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).

Comments on this document 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 Spring 2011. All contributors of comments will be acknowledged in the final version, unless explicitly requested otherwise.

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 to be further defined and detailed in the forthcoming FInES Research Roadmap.    

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.

In this report, 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. 

We will be continuing with our research in the next two years, by building out from the findings already gathered, and additionally looking into the relationship between (open) innovation and value proposition, the evolution and transition towards Future Enterprises, EI and EC beyond the enterprise on both macro and micro business-economic levels, as well as exploring the feasibility and potential of ISU/SaaS-U business models. Finally we will be applying the results and insights of our research to the evolution of the COIN System. This exercise is expected to lead to business avenues and options for exploiting the various assets associated with the COIN EI/EC Service Utility Platforms and the federation of various COIN and non-COIN utility and value added platforms. Our research results will then be further evaluated, consolidated and - where relevant - put to specific use in the exploitation activity of COIN.