Mobile Service Innovation and Business Models

Harry Bouwman • Henny De Vos • Timber Haaker

Editors

Mobile Service Innovation

and Business Models
Dr. Harry Bouwman Dr. Henny De Vos
Delft University of Technology Dr. ir. Timber Haaker
Fac. Technology, Policy & Telematica Instituut
Management PO Box 589
Jaffalaan 5 7500 AN Enschede
2628 BX Delft Netherlands
Netherlands henny.devos@telin.nl
w.a.g.a.bouwman@tudelft.nl timber.haaker@telin.nl

This book is sponsored by the Freeband Communication Project Frux. More information:
www.freeband.nl

ISBN: 978-3-540-79237-6 e-ISBN: 978-3-540-79238-3

Library of Congress Control Number: 2008926502

© 2008 Springer-Verlag Berlin Heidelberg

This work is subject to copyright. All rights are reserved, whether the whole or part of the material is
concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, roadcasting,
reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication
or parts thereof is permitted only under the provisions of the German Copyright Law of September 9,
1965, in its current version, and permission for use must always be obtained from Springer. Violations
are liable to prosecution under the German Copyright Law.

The use of general descriptive names, registered names, trademarks, etc. in this publication does not
imply, even in the absence of a specific statement, that such names are exempt from the relevant protective
laws and regulations and therefore free for general use.

Printed on acid-free paper

5 4 3 2 1 0

springer.com
Table of Contents

Freeband Preface ........................................................................................ix

Science Preface ........................................................................................... xi

Industry Preface ........................................................................................xiii

Part I Theory

Introduction.................................................................................................. 3
H. Bouwman, T. Haaker, and H. De Vos

1 Service Innovation and Business Models............................................ 9

H. Bouwman and E. Fielt

1.1 Services and Innovation: A First Positioning............................... 9

1.2 The Importance of Service Innovation and Services R&D ........ 11
1.3 Drivers and Trends for Service Innovation ................................ 14
1.4 A More Detailed View on Services............................................ 16
1.4.1 Types of Services .......................................................... 18
1.4.2 Electronic Services ........................................................ 20
1.5 Service Innovation ..................................................................... 22
1.6 New Service Development and Design...................................... 24
1.7 From Service Innovation to Business Models............................ 28

2 Conceptualizing the STOF Model ..................................................... 31

H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

2.1 Business Model Concept, Typologies and Components ............ 31

2.1.1 Definitions..................................................................... 32
2.1.2 Classifications ............................................................... 34
2.1.3 Components................................................................... 34
2.2 The STOF Business Model Domains......................................... 36
2.2.1 Service Domain ............................................................. 37
2.2.2 Technology Domain ...................................................... 46
vi Table of Contents

2.2.3 Organization Domain .................................................... 49

2.2.4 Finance Domain ............................................................ 58
2.3 From a Static Model to a Dynamic Model ................................. 64
2.3.1 Business Model Phases ................................................. 64
2.3.2 External Forces.............................................................. 68
2.3.3 A Dynamic Business Model Framework ...................... 69

3 STOF Model: Critical Design Issues and Critical Success Factors 71

H. Bouwman, E. Faber, E. Fielt, T. Haaker, and M. De Reuver

3.1 Designing the Business Models ................................................. 71

3.1.1 Critical Design Issues.................................................... 72
3.2 Critical Success Factors for Customer and Network Value ....... 83
3.2.1 Creating Customer Value .............................................. 83
3.2.2 Creating Network Value................................................ 85

4 The Mobile Context Explored ........................................................... 89

M. De Reuver, H. Bouwman, and T. De Koning

4.1 The Value of Mobility................................................................ 89

4.2 Mobile Services.......................................................................... 91
4.3 Mobile and Wireless Technology............................................... 94
4.3.1 Wireless Networks ........................................................ 94
4.3.2 Accessing the Mobile Internet....................................... 98
4.3.3 Devices ........................................................................ 101
4.4 Organizational Arrangements................................................... 102
4.4.1 Roles in Mobile Value Networks ................................ 103
4.4.2 Governance Models..................................................... 107
4.5 Financial Arrangements ........................................................... 109
4.5.1 Division of Costs, Investments and Revenues ............ 109
4.5.2 End-User Tariffs.......................................................... 110
4.6 Typical Mobile Services Business Models .............................. 111

5 The STOF Method............................................................................ 115

H. De Vos and T. Haaker

5.1 Design Process ......................................................................... 116

5.1.1 Step 1: Quick Scan ...................................................... 118
5.1.2 Step 2: Evaluation with CSFs...................................... 126
5.1.3 Step 3: Specification of CDIs...................................... 129
5.1.4 Step 4: Evaluation ....................................................... 132
 Table of Contents vii

5.2 Applying the STOF Method..................................................... 133

5.2.1 Alternative Ways to Use the STOF Method................ 134

6 What’s Next? Some Thoughts and a Research Agenda ................ 137

H. Bouwman, E. Faber, T. Haaker, and R. Feenstra

6.1 Summary and Outlook ............................................................. 137

6.2 Practical Implications ............................................................... 139
6.2.1 Support Tools .............................................................. 139
6.2.2 Service Bundling and Service Composition................ 140
6.2.3 Business Models and Business Processes: Towards a
Modeling Approach..................................................... 141
6.3 Academic Implications............................................................. 143
6.3.1 Business Models and the Testing of Core Concepts
and Causal Models: Internal and External Validity .... 144
6.3.2 Validation of our Design Method................................ 144
6.3.3 Business Models and Wind Tunneling: Predictive
Validity........................................................................ 145
6.4 Introduction to Part II ............................................................... 146

