What is a Business Model

A business model describes how a business is organized to deliver value to its customers:

• Who: Who are the firm's target customers?
• What: What product or service does the firm offer? How is it different from competitors' offerings?
• Where: How does the firm sell/deliver its offering and reach its customers? via intermediaries or direct sales?
• How much: What is the pricing strategy? Value- or cost-based pricing? Is it justified in the business model? Can price discrimination be employed?

The "Who + What + Where + How Much" is a firm's value proposition. It refers to the product or service attributes valued by a firm's target customer that lead those customers to prefer a firm's offering over those of its competitors, given relative pricing.

How: How is the firm structured to deliver that value? What are its assets and capabilities? This is also referred to as a firm's value chain.

Profitability: how does the firm expect to generate its profit.

Business Model Types

Each industry tends to have its own established business models. Most discussion focuses on innovation: how new business models can be introduced, especially with the help of digital technology.

Business model variations include private label or contract manufacturers, licensing arrangements, value added resellers and franchise models.

E-Commerce business models include affiliate marketing, marketplace businesses and aggregators.

Network Effects and Platform Business Models: Platform business models enable creation and exchange of value between users, with the firm (startup) acting as an infrastructure enabling users to interact. For example, Airbnb enables hosts and travellers to interact and engage in commerce. Social media platforms primarily benefit from network effects because the service's value grows as a direct result of attracting more users.

In a crowdsourcing business model the crowd acts as a source for the business. It is the collection of information, opinions, or work from a group of people, usually sourced via the Internet.