Welcome to module five, the final module in this course on digital business models. My name is Andreas Constantinou, and I'm an Adjunct Professor at Lund University, teaching internet business models for the past eight years. I'm also the CEO, and founder of SlashData, and leading research firm where we help the world understand developers, and developers understand the world. We added this module to the course on digital business models, based on popular demand. We're hearing quite a few comments saying, "Well, we heard about business models, we understand how they work, but we'd also like to figure out how to apply them to our own business," which is exactly, what this fifth module is about. We'll start by helping you recap some of the learnings and lessons from earlier in this course. Let's first recap how digital business models work. You've learned that digital business models drive demand in new ways by helping you create demand through new partners, new users of your product, by reaching your users and reaching into new markets. For example iOS and Android use a network of millions of developers to create millions of apps. These apps is what drives demand for their product. Samsung SmartThings which is a set of smart home products, uses developers to extend the functionality of its smart home products and connect with hundreds or even thousands of other non-Samsung smart home products. In the case of Walgreens, what digital business models do, is help Walgreens drive demand from new users. How does that happen? By having developers who build photo applications, add a photo print button to their app and that gets users to visit the Walgreens store in order to have these photos printed. As a result, Walgreens gets more foot traffic, that is, more people in the stores. We saw that digital business models comprise of two types: platforms with network effects and asymmetric business models. Network effects work very simply by creating a technology platform. As in the case of Apple iOS and Google Android which connects two very different set of people or companies namely users and developers or taxi drivers and taxi riders or tenants and landlords or doctors and patients. The more users the more developers, the more developers the more apps and the more users buying the platform in order to access those apps. That network dynamic, can exponentially increase the growth and demand for the product that is bundled with the platform. So how do you create your own network effects? Here is a four-step recipe. You start by identifying what are the compliments for your product. In the case of Apple and Google, the complement is mobile apps. Secondly, you combine the complements with the usage of your product typically by bundling. In the case of Apple, they are mutually dependent. So you cannot use Apple apps, outside the iPhone or iPad. Thirdly, you find complementors who will produce these apps. In Apple's case developers, and you boost supply and demand for those complementors. For example, you create the conditions for low cost or free apps to proliferate. Finally, you boost the supply for complements by connecting complementors that is developers with this user-base of billions of Apple product users. We'll see more examples of how companies leverage this recipe for platform-based business models in the next lesson. Now, let's examine the second type of digital business models which is asymmetric business models. The major difference with platform business models is the fact that the complement lies in a market which is different to the one your core product is in. In the case of Apple, the company facilitates the creation of apps which sit in the software business and then locks these apps to iDevices in the hardware business by making sure that they can only be developed and run on Apple devices. The apps drive users to buy more iPhones, iPads, and Apple watches and so on. Google commoditizes Android in the software business by making it free and open-source and bundles it together with its advertising business by mining user information on Android devices. Commoditizing Android essentially drives the demand for Google's ad business. So how do you create an asymmetric business model in your own business? It's a simple 4-step process very similar to the one we saw with platform-based business models. You start by creating a complement in the new industry. It's important that this complement needs to have a lower customer acquisition cost (CAC) than your core product. Given that asymmetric business models are about transferring profits from a new industry, you are capturing users with a lower acquisition cost than you can capture them in your core business or in your own industry. For example, in the case of Amazon, the company enables users to buy a Kindle device selling at cost. The tablet customer acquisition cost for Amazon is lower than its cost of acquiring e-commerce users. Plus those customers will be more frequent users of Amazon. The next step of the recipe is to combine the complement with usage of your product. In the case of Amazon, the Kindle is bundled with the Amazon App store and the Amazon e-commerce properties. The third step is boosting the demand for the complement by commoditizing. That means, you make the complement available at cost or even below cost. Finally, you acquire users from that new industry with a lower customer acquisition cost. That's how the recipe for asymmetric business models works. But, enough about theory. In the next lesson, we'll look at five different examples, two in lesson two and three in lesson three by leading companies who apply platform-based, and asymmetric business models. We'll also share a template you can use to build your own digital business models.