Part II Applications

7 A Practitioner View on Generic Design Issues and Success Factors..153

M. De Reuver and H. Bouwman

8 The Dynamic STOF Model in Practice........................................... 167

M. De Reuver and H. Bouwman

9 A We-Centric Service: The PolicePointer ...................................... 179

M. De Reuver and M. Steen

10 Balancing Customer and Network Value of Mobile

Payment Services .............................................................................. 191
E. Faber and H. Bouwman

11 Robustness of IPTV Business Models ............................................. 205

H. Bouwman, M. Zhengjia, P. Van Der Duin, and S. Limonard

12 Mobile Service Bundles .................................................................... 217

T. Haaker
viii Table of Contents

13 Designing Mobile Remittance Services in Developing Countries .... 233

H. Bouwman and J.-C. Sandy

14 Assessing the Business Potential for New Mobile Services

from Mock-Up Evaluation............................................................... 241
T. Haaker and B. Kijl

15 A Standalone Digital Music Vending Service................................. 253

H. Bouwman, M. De Reuver, and H. Schipper

16 From Prototype to Exploitation: Mobile Services for

Patients with Chronic Lower Back Pain ........................................ 269
E. Fielt, R. Huis In’t Veld, and M. Vollenbroek-Hutten

17 From Prototype to Exploitation: Organizational

Arrangements for a Personalized Dementia Directory................. 283
H. De Vos, T. Haaker, and R.-M. Dröes

Abbreviations........................................................................................... 297

References................................................................................................ 301

Authors .................................................................................................... 323

Index ........................................................................................................ 325

Freeband Preface

A comprehensive treatise on ‘Mobile Service Innovation and Business

Models’ is possibly one of the best outcomes one could expect from the
large and substantial research effort in modern telecommunication, in
which the authors have engaged themselves in the last few years. It
produces great value by connecting domains that are of crucial importance
to the realization of the modern dream of universal access to goods and
services, but are hard to relate to each other because of traditional
mismatches in disciplinary habits and terminology. This book provides not
only an in-depth study of this highly important and highly modern material
but also, and as importantly, the tools needed to achieve effective novel
designs.
Connecting the notions ‘services’, ‘mobility’, ‘innovation’ and ‘business
models’ requires in the first instance an in-depth, almost philosophical
consideration of the meaning and significance of those terms. They may
appear originally as vaguely defined, with a very large and largely chaotic
literature referring to them. In this book they receive a historical and
thoroughly referenced account and are then very precisely defined and put
in formal relation. This fundamental work at understanding and defining
succeeds so well that it results in very precise UML-like diagrams that
structure the topics, relate them to each other and allow for dynamical
representations.
The treatise does not end there, of course. After a clear positioning of
the central issues, it embarks on a detailed development of each of the
main constituents, always put in the general context where business
models play a central role in generating service innovation. Acronyms are
not shunned of course, the one to describe the context of business models
being termed STOF – to distinguish all the important domains that interact
with each other: the Service, Technology, Organization and Finance
domains. The structure of each of these is then extensively studied and
reduced to more primitive concepts, and their relationships are then
defined precisely. This way of formalizing is extremely helpful in
providing developers with concrete handles for documenting the design of
new services that use novel technology while being well-financed and
adequately organized.
x Freeband Preface

Designs must not only be conceived, they also have to be evaluated.

Often a design cycle will require iterations in which properties of
the design are confronted with the originally desired behavior. A specific
design methodology is therefore needed, which supports the trek the
designer has to make from his specifications to a solution that meets the
specs and even has additional desirable qualities (ethical? aesthetical?).
The original definition of terms provides the starting point – the
‘behavioral specification’– but from there on the system design ladder has
to be descended into a closer, more detailed, structure, behavior and
dynamics, the evaluation of critical success factors, the creation of the
precise business model specification and the determination of its
feasibility, e.g., its overall value and its robustness. The crux of the treatise
is devoted to this topic.
The book provides a lot of very valuable data: theory and design
strategies for (mobile) services based on sound business modeling. But it
does not end there. Its results have already been put substantially in practice
within the context of a large research program in which the new, 4G
telecommunication environment has been researched and developed – the
project FRUX in the program FREEBAND, of which the authors were
central protagonists. The 4G ideal is ‘being connected wherever, whenever,
however’, meaning ‘realizing the new world of seamless communication’.
When FREEBAND started, it was not sure that a completely open 4G
environment would be feasible, let alone attractive for service development.
In the later chapters of the book it is shown how the added flexibility of 4G
provides undreamt of new service generation possibilities, e.g., in the
context of police protection and mobile payment services.
It is remarkable that the study of connecting services with business
models provides the impetus needed to make the new 4G technology of
connecting people effective. This could be called a meta-service provision.
This book truly provides the service provider with what he needs to design
his services attractively and adequately!

