Business Models Matters (#4)

Is this Business-Models-for-Innovation ? Or innovative Business-Models ? Even innovation of (in) Business-Models ?

Rethinking Business Model for Innovation : Lessons from entrepreneurial cases is an e-book, edited by Valérie Chanal in late 2010. For teasing, copyrighting and coherent editing issues, the proposition is to release few focused excerpts. Here is the conclusive part of the chapter written by Valérie Chanal, Jean-Luc Giannelloni & Romain Parent.

& :
– To download the full book for free (shortcut : from HAL-SHS, France’s academic publication platform).
The introduction of this chapter | To unfold the chapter about SENSEI and collaborative projects (Lavoisy, Eurich, Akselsen, Ytterstad).
Business model ? (webOL).

Building a profitable Business
Model where clients don’t want to pay :
Sportganizer and the use of sponsoring in a Web 2.0. platform
| Conclusion

The case highlights all the difficulties involved in building a profitable economic model for Web 2.0 platforms in a two-sided market. These platforms, whose vocation is to facilitate the “virtual meeting” of diverse economic or social actors, often face a lack of financial resources of these actors, particularly when they work in associations where volunteer work is a rule rather than an exception. The managers of these platforms therefore have to formulate innovative value propositions in order to attract the actors of the paying side of the market.

On this point, the Sportganizer case provides a number of useful lessons. Firstly it’has been shown that sponsoring can be better adapted to financing Web 2.0 platforms than the more generally used advertising approach. There is a difference in the nature of advertising, perceived as being intrusive and sponsoring, anchored into the reality and the sociocultural dynamics of the subsidised entity. From this point of view, the credibility of the sponsor is much higher than that of the advertiser.

Then there’s the effect of scale which allows sponsoring to be effective at different levels of investment. Sponsoring on a world scale (ex. Adidas, Emirates or Sony in the 2010 football world cup) produces returns on another scale to those that can be expected at a local level (e.g. CKT and the support provided to local amateur cycling clubs4) though they are of the same nature. Sportganizer can therefore attract local sponsors as well as national ones and provide them with substantially the same benefits. Sponsorship is, at last, a vector of positive cross-network effects.

It has been demonstrated that the increasing number of users on the subsidized side (sports, clubs …) benefits the sponsors whose visibility is enhanced. The latter improve their image and benefit from transfer mechanisms mentioned above (provided they are congruent with the sport supported). More generally, their interactions with users who play sports are more numerous and, potentially, more intense and richer, which should enable them to develop new more useful forms of interaction.

On the other hand the presence of publicity banners can result in negative crossed effects: the more advertisers there are (hence the more adverts) the lower the service value becomes for the audience. Sponsorship limits, or even cancels out, this effect as it doesn’t produce the same phenomena of rejection by the users. Also, it may even lead to a positive cross effect, on the condition that a high level of visibility is maintained (which implies limiting the number of sponsors). Indeed, the presence of sponsors, as opposed to pure advertisers, can provide some value to the audience, which is both symbolic (through the sponsor’s positive image transfer) and economic (providing a free access to a value added service and other advantages such as free trials of products).

In addition, sponsorship can be a springboard for new value propositions, which involve Internet users more. Co-innovation is a particularly attractive idea, and could be a source of value to potential sponsors. The innovation potential of the virtual community made up of the users could indeed be exploited by companies who don’t have their own community of consumers, where their innovation project is close to the centres of interest of the users. In the Sportganizer case, once the two-sides of the market are “on board”, it will be possible to improve the positive
effects of the network by considering the sportsmen and women as sources of potential innovation for designers and manufacturers of sports equipment, for example through the use of virtual tool kits (Von Hippel, 2001). This role has already been demonstrated by a number of sports communities (Franke and Shah, 2003).

Thirdly, and finally, the characteristics of sponsorship make it a financing model (therefore a source of value), which appears promising for all Web 2.0 platforms, over and above the Sportganizer case. As has been stated, sponsoring does not convey the negative image of advertising, whose perceived intrusiveness has been measured in many sectors other than sport (Cho and Cheon, 2004). Whatever the area of activity, it allows the platform to develop and provide a service to its users, which the latter value. More generally, as sponsoring is appreciated by users, as opposed to advertising, the platform manager can bring on board actors from both sides simultaneously. The risk of generating positive crossed-network effects in one direction and negative ones the other are therefore low. For this, the congruence between the sponsor and the object of the platform considered appears essential and allows the sponsor to set up a strategy to create value through related services (diagnosis, free trials, buying online …)  much more easily and effectively. These new Web 2.0 platforms, through their capacity to improve the quality of relationships between advertisers and customers, can therefore invent new types of Business Models whose value emerges through the interactions generated between the two sides of the market.


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