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 eight years. I'm also the CEO and founder of /Data, a leading research firm where we help the world understand developers and developers understand the world for some of the biggest technology platforms out there. Much of the material in this course has been developed through workshops and research carried out by /Data. I'm thankful to my colleagues and particularly, Michael Vakulenko, for their contribution to the material. I'm also thankful to Dominic Jessen, who developed a lot of the case studies presented here, Benjamin Weaver, the Course Director at Lund University, who produced and edited the videos as well as Markus Lahtinen, who is a Digital Course Director at Lund University. In this course, we will learn much about digital business models and developers as the engine behind those business models. Digital business models are disrupting 100-year-old billion-dollar companies in telecommunications, transportation, advertising, e-commerce, automotive, insurance, agriculture, finance, the whole lot. In this course, we will explore the business models of software mega brands: Apple, Google, Facebook, Amazon, and Tencent. We will also cover the business models of traditional companies extending to digital business models such as Walgreens, Expedia, and John Deere, as well as established second-generation platform companies like DJI, Salesforce, and Roblox, each of which is active in very different verticals, from aerial photography to retail and gaming. We will understand how software developers are not just the innovators, but also the decision-makers in modern competitive battles from mobile to Cloud and from consumer goods to enterprise software. We will explore how developers are the engine of digital business models using examples from diverse industries, from retail in the case of Walgreens, to gaming in the case of Roblox. Moreover, we're now seeing developer-first companies, that is, companies that target developers as their primary customers such as NewRelic, Twilio, and SendGrid become publicly traded. In fact, two of these companies, Twilio and SendGrid, merged as we were going into production with this MOOC, with Twilio buying SendGrid for two billion US dollars. We have a lot of ground to cover. But let me ask you this first, what prompted you to study digital business models? For me, it was trying to understand how business models are disrupting several industries and explain this to both students at the university and clients of /Data. In 2009, we were asked by Telefonica to help them understand how the software incumbents were disrupting the telecom business, and that time with Android. That took us on a journey over many years to study and model how the business models of Internet companies work and explain them to the companies being disrupted. While disruption started from the mobile industry with Android, there are now several industries under disruption today. Telecoms, where WhatsApp, Viber, WeChat, and so on are offering free messaging and calls to over a billion users each. Transportation, where 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 over 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 is another one, where companies like Zenefits use digital business models to gain "unfair advantage" in acquiring customers. Finance, where stripe with a developer-centric proposition has become the second most embedded payments technology in websites after PayPal. It might seem puzzling how such diverse companies are disrupting the incumbents. We argue that technology is an enabler while it is business models that are the agent of this change. In our case, digital business models. To understand how companies work in the digital era, we need new management tools, that is new patterns of thinking. Einstein famously said once, "We cannot solve our problems with the same thinking we used when we created them." Traditional management techniques as such work well for slow-moving markets and business models that were defined in the industrial age. They're not adequate to understand the changes that are taking place where technology companies start to enter. Many markets are now seeing both native-born technology companies such as Google or Facebook, as well as brick-and-mortar incumbents who are slowly adapting to incorporate digital business models such as John Deere or Walgreens. To understand the need for new management tools for the digital era, let's take a look at a familiar name, Nokia. In 2007, Nokia was unbeatable. It had nearly 40 percent global market share in the mobile phones business. Four out of 10 phones that were sold at the time around the world were made by Nokia, a Finnish company. Its power was unquestionable, and most industry observers, including myself, considered its market domination as irreversible. In fact, I clearly remember being part of a strategy session in 2007 where we ideated on scenarios that had Nokia reach as much as 80 percent market share. The rest is history. Question is, how could we have predicted it? If we were to use a classic management tool such as Michael Porter's five forces analysis in 2007, we would have not been able to predict the downfall of Nokia. Let's take a look at that: The barriers to entry for high-end mobile phone makers were very high. Producing a smartphone in late 2000s required incredible know-how in both software and hardware, know-how that was concentrated in very few manufacturers in Europe and Asia back then. Nokia had an incredible power over suppliers with a 40 percent market share. It was able to buy hardware components at rates hardly anyone else could. Nokia had very strong power over customers, producing more phones faster than any other mobile phone maker could and at every possible price point. In 2007, Nokia was on the top household brands globally. There were no other substitutes for Nokia phones. Its engineering prowess was admirable. As a result, the company enjoyed very little competition in both feature phones and smartphones. The same applied to Blackberry at that time. Remember Blackberry? If one were to apply an analysis of five forces 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 e-mail on the go. Then, what is it that caused the downfall of Nokia and Blackberry? Let's look at Nokia. What caused the downfall of Nokia was the reason people buy 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 e-mail on the go. In late 2000s, 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 App Store on the phone. This change in people behavior was business model lead. It was engineered in fact by Apple and Google who brought the desktop computing business model to the mobile phone market by allowing third parties, software developers, that is, to build applications and distribute them directly to the users. It took Nokia and Blackberry a few years to realize, which is when they 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 couldn't even compete with. Apple and Google were able to use millions of third-party apps to drive demand for their core business: Apple's hardware business and Google's ad business as we shall see. As an example, the Facebook app, the world's most downloaded app of all time, was available as a fully featured native application on iOS and Android, but only as a feature-deprived application on Windows Phone, the platform available on Nokia phones. Quite simply, the Facebook application was sub par in terms of the user experience in Nokia phones, as this was not a priority for the social network company. It was not just the app quality, but what was eventually known as the "app gap" that made competition with Apple's and Google's platforms impossible. As scholars of mobile phone history, to understand how Apple and Google disrupted the incumbent Nokia, Blackberry, Motorola, Sony Ericsson, 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. They apply not just to the mobile phone business, but literally over a dozen markets that are now being populated with software-driven business models and in many cases with software developers as the engine behind them. We will next look to define business models and how their digital counterparts can be analyzed and examined.