Prof. Dr. Ir Patrick Dewilde

Chairman of Freeband
Delft, March 2008
Science Preface

This book contributes significantly to the strongly needed theoretical

underpinning of designing viable business models for mobile services.
Equally well, it presents some very practical approaches on business model
design for electronic and especially mobile service innovations.
The authors develop a conceptual business model framework, their so-
called ‘STOF model’. Furthermore they provide a business model design
method based on this framework, i.e., the ‘STOF method’, following
a ‘holistic’ view on business models. It may be pointed out that the
discussion offers not only new ideas and concepts, but clearly raises the
business models to a new level of insight and understanding.
The core contribution is built around four interrelated perspectives, which
make up the term STOF: service, technology, organization and finance.
Starting from the macro level, the STOF model discussion provides a sound
consideration of the relevant design variables in each of these dimensions.
The authors then continue to elaborate on some critical design issues,
expected to have a major influence on business model viability. Taking into
account the existing literature on business models, the combination of
providing a partially validated model on the one hand and a method for
business model design approach on the other makes this work quite unique.
It remains to be seen whether other researchers and industry parties will
build on these results by (a) using this structured approach to test hypotheses
on business models and (b) analyze and design business models along the
practical guidelines. The manifold detailed examples from different industry
sectors, which are spread over numerous chapters of the book, may guide the
reader to conduct business model analysis and design. This in itself is
obviously very useful for researchers and practitioners.
Condensing it into one paragraph, we may state that the STOF model
and method can be used to bring research results and prototypes one step
further to the market. We sincerely hope that the book receives the
attention of a wide audience, which it clearly deserves.

Prof. Dr. J. Felix Hampe

Faculty of Informatics
University of Koblenz-Landau, Germany
Koblenz, March 2008
Industry Preface

Developing new services and bringing them to the market successfully are
the great challenges that many companies and organizations face today.
Technological developments in information and communication techno-
logy act as drivers and enablers of many service innovations. For example,
the distribution of content no longer depends entirely on physical carriers
but makes use of a variety of broadband networks, both fixed and wireless.
In the public sector, electronic government services have been introduced,
and in the health care sector much is expected of electronic record sharing
and Tele-health. The ultimate success of these new services is, however,
not determined by the technological possibilities but by their capability to
satisfy needs better than existing alternatives. New services need to create
value for their customers and, equally important, allow providers to
capture a portion of that value. This means that services require viable
business models, i.e., adoption by users and long-term profitability for the
providers. Profitability should be understood in a broad sense; it may
involve less tangible societal benefits as well.
Designing viable business models is difficult, as customer needs,
organizational resources and capabilities, financial arrangements, and
technological possibilities have to be taken into account. Especially in the
mobile domain, a joint effort by many parties is required to realize a
service offering. Moreover, business models and new service offerings of
traditional providers are competing with grassroots services such as user
generated content.
This book provides a theoretical framework for the description of
business models. Furthermore, it provides practitioners with a structured
and practical approach to business model design, taking different
perspectives into account. Hopefully this will help to increase the chance
of successful market introduction of new services.

Prof. Dr. Mark W. de Jong

Managing Director, Telematica Instituut
Enschede, March 2008
Part I Theory
Introduction

H. Bouwman, T. Haaker, and H. De Vos

Western as well as rapidly developing economies depend on innovation in

services for their future growth. However, there is little research and
knowledge on developing and designing services. Services innovation
helps traditional product innovation oriented companies to fulfill market
demand. While service companies need to come up with new concepts and
approaches. Service innovation is more and more dependent on
information technology and digitization of information processes. At the
same time we see that in a global networked economy collaboration with
other companies and organizations, not only in the information and
communication technology domain, but also in supply chains lead to
additional complexity in designing new services. Customers are more and
more competent in articulating their needs and expressing their demands.
They become co-creators of services. Due to capabilities of modern
technologies, and the rapid changing needs and demands, service providers
have to respond almost instantaneous, and change their service offering.
Service innovation is therefore more and more complex.
Although the economic significance of service innovation is high, a sound
knowledge base that allows a better understanding of successful service
innovation strategies and implementation of associated service systems is
lacking. In this book we focus on service innovation, more specifically on
service innovation in the mobile domain. Service innovation in our view is
directly related to the business models that support these services. The
concept of business models is very useful as it considers value creation and
value capturing from service development in relation to the design of the
service delivery system. Service innovation and development are in our view
closely connected to business model design and innovation. In the popular
business literature a wide range of business model definitions exists.
Common to all these definitions is that a business model describes the
‘business logic’ of a firm or service, i.e., the way value is created for
customers and providers capture value. The concept of value is therefore
central in the definition of the business model concept. For a service, new or
existing, to be successful, a viable business model is required. A business
4 H. Bouwman, T. Haaker, and H. De Vos

model can only be viable in the long run if it creates value for users and
providers. That is the bottom line.
The aim of this book is to provide a theoretically grounded yet practical
approach to designing viable business models for electronic services,
including mobile ones. We develop a conceptual business model framework,
i.e. the STOF model, and a business model design method based on this
framework, i.e., the STOF method. In our framework we take a ‘holistic’
view on business models. We consider them from four interrelated
perspectives, i.e., service, technology, organization and finance perspective.
The STOF model not only considers the relevant design variables in each
perspective but also elaborates on critical design issues, which are those
design issues that can be expected to have a large influence on business
model viability.
We focus on business models for mobile services, i.e., all kinds of
innovative services that combine technologies and concepts from the area
of telecommunication, information technology and consumer electronics.
Mobile services typically require cooperation in complex value networks.
We therefore take a network view when describing and designing business
models, i.e., a multi-actor business model as opposed to the business
model of a single firm. Finally, it is relevant to mention that we take a
dynamic viewpoint, i.e., we explicitly take the dynamics of business
models due to environmental influences into account.
The STOF method may be viewed as a practical implementation of the
STOF model for designing business models. It supports the formulation of
balanced design choices for the business model elements. It takes the
critical design issues into account, as well as the critical success factors for
business model viability. The method provides a systematic approach to
new service development and underlying business model design. We have
reason to believe that our approach is also valuable for services outside the
mobile realm.
This book and the models and cases described herein are the fruit of a
long-term research effort that started around 2002, although roots of the
project can be traced back to the 1990s. The research was mostly carried
out within the Freeband and Freeband Impulse programs, the leading
Dutch research programs on advanced mobile technologies and
applications. Starting out with first descriptions of business model
domains, the dynamic STOF model and design method gradually took
shape in an iterative fashion. Iterations involved refinements and
enhancements based on literature as well as practical experiences with our
models and method.
We believe this book provides a structured view on business models and
a systematic approach to designing business models. While such approach
 Introduction 5

