Business Models Research

This page represents the interim draft of the Integrated Enterprise Interoperability Value Proposition, which is intended to answer the question: What is the value proposition for Enterprise Interoperability / Enterprise Collaboration in the forthcoming decade?

The interim draft of the Integrated Enterprise Interoperability Value Proposition is available for download D6.2.1a (M24).

The interim draft of SaaS-U Business Models, dated 31 January 2011, is available for download D6.2.2a (M36).

Comments on the documents are welcome. Please send your comments to msli(at)icfocus.co.uk. All comments will be considered in the preparation of the final version of the document, expected to be released in the course of 2011. All contributors of comments will be acknowledged in the final version, unless explicitly requested otherwise.

Overview of the research

The research is motivated by the first Grand Challenge of the Enterprise Interoperability Research Roadmap [European Commission, 2006/2008] – the Interoperability Service Utility (ISU); specifically whether there is a business case for the ISU:

•    How can enterprise interoperability be sold as a utility, rather than as an adjunct to a commercial offering?
•    What would be a viable pricing model for technical functionalities delivered as services?
•    Who would be the ISU business partners and what kind of partnership arrangements would be appropriate? and, finally
•    Who would (should) own and/or operate the ISU? 

In COIN, the specification and substantiation of the business aspect of the ISU is captured by the concept of “SaaS-U” as specific business models. 

The starting point of the research are the findings of the Value Proposition for Enterprise Interoperability [European Commission, 2008], which demonstrates that interoperability as a utility-like capability is essential for enabling business innovation and value creation.  Moreover, Future Internet technologies will re-shape interoperability as a capability, leading to the need to reappraise interoperability between enterprises. That report introduces “Future Internet Enterprise Systems” (FInES) as part of the Future Internet paradigm, which provides the overall scope of our research as set out in the FInES Cluster Position Paper [European Commission, 2009] and the FInES Research Roadmap [European Commission, 2010].    

Our basic hypotheses are as follows: 
•    SaaS will undergo further transformation as existing service paradigms evolve and potentially disruptive new service paradigms emerge
•    Interoperability (in particular Enterprise Interoperability and Enterprise Collaboration as defined within the COIN Project as in “the two sides of the same coin”) – realised as a commoditised technical functionality, delivered as services, and independent of particular IT deployment – is key to the infrastructure of a new generation of software-based services and applications
•    That infrastructure potentially constitutes a new level of functionality that forms part of the Future Internet architecture
•    That infrastructure enables new forms and mechanisms of innovation
•    New relationships between supply and demand in the application domain will emerge.

Description of the Interim Draft of Integrated Enterprise Interoperability Value Proposition D6.2.1a

In this document, we overview the state of the art in business model research, focusing on research results from the recent past in connection with EI/EC, ongoing developments in respect of ICT and especially the Future Internet, and literature and market insights related to utility as a potential business model paradigm. We discuss market developments and trends which impinge upon the ISU vision and potential future developments, focusing on business model impacts. We examine the concept of utility as it has been applied to ICT developments, explore the economic foundations for utility as a business model paradigm (attempting to answer: are utility services in principle economically viable in ICT?), re-examine value and value proposition by applying economic theories with reference to changing business contexts, and propose an initial Value Framework for Utility Services. We then describe the implementation of the ISU within the COIN Project from the perspective of the business model research on ISU and SaaS-U. This is followed by initial descriptions of the ISU business model and three SaaS-U business models in respectively the energy sector, the healthcare sector, and the supply chain management application domain. 

At the present midpoint of our research, our overall preliminary conclusions are:

1.    The convergence between EI and EC is now taking place in the context of service developments within the gathering momentum of the Future Internet movement; specifically, EI and EC services are one piece in a much broader and wider global picture. Future markets will not sustain these services as isolated offerings.

2.    The ISU is not premised upon a re-invention of the ICT landscape; rather, it enhances that landscape by opening up new possibilities and value proposition. But the ISU has disruptive potential, particularly for the incumbents. The ISU paradigm shows promise as a business proposition in support of new applications and services that add value to particularly those sectors already in transition due to changing business climates, market re-structuring and that are open to new players. New business models based on the utility paradigm are in principle possible and should be guided by the quest for the interconnected dynamics of innovation and value creation.  

3.    But the ISU is not a pre-determined destination. Its economics are not proven. Indeed, its economic foundations are at this stage uncertain. Established economic models and assumptions are not particularly helpful in providing the conceptual basis for utility services; the more recent network economics argument hold out possibility but is not sufficient as a conceptual underpinning for robust value proposition or stable markets. Specifically, utility services lack an economic basis premised on conventional cost-based and price-driven supply and demand.  New technologies and business models allow greater discrimination and differentiation in pricing, quality of service, content and other aspects of valued services. Because different value propositions are needed for different target groups, some form of discrimination is necessary for encouraging investments, and for possibly also efficiency and equity.

