Mobile Service Innovation and Business Models

Western economies are highly dependent on service innovation for their growth and employment. An important driver for economic growth is, therefore, the development of new, innovative services like electronic services, mobile end-user services, new financial or personalized services. Service innovation joins four trends that currently shape the western economies: the growing importance of services, the need for innovation, changes in consumer and business markets, and the advancements in information and communication technology (ICT).

Services and services innovation are directly related to and dependent on innovations in business models. In this chapter, we discuss the main theoretical background of the STOF model and its four core components, i.e. services, technology, organizational arrangements and financial issues, which will lay the foundations for the method used in designing business models for (mobile internet) services. We discuss the conceptual background and translate the theoretical insights into more design-oriented issues. Then, we make the transition to a model that helps us understand the dynamics involved in the success of business models, i.e. long-term profitability and market adoption of the service to be designed. In the next chapter we will discuss the Critical Design Issues (CDIs) and Critical Success Factors (CSFs) that are part of the STOF approach.

In this chapter we will make the transition towards the design of business models and the related critical issues. We develop a model that helps us understand the causalities that play a role in understanding the viability and feasibility of the business models, i.e. long-term profitability and market adoption. We argue that designing viable business models requires balancing the requirements and interests of the actors involved, within and between the various business model domains. Requirements in the service domain guide the design choices in the technology domain, which in turn affect network formation and the financial arrangements. It is important to understand the Critical Design Issues (CDIs) involved in business models and their interdependencies. In this chapter, we present the Critical Design Issues involved in designing mobile service business models, and demonstrate how they are linked to the Critical Success Factors (CSFs) with regard to business model viability. This results in a causal model for understanding business model viability, as well as providing grounding for the business model design approach outlined in Chap. 5.

There is a difference between designing mobile services and designing other electronic services. The specific characteristics of the mobile services domain shape the context in which design choices on business models are made. Whereas the previous chapters discussed service innovation and business model development in general, in this chapter we take a closer look at our core concepts in relation to the mobile services domain.

We begin with a brief discussion of the main characteristics that distinguish mobile services and business models from other electronic services. Next, we describe the trends that are relevant to each of our four business model components, i.e. mobile services offered and adopted; technology trends; resources, roles and models in the organization domain; and financial models, as used within the mobile sector. Finally, we discuss typical classifications of mobile services business models and compare them to other e-business model classifications.

The STOF model describes the main concepts and design variables within the four business model domains, i.e. service, technology, organization, and finance (see Chap. 2). We have argued that the design choices that are made in these domains need to be balanced to realize viability and feasibility. To support a balanced design we introduced Critical Design Issues (CDIs) and Critical Success Factors (CSFs), as well as the specific issues regarding the business models of mobile services (see Chaps. 3 and 4). In this chapter, we introduce the STOF method, using a step-by-step approach to create a business model design for a specific service concept (Bouwman, Haaker, & De Vos, 2005; Bouwman, Haaker, Steen, & De Vos, 2003; Haaker, Oerlemans, Steen, & De Vos, 2004). The STOF method explicitly helps designers to create viable, feasible and robust business models that create value for customers and providers alike.

In this chapter, we conclude part I and provide an outline for further research. We add some thoughts about topics that complement the issues discussed in Part I, e.g. with regard to service bundling and service composition, business processes, and the internal and external validity of our approach. We will also introduce the application chapters that will be presented in Part II of this book.

What are the generic design issues and success factors for mobile business models that practitioners find the most critical? In Chap. 3, we defined Critical Design Issues (CDIs) as topics that need to be addressed in the service, technology, organization and finance domain of business models. Ultimately, Critical Success Factors (CSFs) predict whether a business model will be viable, i.e. whether it will create sufficient value for customers and capture sufficient value for the providers of the service. Generic design issues and success factors are in contrast to critical design issues and success factors not directly related to a specific to be designed service. This chapter deals with practitioners’ views on such generic issues and factors.

The design issues and success factors are derived from a set of exploratory case studies (see Chap. 3). The question is whether they are supported by a broader group of practitioners, dealing with business models that we did not study before. Do the various types of players in the industry agree on which generic design issues and success factors should be addressed? And are they of equal importance throughout the business model life cycle? In this chapter, we address these questions by presenting the results of an international survey among operators, content providers, application developers and experts dealing with mobile services.

What triggers companies to revise their original design choices in the business model? And what can be learnt from that to make new business models more robust towards a changing environment? As business models are dynamic rather than static, it is important to understand how they evolve over time. Such understanding helps to explain why certain companies are better able to adapt than others, and to make new business models more robust. In this chapter, we show how the dynamic STOF model from Chap. 2 can help in such analyses.

Often, business models are studied through rich and extensive narratives, making it hard to analyze their core elements while taking into account the dimension of time. A structured, repeatable approach would help to understand how a specific business model has evolved over time. Similarly, when comparing the dynamics within different business models, such an approach is beneficial in order to find generic patterns in their evolutionary cycles.