is no guarantee for success, we think it prevents pursuing the wrong

business models already at an early stage. This saves the costs of investing
in services and business models that turn out to be less than profitable on
the marketplace. This book is therefore useful for professionals, entre-
preneurs, academics and students interested in service development and
design, (service) marketing, management, strategy and mobile technology
in general. It is extremely relevant for both practitioners and academics.
The approach we propose will not be totally new to most people in
practice, however the systematic nature of our approach is uncommon in
practice and will help practitioners to structure and to understand their
daily tasks. For academics this book offers a conceptual basis for research,
both on mobile services as well as business models.
This book consists of two parts. In Part I we develop our conceptual
models and design method. We start in Chap. 1 with introducing and
discussing service innovation, and argue that, in order to realize service
innovation, it is also necessary to look at the business models of the services
in detail. Chapter 2 deals with the conceptualization of our STOF model. We
discuss the main theoretical background of the four core perspectives and lay
the foundation for the design method. Also the dynamics involved in the
success of business models is discussed. In Chap. 3 we make the transition
towards the design of business models and introduce and discuss the critical
design issues and success factors for business model viability. Chapter 4
explores the mobile context. It discusses the specific characteristics of the
mobile services domain and the trends that are relevant for the core business
model perspectives. In Chap. 5 we introduce the STOF method. It provides a
practical, step-by-step, approach to designing business models, based on the
conceptualization of the STOF model in the earlier chapters. Finally, in
Chap. 6 we sketch an outlook for future research.
Part II of this book shifts the focus from the conceptualization of our
business model framework to the actual application of the STOF model
and method in eleven real life cases. Some chapters focus on the validation
of the STOF model. Others show how the STOF method can be used to
analyze or design business models for (mobile) services in the consumer
market, the public sector and in health care. A more detailed description
and characterization of the content of Part II can be found in Chap. 6.
This book is the result of the Freeband FRUX project. Freeband
Communication is a Dutch national research program that aspires to attain a
leading intelligence position in the area of 4G. The future vision of the
fourth generation of communication encompasses communication with a
maximum of freedom and flexibility for the user. The user plays a key role,
has almost unlimited Internet access and is always capable of interacting
with anybody, anywhere. Communication infrastructures, applications and
6 H. Bouwman, T. Haaker, and H. De Vos

services are effective extensions of people’s capabilities. Freeband was

supported by AIMSYS, Ericsson, Genexis, ISC, KPN, LIONIX,
LogicaCMG, Lucent, Philips, TCNL, TMS-I, Waag, Web Integration,
WMC, Yucat, Compuware, BiZZdesign and the following knowledge
institutes Erasmus University, Roessingh, Telematica Instituut, TNO-ICT,
Delft University of Technology, Technical University Eindhoven, Twente
University/CTIT and Free University of Amsterdam. Next to FRUX the
Freeband Communication program defines a number of related projects:

• AAF: Adaptive Ad-Hoc Freeband Wireless Communications

• AWARENESS: Context Aware Mobile Networks and Services
• A-MUSE: Architectural Modelling Utility for Service Enabling in
Freeband
• I-SHARE: Sharing Resources in Virtual Communities for Storage,
Communications, and Processing of Multimedia Data
• PNP2008: Personal Networking Pilot 2008
• BBPhotonics: Dynamically Reconfigurable Broadband Photonic Access
Networks
• WICOMM: Foundations of Wireless Communication
• B@HOME: Broadband @ HOME
• TUMCAT: Testbed for User experience for Mobile Context Aware
applications

In FRUX (Freeband User eXperience) our objective was to advance our

understanding of the design and provisioning of services, which create
meaningful and rewarding user experiences. The focus of this book is not
on user experience per sé. User experience was the focus of the work of a
related research group within the FRUX-project. We started from the
assumption that services have to create user experience. Our research
group focused on designing and delivering services and how dynamic
business networks can create valuable user-experiences, and capture value
from it, by offering, configuring and governing adaptive, context-aware
mobile service (bundles). In particular, what are effective organizational
architectures and financial arrangements for value network cooperation,
that contribute to the viable exploitation of services bundles. The projects
was designed to develop guidelines and methods for designing dynamic
value network configurations and viable service (bundle)s.
In the FRUX project the following organizations did work together, i.e.
Delft University of Technology, Ericsson, Free University of Amsterdam
Medical Centre, Telematica Instituut, Free University Business School and
Computer Science Departments, TNO-Information and Communication
 Introduction 7