4.    For utility services, use-value and exchange-value are not identical, without interventions from outside the market in a conventional exchange model. More precisely, market mechanisms alone do not provide sufficient economic incentives for market agents to become providers of utility services only, within a timeframe acceptable to commercial operators, or for market agents to remain in business if the pricing model is simply based on cost. The business opportunity of the ISU is not so much about the business opportunity of utility services; rather, it is about the business opportunity of value added services that exploit and build upon the ISU as a utility service infrastructure. In other words, Utility services will almost certainly be bundled with value added services as a viable commercial proposition. This means that Pareto inferiority and lock-in are a real possibility of “natural” market outcomes. 

5.    On the other hand, because utility service markets have the intrinsic characteristics of a monopoly, competition in the conventional sense will not be applicable to such a market, nor will competition be sustainable even if “artificially” imposed.

6.    Market consolidation in the services market will continue and the utility service markets are likely to be dominated by a handful of organisations over time; there is a question about whether commercial interests on its own would be sufficient for ensuring good governance of such markets.

7.    There is no fixed economic formula for determining value or value proposition. There is no “standard” value proposition or “win-win” business model for SaaS-U. Noting the preceding points, SaaS-U on its own, no matter how attractive as a business model in theory, is highly unlikely to sustain sufficient market traction or create payback that would satisfy most businesses given the existing financial structures and conventional expectations for ROI. Experimentation of the SaaS-U business models is needed and should be encouraged. It goes without saying that the only valid testing of any business model is in the marketplace, not in research. 

Description of the Interim Draft of SaaS-U Business Models D6.2.2a
The main objective of this interim document is to establish whether there is a business case for ISU by exploring a number of possible business scenarios and models for the implementation of the SaaS-U concept.

The document sketches the business context and business propositions in the future of the Internet economy. It then presents the current research results pertaining to the business case and models for the ISU, and the application of SaaS-U for business modelling in energy, health, as well as enterprise software and applications. 

The main conclusions so far are:
1.    While Internet technology and business trends favour openness and promote innovation, there is a continuous tension and tussle of interests between innovation and monopolisation/lock-in.
2.    The structure (topology) of enterprise networks will be as important as the structure of the Future Internet in which they inhabit.
3.    The business propositions as enabled and driven by SaaS in combination with the utility business model paradigm can be beneficial for creating enabling conditions for openness and interoperability, with SaaS as a specific technological trend giving rise to not just a new type of business model (“SaaS-U”) but also expediting and interacting with other new and emergent business models.
4.    The business opportunity of the ISU is not so much about the business opportunity of utility services per se; rather, it is about the business opportunity of value added services that exploit and build upon the ISU as a utility service infrastructure. 
5.    In order to develop a meaningful investment profile for the ISU, there is a strong argument for a new economic model to define the cost and price schemes of utility services. This economic model/argument needs to be aligned with a public interest model/argument and a competition model/argument. Specifically, the ROI for the ISU based on the supply-demand model of conventional economics is not compelling for market actors in purely commercial terms, within the study timeframe of 2020.
6.    SaaS-U however offers viable commercial business propositions for new services in the energy and health sectors, as well as for the development of enterprise software and applications, within the study timeframe of 2020. There is in principle business (and money) to be made for implementing sector or application specific utility services for encouraging and catalysing the development of value added services within individual and well defined industrial settings.
7.    However, even within such more narrowly scoped settings with a potentially compelling business case for SaaS-U, collaboration between the relevant actors, which is essential for bringing and implementing utility services to the market, can easily be eroded by competitive pressures and the general trend towards ICT consolidation. Similarly, interoperability of EI and EC services between such “islands” of SaaS-U cannot and should not be automatically assumed. This parallels present market developments characterised by the rising dominance of “open” service platforms and infrastructures, which while creating its own ecosystem are simultaneously deconstructing existing value chains and market structures. In other words, incremental market evolution may paradoxically lead to its opposite: large scale dislocation, consolidation of market power and foreclosure of market opportunity.     

The final versions of Integrated Enterprise Interoperability Value Proposition (D6.2.1b) and SaaS-U Business Models (D6.2.2b) are scheduled to be published by early 2012.

Additional material:

•         COIN Workshop: Business Models for Smart Applications and Systems in the Future Internet, eChallenges 2010, 27 October 2010, Warsaw (a set of 5 presentations & discussion)

            Videos of the full proceedings at http://videolectures.net/echallenges2010_warsaw/

•         Suttner, H., Weber, J., Scenarios for Future Internet Business @ Energy, http://services.future-internet.eu/images/6/63/Paper_3_COIN.pdf, submission to FIA Ghent enterprise session “Scenarios for Future Internet Business” http://services.future-internet.eu/index.php/Enterprises (selected for presentation)

•         Li, M-S., The Economics of Utility Services in the Future Internet. In: Towards the Future Internet - Emerging Trends from European Research, IOS Press, 2010 (aka “FIA Book 2010”, http://www.booksonline.iospress.nl/Content/View.aspx?piid=16465)

•         Li, M-S., Future Internet Markets and Business Strategies - An Analysis and a Proposal. In: T. Luigi, K. Stanoevska-Slabeva, and V. Rakocevic (Eds.): DigiBiz 2009, Springer LNICST 21, pp. 156–165, 2009