In this chapter, we discuss the design of a service concept and its underlying business model for a context-aware, we-centric service for Dutch police officers. We-centric services are meant to support people in their communication and collaboration in dynamic groups that may change or emerge over time. Typically, these kinds of services add value by locating colleagues, finding out who has relevant information on the user’s current situation and/or discovering which group members are available for direct communication. Designing business models for we-centric services is a novel area. As end-users can both consume and provide value for the service offering, unique business model issues emerge especially in the service domain.

The challenging aspect of business models is that they require managers to connect and balance various design choices and business model components. Mobile payment services are an interesting case because they have two types of customers, buyers — the people who pay — and merchants — the people who receive the payments. Mobile payment services require service providers to find a balance between the interests of buyers (or end-users), merchants, network providers and financial institutions In this chapter we illustrate how three different mobile payment service providers have tried to position themselves in an emerging mobile payment market. We focus on the connection between the design of the customer value and that of the value network.

The final stage in the STOF method is an evaluation of the robustness of the design, for which the method provides some guidelines. For many innovative services, the future holds numerous uncertainties, which makes evaluating the robustness of a business model a difficult task. In this chapter, we apply scenario analysis to assess business model robustness, using digital television services over IP (IPTV) as an example. Before discussing the scenario analysis, we take a look at the discussion surrounding the IP television.

Notwithstanding the wide application of bundling strategies still little is known about what constitutes a viable bundle, i.e. a bundle that creates added value for users and/or providers. Clear guidelines neither for the design of service bundles, nor for the underlying business models are available. In this chapter we use the STOF model to discuss Critical Design Issues (CDIs) for service bundling that influence customer value. The study is based on a literature review and a number of case studies of existing mobile service bundles. We use the results to extend the causal model for creating customer value with additional CDIs related to service bundling.

In this chapter, we illustrate how the STOF model can be applied to analyze business models, using an SMS-based service that is deployed in a developing country, i.e. Smart Padala in the Philippines. In addition, we use the STOF method to design a business model for the introduction of a remittance service in Haiti. Remittances are understood as transfers of money from one person to another, in practice most transfers are by foreign workers to their home countries.

Mock-ups are often developed in technology-oriented research projects to visualize the potential functionality and value of the technology under investigation. A mock-up typically visualizes a service’s interface and outcome, which can be used for the purpose of demonstration. Mock-ups can be used to extract user requirements for new services at an early stage. In this chapter we illustrate how the STOF model and method can be used to assess business potential of new services from mock-up evaluation. The design of business models and assessment of business potential of mockups may serve different purposes. First, the business potential can be used in the selection of promising mock-ups and subsequent prototypes. It also reveals which mock-ups should not be pursued. Second, critical design issues for the business model may be identified and resulting business requirements can be taken into consideration already at an early stage. Finally, the mock-up and the initial business model can be used to interest and involve potential stakeholders. Just as the mock-up can be used to identify user requirements, the business model can be used to identify business requirements, for instance with regard to the required business roles and their interfaces. It is assumed that early identification of business requirements leads to a higher possibility of a viable business model. The STOF model and method are, therefore, instrumental in realizing a higher chance of valorizing research mock-ups and prototypes.

In this chapter, we apply the STOF model and method to a case that involves a digital music vending service, called ‘MusicBox’, in a newly industrialized country. The service uses store locations where users can obtain digital music from digital music vending machines. The service enables users to make use of mobile devices like MP3 players, telephones and the like to listen to popular music. We used the STOF model as a prescriptive framework. Accordingly, the present chapter addresses the following question: Can the STOF model and method be used as a framework for designing a digital music vending service and underlying business model? The analysis is based on the first two phases of the dynamic business model, i.e. the conceptualization of the first ideas, and the initial market trials.

Many research and development projects that are carried out by firms and research institutes are technology-oriented. There is a large gap between research results, for instance in the form of prototypes, and the actual service offerings to customers. This becomes problematic when an organization wants to bring the results from such a project to the market, which will be particularly troublesome when the research results do not readily fit traditional offerings, roles and capabilities in the industry, nor the financial arrangements.

In this chapter, we discuss the design of a business model for a mobile health service, starting with a research prototype that was developed for patients with chronic lower back pain, using the STOF model and method. In a number of design sessions, an initial business model was developed that identifies critical design issues that play a role in moving from prototype toward market deployment. The business model serves as a starting-point to identify and commit relevant stakeholders, and to draw up a business plan and case.

This chapter is structured as follows. We begin by discussing the need for mobile health business models. Next, the research and development project on mobile health and the prototype for chronic lower back pain patients are introduced, after which the approach used to develop the business model is described, followed by a discussion of the developed mobile health business model for each of the STOF domains. We conclude with a discussion regarding the lessons that were learned with respect to the development of a business model on the basis of a prototype.

One of the typical aspects of applied scientific and technology-driven research is that it focuses on the development of a specific technology that aims at solving a specific problem of a specific target group. In terms of the STOF model, this kind of research aims at specifying the technology domain and parts of the service domain. Attention should also be paid to other aspects, i.e. the organization and finance domains to make the technology available to a broader public at a later stage.

In this chapter we sketch a procedure to broaden the scope of a traditional technology push research project, using parts of the STOF method. To encourage potential business model discussions, we designed several organizational arrangements and discussed them with stakeholders and potential partners. We combined a decision support method making use of the Critical Success Factors to select a business model.