technology, VTs Police, Webintegration, and Waag Society. This book is

based on research as executed within the Freeband FRUX project, but is
also indebted to projects that preceded the FRUX project, i.e. Business
Models for Innovative Telematics Applications (BiTa) and Business For
Users (B4U). We want to acknowledge the contributions of a number of
persons that have been involved in these projects as well as in FRUX. We
value the discussions we had, their contributions to case studies, and their
theoretical insights. Our special thanks go to Pieter Ballon, Richard
Hawkins, Sander Hille, Els van de Kar, Yasin Karamaner, Stefan Klein,
Jente Klok, Carleen Maitland, Brigrit Preissl, Wim Timmermans and Uta
De Wehn Montalvo. In the FRUX project Victor Aguayo Moreno, Ziv
Baida, Freek Ebeling, Amr Eldin, Ralph Feenstra, Ernst-Jan Goedvolk,
Henny Gunther, Erik Van Den Ham, Ferial Moelaert, Bert Van Montfoort,
Karin Oerlemans, Yat John Pang, Erik Reitsma, Oscar Rietkerk, Evert
Schut, Robert Slagter, Jaap Van Der Spek, Maurice Weijgand contributed
to the discussions and research that are presented in this book. We also
want to thank Hans Akkermans, Christer Carlsson, Jaap Gordijn, Felix
Hampe, Christiaan Holland, Ian MacInnes, Alexander Osterwader, Esko
Penttinen, Yves Pigneur, Patrick Stähler, Yao-Hua Tan, Paul Timmers,
Rene Wagenaar, Pirkko Walden, and Jason Whalley for the discussions we
had on mobile services and on business models.
Chapter 1 Service Innovation and Business
Models

H. Bouwman and E. Fielt

Western economies are highly dependent on service innovation for their

growth and employment. An important driver for economic growth is,
therefore, the development of new, innovative services like electronic
services, mobile end-user services, new financial or personalized services.
Service innovation joins four trends that currently shape the western
economies: the growing importance of services, the need for innovation,
changes in consumer and business markets, and the advancements in
information and communication technology (ICT).
Service innovation is believed to deliver competitive advantage to
economies as a whole as well as to individual companies. In this chapter, we
introduce and discuss service innovation and argue that, in order to realize
service innovation, it is also necessary to look at the business models of the
services in detail. Business models help design viable and feasible services
by taking into account relevant customer needs and requirements, technical
enablers and technological feasibility, organizational resources and capabili-
ties, and financial arrangements. Moreover, it is also possible to incorporate
innovation in business models.
This chapter is structured as follows. We begin by looking at service
innovation and defining the core concepts, after which we discuss the
importance of service innovation, and examine relevant drivers and trends.
Next, we address services and service innovation in greater detail, and
discuss design approaches that are relevant from a service perspective. In
the final part of this chapter we connect service innovation and
development to business model design and innovation.

1.1 Services and Innovation: A First Positioning

Before going on to discuss the relevance of service innovation, we want to

provide a definition of services and innovation. In economic literature
10 H. Bouwman and E. Fielt

products cover both goods and services. Within marketing, a product is

described as anything that can be offered to a market for attention,
acquisition, use, or consumption, in order to satisfy a want or need (for
example, Kotler, 1988). Traditionally, a distinction is drawn between
services and physical products (or goods), by stressing the intangible nature
of services. According to Grönroos (2007, p. 52), a service is ‘a process
consisting of a series of more or less intangible activities that normally, but
not necessarily, take place in interactions between the customer and service
employees and/or physical resources or goods and/or systems of the service
provider, which are provided as solutions to customer problems’. Services
are, at least to some extent, produced and consumed at the same time.
Customers to a greater or lesser extent participate in the service production
process. In other words, producers and consumers create a service together.
Because services involve a considerable amount of human activity, they
rarely adhere to a predefined process. Services are perceived as the outcome
of a process (the service product) as well as the process it self. Generally
speaking, products contain elements of both goods and services in varying
degrees. The term (total) offering, or total/integrated customer solution, is
used to emphasize the fact that a mix of goods and services is required to
satisfy the want or need of a customer, for example, a copying machine with
a service contract. Although products (i.e. things) and services (i.e.
processes) are fundamentally different, they are intimately and symbiotically
linked (Shostack, 1984).
The concept of innovation is an important element of the work by
Schumpeter (1934), who argued that innovation serves to create wealth
through fulfilment of customer needs with five different types of
innovation: new products, new methods of production, new sources of
supply, exploration of new markets and new ways to organize business. In
more recent literature, innovation is related to technological as well as
organizational and institutional innovation. In mutual interaction, these
forms of innovation constitute the basics of the innovation process, and are
conceptualized as systems of innovation (Hekkert, Suurs, Negro,
Kuhlmann, & Smits, 2007). Systems of innovation are analyzed at a
national level, as technological systems and as sectoral innovation systems.
According to the system of innovation approach, innovation takes place in
complex environments characterized by dynamic interactions between
institutions and organizations that affect the development of innovations.
This implies a shift in vision with regard to innovation from a centralized
inward-looking, closed approach mainly driven by technical innovations to
an open innovation approach (Chesbrough, 2003). Open innovation is
characterized by a sharing of knowledge, critical resources and capabilities
within and across the boundaries of organizations, and it is enabled by
 Chapter 1 Service Innovation and Business Models 11

institutions in an open network environment, allowing for the emergence

of new technologies, products, services, processes as well as management
practices and business models. There is a growing realization that
innovation is interdependent in each of these domains: service innovation
requires innovation in business models, while product innovation is
directly related to service innovation, and process innovation leads to
innovations in business models. Consequently, innovation can seldomly be
restricted to the product or service offering or the delivery process, but also
involves the way organizations collaborate and the supporting information
and communication platforms and architectures.

