The risks of the new approach to banking were highlighted by the cost of innovation;
with it being estimated that in its first year, costs of creation and promotion of smile
increased overall costs at The Co-operative Bank by 5%. However, within five years,
smilewas on target, profitable and growing strongly, and continues to do so today.Decision 2: Business and revenue models strategies
A further aspect of Internet strategy formulation closely related to product development
options is the review of opportunities from new business and revenue models, (first
introduced in Chapter 2 and discussed further in the next chapter in the sections on
product and price). Evaluating new models is important since if companies do not
review opportunities to innovate then competitors and new entrants certainly will.
Andy Grove of Intel famously said: ‘Only the paranoid will survive’, alluding to the need to
review new revenue opportunities and competitor innovations. A willingness to test and
experiment with new business models is also required. Dell is another example of a tech-
nology company that regularly reviews and modifies its business model as shown in
Mini Case Study 4.1 ‘Innovation in the Dell business model’. Companies at the bleeding
edge of technology such as Google and Yahoo! constantly innovate through acquiring
other companies and internal research and development (Witness Google Labs
(http://labs.google.com) and Yahoo! Research (http://research.google.com)). The case
study on Tesco.com at the end of this chapter also highlights innovation in the Tesco
business model facilitated through online channels.To sound a note of caution, flexibility in the business model should not be to the
company’s detriment through losing focus on the core business. A 2000 survey of CEOs
of leading UK Internet companies such as Autonomy, Freeserve, NetBenefit and QXL
(Durlacher, 2000) indicates that although flexibility is useful this may not apply to busi-
ness models. The report states:STRATEGY FORMULATIONBusiness model
A summary of how a
company will generate
revenue, identifying its
product offering, value-
added services,
revenue sources and
target customers.
Revenue models
Describe methods of
generating income for
an organisation.
Early (first) mover
advantage
An early entrant into
the marketplace.
One example of how companies can review and revise their business model is provided by Dell
Computer. Dell gained early-mover advantagein the mid-1990s when it became one of the first com-
panies to offer PCs for sale online. Its sales of PCs and peripherals grew from the mid-1990s with online
sales of $1 million per day to 2000 sales of $50 million per day. Based on this success it has looked at
new business models it can use in combination with its powerful brand to provide new services to its
existing customer base and also to generate revenue through new customers. In September 2000, Dell
announced plans to become a supplier of IT consulting services through linking with enterprise resource
planning specialists such as software suppliers, systems integrators and business consulting firms. This
venture will enable the facility of Dell’s PremierPages to be integrated into the procurement component
of ERP systems such as SAP and Baan, thus avoiding the need for rekeying and reducing costs.
In a separate initiative, Dell launched a B2B marketplace (formerly http://www.dellmarketplace.com) aimed
at discounted office goods and services procurements including PCs, peripherals, software, stationery
and travel. This strategic option did not prove sustainable.Mini Case Study 4.1 Innovation in the Dell business model