[MUSIC] Welcome to 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 six years. I'm also the CEO and founder of VisionMobile, a leading research firm where we help the world understand developers and developers understand the world. Much of the material in this course has been developed through workshops and research carried out by Vision Mobile. And I'm thankful to my colleagues and particularly Michael Vakulenko for the contribution to this material. In this course, we'll learn much about digital business models and developers as the engine behind those business models. Digital business models are disrupting 50 year old companies in telecommunications, transportation, advertising, e-commerce, automotive, insurance and many more industries. It will explore the business models of software mega brands such as Apple, Google, Facebook and Amazon. We will understand how software developers are not just innovators they're also the decision makers in modern competitive battles from mobile to cloud, and from consumer goods to enterprise software. We will also explore how developers are the engine of digital business models, using examples from diverse industries, from healthcare to aviation. We have a lot of ground to cover. But let me ask you this first, what prompted you to study new business models? For me, it was trying to understand how business models are disrupting several industries, and explain this to both students and clients. In fact, there are several industries under disruption today. The telecommunications industry where apps like WeChat and WhatsApp are offering free messages and calls to over a billion users. Transportation, were Uber is replacing taxi companies, couriers and delivery services. Advertising, where Facebook and Google are dominating search and banner advertising. E-commerce, where Amazon and Tencent are taking away market leadership from 50 year old traditional retailers. Automotive where startups like Automatic.com can deliver emergency, ride-sharing and car repair services that were previously the exclusive privilege of car makers. Insurance, were companies like Beam Dental and Zenefits use digital business models to gain an unfair advantage in acquiring customers. It might seem puzzling how such diverse companies are disrupting the incumbents. We argue that technologies is an enabler While it is business models that are the agent of this change. To understand how companies work in the digital era we need new management tools. Einstein famously said, We cannot solve our problems with the same thinking we used when we created them. Traditional management techniques won't work well for traditional markets and business models that were defined in the industrial age. They're not adequate however for understanding the changes that are taking place in internet markets and business models. For example, let's take a look at Nokia. In 2007, Nokia was unbeatable, it had nearly 40% global market share in the mobile phone business. Four out of every ten phones that were sold were Nokia phones at that time. Its power was unquestionable, and most industry observers considered that market domination as irreversible. If we were to use a classic management tool such as Michael Porter's 5-force analysis in 2007 we would not have been able to predict the downfall of Nokia. The barriers to entry for mobile phone makers were very high. Producing a smartphone in late 2000s required incredible know how in both software and hardware. Nokia had an incredible power over suppliers with a 40% market share. They had a very strong power and brand over customers, producing phones faster than any other mobile phone maker and at every possible price point selling in every country. In 2007 Nokia was one of the top household brands globally. There were no other substitutes for Nokia phones. So the company enjoyed very little competition in both feature phones and smartphones. The same applies to BlackBerry at that time. If one applies a 5-Force analysis on BlackBerry, you would see that the company was very well entrenched in the enterprise sector because of its e-mail solutions that were uniquely integrated from the keyboard-based phone to its secure servers, delivering email on the go. What caused the downfall of Nokia was the reason people are buying mobile phones. In 2007, people bought phones for their features. For example, the top of the range Nokia N95, or for the phone's capabilities. For example, Blackberry's corporate email on the go. Soon that changed. People were buying phones, not for what the phone did but what you could do with a phone; the thousands and eventually millions of applications that can be accessed through the phone. This was engineered by Apple and Google, who brought the desktop computing business model to the mobile phone market. That is, allowing third parties, software developers, to build applications and distribute them directly to users. Nokia and BlackBerry tried to copy the recipe. However, Apple and Google were able to defend their business by having initially thousands and eventually millions of developers creating apps for their devices. The ecosystem of app developers that Apple and Google amassed, grew at a pace that Nokia, Blackberry, and later, Microsoft and Mozilla simply couldn't compete with. Apple and Google were able to use millions of third party apps to drive demand to their core business: Apple's hardware business and Google's ad business, as we will see. To understand how Apple and Google use digital business models to disrupt incumbent Motorola, Sony Ericson, and RIM, we need new management tools. We collectively refer to these tools as digital business models, and we will explore them throughout this course.