1.2 The Importance of Service Innovation and Services R&D

As far as national economies and individual companies are concerned,

service innovation is a prominent issue. Developments at macro and micro-
level are interrelated. Off-shoring services and business processes to India,
for example, has implications for individual firms as well as for national
economies. For a long time national innovation policies have focused
exclusively on supporting technological innovation in manufacturing firms,
to a large extent ignoring innovation that took place in the services industry.
It is increasingly recognized, not only by national governments and service
firms, but also by manufacturing firms, that services, service innovation,
growth of and employment in services industry are important economical
drivers. Manufacturing firms are finding out that a combination of
technological innovations and innovation in services can provide a
competitive edge, an example of which are services enabling people to
update the software of their domestic appliances or online photo albums
with a camera. There are a number of trends that indicate why it makes
sense to look at service innovation:

• Services dominate advanced western economies such as the EU and US.

Because services constitute the main growth sector in advanced
economies, productivity growth in services is an important element of
overall economic growth. In addition, service innovation is currently
growing rapidly in most EU countries, (and even faster in the US,
Reneser, 2006), and services account for a majority of employment and
new job creation in western industrialized countries, as well as
increasingly in developing countries, specifically in the off-shoring
countries.
12 H. Bouwman and E. Fielt

• The need for competitiveness in EU services. As a result of the new

European services directive and other actions towards the internal
services market, there will be an increase in competitive pressure in the
service industries and, most likely, the need for service innovation. The
new emerging economies are also shifting their activities towards
services.
• Innovation in services is poorly understood and less ‘visible in current
statistics’. Most of the ‘official R&D’ in services is recorded in
computer and related services, telecommunications and R&D services.
Service firms are less likely to engage formally in service innovation.
Often, investments by service firms in service innovation are not
officially recorded because they take place outside R&D or innovation
departments, for instance in marketing or in service personalization.

All in all, the sheer size of the services sector in the overall economy,
their potential in creating economic growth and welfare (through
considerable opportunities for productivity gains) motivates the interest in
service innovation. The European Commission (2003) has emphasized the
relatively low productivity and performance of many services sectors,
while O’Mahony and Van Ark (2003) have pointed at the limited use
many services in Europe make of ICT. Nevertheless, due to the as yet
small but rising share of services in business (technological) innovation
expenditures, policy-makers as well as decision makers in the manufac-
turing and service industry seriously need to reconsider their innovation
policy and strategy, and to focus on service innovation, if only because
investments in innovation by private service firms in the US are
considerably higher than in Europe.
From a micro-economic point of view, the Reneser study (2006) has
shown that service firms, i.e. firms whose main focus is on services, like
banks and telecommunication operators, are beginning to tackle service
innovation more energetically. Nevertheless, the main focal points of
service innovation and the way it is organized, budgeted and managed are
designed in a diverse way and there is considerable variety among the
particular service firms. Based on the Reneser study, we can draw the
following conclusions:

• Service innovation strategy. Increasing competitiveness and customer

needs are important drivers for service innovation. A dedicated long-
term service innovation strategy (and hence management) at manage-
ment board level is rare. There are few formalized approaches to
deriving service innovation strategies. Although open innovation models
 Chapter 1 Service Innovation and Business Models 13

feature quite prominently in most cases, there is considerable room to

improve collaboration within service firms as well as between service
firms and research organizations. In most cases, cooperation with regard
to service innovation is poorly developed.
• Service innovation approach. Although most service firms have some
form of structured approach to service innovation, service innovation is
less formalized, more dispersed and less explicitly managed and funded.
In some service firms there are high levels of technological R&D as
well as technology-enabled, mostly ICT-based, innovation, in addition
to service delivery and organizational innovation. Formalized, service-
only innovation is the exception rather than the rule. In practice,
important service innovation activities are hidden behind labels like
business development, service improvement, personalization, et cetera,
without being recognized as service innovation. Service innovation is
often hidden in client-specific solutions.
• Service management and development methods. In about half of the
Reneser cases more generic formal management methods were used to
manage service innovation portfolios, and at project level about half of
the firms involved also used more formalized (mostly rudimentary)
models for new service development, mainly based on product
development tools. However, none of the firms used service-specific
design models, methods, or tools, such as service design, service
blueprinting or service engineering, or tools like Quality Function
Deployment (QFD), Structured Analysis and Design Technique (SADT)
or Failure Mode and Effect Analysis (FMEA) in the service domain.
• Innovation culture and learning. Creating an innovation-oriented culture
that is in sync with service innovation (in firms, industries and society
as a whole) is seen as the key to fostering competitiveness successfully.
There is huge interest in and potential for cross-firm and cross-industry
(lateral) learning, as well as a need for more fundamental research in the
service innovation domain.
• Use of innovation policies and schemes. Few large service firms are
connected to the innovation policy scene (apart from those that
themselves conduct extensive technological R&D). Existing innovation
schemes are of limited value to most service firms and most of them
find it hard or unappealing to gain access to or take part in them. At
the same time, nearly all the analyzed companies have no internal
management structure to support the systematic acquisition of funded
innovation projects, or broadly supported models for collaboration with
research institutions that are active in the service innovation domain.
14 H. Bouwman and E. Fielt

These conclusions from the Reneser study make it clear that much
progress can still be made in the service innovation domain, and that
service innovation deserves the attention of managers and scientists alike.
In the next section we take a closer look at the service innovation drivers
and trends at a business level.

