stronger growth, higher revenue (ARPU),greater market share( no. of subscribers) and a swift return on WiMAX investment.
Why operators pick WiMAX
The main incentive to deploy WiMAX has been growing demand for broadband connectivity, particularly in areas inadequately served by existing broadband networks. WiMAX operators have essentially identified a largely untapped opportunity in their respective markets and chosen a competitive broadband technology that is available today — one that is faster and less expensive to deploy than fixed technologies.
Other important factors driving operators to deploy WiMAX are:
• Speed to market: Wireless networks can be rolled out much quicker than fixed networks. OneMax reports launching its network in six months in the Dominican Republic, and Umniah’s WiMAX launch in Jordan took less than nine months. Installing the network does not require the operator to acquire rights of way, which could take significant amounts of time. Moreover,
wireless networks may be the optimal way of providing connectivity in many emerging markets due to the lack of effective city planning.
• Surgical network deployment opportunities: With WiMAX, operators can build out their networks as they need to. Henc e, operators have been able to focus on specific areas where there is strong demand, allowing them to generate a higher return on investment and to manage capex per subscriber.
• Mobility and multiple-use scenarios: Many WiMAX operators are excited about mobility on WiMAX and the emergence of personal broadband. This is a key factor differentiating WiMAX from DSL. The mere fact that WiMAX operators can provide a range of applications that take advantage of the three modes of the WiMAX network — fixed, portable and mobile — could substantially expand their target customer ma rkets and enhance their value proposition, assuming these services can be priced at affordable levels.
• IP architecture: Because WiMAX is an IP-based technology, the introduction of new services should take less time, leading to new revenue streams. Besides, an IP core is future-proof: if need be, operators could deploy different technologies in the last mile.
• Cost of spectrum: Compared with spectrum for 3G, Wi MAX spectrum has been less expensive worldwide.