1.3 Drivers and Trends for Service Innovation

Because of increasing competition and more demanding customers firms

have to innovate their services. Demographic (e.g. ageing population),
socio-technical (e.g. market-readiness for new technology) and socio-
economic (e.g. income-level, attention to environment and sustainability)
trends influence the needs and priorities of consumers. Idenburg (2005)
addresses a number of specific consumer trends: individualization, self-
chosen collectivism, informalization, cultural diversity, intensivation, and
feminization that affect the need for new service concepts, for instance
self-service or community based servicing.
At the same time technical developments offer opportunities for service
innovation. Every business depends on the exchange of information and
the use of information and communication technologies. New techno-
logical developments enable the ‘blow-up’ of the richness/reach trade-off
(Evans & Wurster, 1999). Information and communication technologies
help distinguish the information world as separate ‘marketspace’ from the
physical marketplace (Rayport & Sviokla, 1994) and make it possible to
exploit virtual value chains (Rayport & Sviokla, 1995). Technological
developments like the digitization of information, the increased processing
capacity of computer chips, miniaturization and increased mobility of
devices, the use of sensors and location technologies, increased inter-
operability between services, security, and natural interfaces (Bouwman,
Van den Hooff, Van de Wijngaert, & Van Dijk, 2005), enable mature
architectures and platforms for knowledge sharing, collaboration, and
electronic commerce transactions, anywhere, anytime.
In addition to consumer needs, service innovation is to a large extent
driven by competitive strategies. There are some risks involved in adopting
a strategy that focuses on service innovation. Services, like information,
are easy to copy, while they have the highest impact on value creation
when they are successful, as is witnessed by the emergence of giants like
Amazon or Google. Furthermore, although new product breakthroughs
increasingly depend on non-product characteristics, such as complimentary
or auxiliary services, core services themselves also require innovation.
 Chapter 1 Service Innovation and Business Models 15

Service innovations that cannot be copied have to be based on unique

technical features and require unique capabilities and resources available
to the firm or the network of firms that provide the service, for instance
highly trained employees or specific technologies, such as search engine
technologies. System failures in the service innovation domain occur when
firms and employees do not have the proper knowledge, skills and
competencies, or the network that may provide them with access to the
proper intellectual, technical or financial resources and capabilities.
Moreover, firms may not be aware of these gaps in capabilities and
resources, or they may be unable to identify the actual need customers
have for specific services.
Next, the individual user influences the way new services are created
and incorporated into their day-to-day routines. Service innovation is to a
large extent user-driven, and directed towards providing a specific user
experience. Service innovation is an interactive process in which multiple
actors, including consumers, play a role. Service innovation is about co-
creation, i.e. users providing feedback with regard to existing services and
suggesting alternatives, or even developing their own services or content.
Intensified interaction with customers will improve the effectiveness of
service innovation. The major issue is how to move from personalized
services to asset-based services, i.e. services that are reusable and scalable,
and that allow for replicative use. However, technology-based services
may cause companies to lose touch with customers, which mean they lose
an important source of information for service innovation (Matthing,
Kristensson, Gustafsson, & Parasuraman, 2006).
With the growing importance of services, service innovation becomes a
more important element in the innovation strategy of a firm, which means
that more capabilities and resources have to be made available. Some
companies, for instance mobile telecom operators, invest in technical R&D
as a driver for service innovations. Firms in the financial service industry
try to understand opportunities offered by Web 2.0, or internet-enabled
social networks like MySpace. Some service firms have technological
R&D investment levels comparable to or even above the levels of
manufacturing firms (Howells, 2006). In fact, major firms with a
manufacturing background, like IBM and Océ, are developing into service
solution providers and are among the first to invest in services innovation
in a more formalized way (Meiren, 2006). Other service firms benefit from
service innovation performed by others, for instance by making use of
white labels in the insurance industry.
Service innovations are driven by much more than R&D alone and often
need to be combined with new concepts, new ways of interacting with
clients and new kinds of service delivery by (networked) organizations.
16 H. Bouwman and E. Fielt

This requires a more rational approach to services. The development of

new services should move from trial and error towards a more systematic
approach to design and control. Service firms discover that service design
and development is ill-structured and time-consuming, while time pressure
is high (short time to market), knowledge regarding service innovation is
tacit and hardly formalized, hardly supported by relevant tools, and
customer orientation is hard to guarantee (Simons & Bouwman, 2005). To
be successful and create value, firms have to develop service innovation
methods and tools. Before we can discuss service innovation and design in
greater detail we have to take a closer look at service characteristics.

1.4 A More Detailed View on Services

There are four basis characteristics of (consumer) services that are often
emphasized in defining services (Grönroos, 1992):

• Intangibility or non-material. The acquisition of services does not result

in ownership like in the case of physical products, although it results in
a right to receive a service. Services are ideas and concepts that are part
of a service delivery process itself. Services are non-physical.
• Inseparability. Production and consumption take place at the same time.
Services, in contrast to physical products, cannot be stored. Significant
parts of the service process depend on the interaction between producer
and customer, and the information the customer provides. Most of the
time customers are present while the service is produced or their
presence is mediated by channels like the Internet, e-mail or telephony.
• Heterogeneity. Service outcomes and processes are hard to standardize.
Quality control and homogenizing services before service delivery is
impossible, in contrast to the kind of quality control we find with
physical products. Setting quality standards is, however, helpful.
Services can vary in quality and breadth, and they may even fail in the
presence of the customer. The evaluation of the quality of a service, in
terms of outcome and process, depends on the customer’s individual and
subjective expectations.
• Perishability. The service cannot be transferred or resold. If not utilized,
the capacity to deliver the service is wasted, for instance in the case of
consultant time or movie tickets. The offering itself and the resources
needed to deliver the service are not wasted, but have to be made
operational in order to deliver the service again.
 Chapter 1 Service Innovation and Business Models 17

Although we initially presented services by profiling services versus

products, and by stressing the intangible versus the tangible nature, the
distinction between products (goods) and services is open to debate. The
distinctions between tangible and intangible, homogenous and hetero-
geneous, separated and simultaneous production and consumption, non-
perishable and perishable, an object and an outcome or process, value
created during a production process or value created in the interaction
between producer and consumer, and transfer of ownership versus no
transfer of ownership, is blurring. Instead of drawing a distinction between
goods and services, it makes more sense to see them as the extremes of a
goods-services continuum. On the one hand the goods are only delivered,
while on the other hand only services are being produced (Vargo & Lusch,
2004a, b). The distinction between services and goods is not as strict as we
suggested earlier.
Mostly services require physical products for their production or usage.
An air transportation service, for example, requires an aircraft. Moreover,
services can use physical evidence, for example a physical airline ticket.
Customers can have problems with the mental representation of goods,
while services, on the other hand, can to a certain extent be sampled before
consumption, for instance judging the quality of the food in a restaurant
based on the appearance of the restaurant. Goods are more and more
branded, and a brand name in itself is intangible in nature. Moreover,
many products are only instrumental to a problem that a customer wants to
solve as well. Utensils are used for home improvement, cars are meant for
transportation, security software – which is intangible in nature – is bought
to prevent possible problems, et cetera.
Inseparability is also open for discussion. Many services are provided in
the absence of the customer, for instance cleaning services and product
maintenance. Moreover, products are customized on the basis of preferences
expressed by customers and delivered just in time to reduce or even avoid
inventory costs. Products are becoming more heterogeneous. Although
standardization is in the interest of producers, consumers want products that
are tailored to their preferences. Using information and communication
technology, services can be standardized and tailored to customer needs,
deepening customer relationships and enabling mass customization.
Manufacturing companies gradually shift towards services. The imperish-
able nature of goods is also open to debate: fashion becomes outdated, food
can rot; product life cycles are becoming shorter and shorter. On the other
hand, the resources and capabilities needed to produce services do not
necessarily perish, although capacity has to be available.
If we take things one step further, we could argue that everything
provides a service. A broader and more inclusive definition describes
18 H. Bouwman and E. Fielt

services as ‘the application of specialized competences (knowledge and

skills) through deeds, processes, and performances for the benefit of
another entity or the entity itself’ (Vargo & Lusch, 2004a, b). This
definition sees service provisioning as a dominant logic that includes
tangible output (goods). Grönroos (2007) refers to the service perspective
as a strategic approach by firms based on either a core service or a core
product. Grönroos emphasizes that value is created in the value-generating
processes of customers and that providing a service means supporting a
customer’s activities and processes. Customers want solutions to function
as services for them. This preference can be offset by a lower price or a
technologically more advanced solution.
The basic characteristics of intangibility, inseparability, heterogeneity,
and perishability, affect the development and delivery of services with
respect to customer participation and service quality and experience.
Services must allow for customer participation (Grönroos, 2007). This
requires making clear in what way customers are involved in the front
office as well as the back office process. The customer, as co-producer of
services, is an integral part of the service delivery process, and participates
actively in that process. Because users are also co-creators of services, they
are also a very important element of the service innovation process. The
perception of the service quality and customer satisfaction are both
influenced by the service process (i.e. functional quality), as well as by the
outcomes of the services process, i.e. the service delivered to the customer
(i.e. technical quality) (Grönroos, 2007). Because users are an integral part
of the service delivery process, the user experience of a service is an
important issue. For example, a day out at Disney’s magic kingdom is
more likely to be defined by its designers and its visitors as a magical
experience than six rides and a burger in a clean park (Clark, Johnston, &
Shulver, 2000). According to Pine and Gilmore (1999), user experience
plays a decisive role in which suppliers customers prefer. Customers want
more than ‘just’ a product or service: they want an experience that makes a
lasting impression. The traditional focus on cognitive evaluation needs to
be extended to include service-elicited emotions and experiences
(Edvardsson, Gustafsson, & Enquist, 2006).

1.4.1 Types of Services

Services can be characterized in a number of ways. The most important

distinction is between core services and support services. A core service is
a supplier’s main business, whereas a support service is what makes a core
 Chapter 1 Service Innovation and Business Models 19

service (or product) possible and competitive. Support services have the
potential to enhance the user experience of a core service. For instance, the
core service of MSN messenger is text-based communication combined
with online presence. Support services are, for instance, profile matching,
price comparison and emoticon trade. Core products or services are
supplemented by ‘peripheral’, ‘auxiliary’ or ‘hidden’ services (e.g. the way
questions are answered or information is provided, service recovery
procedures, directions for consumption of the core offer, etc.). These are
services that the end-user typically does not see (Grönroos, Heinonen,
Isoniemi, & Lindholm, 2000; Normann, 2000). ‘Auxiliary services’ are,
therefore, often non-billable, and although they are not primarily what the
customer pays for, they have a large impact on customer satisfaction and
the effectiveness of the sales cycle (Grönroos, 2000).
Service typologies can be made on the basis of specific characteristics,
for instance the degree of labour intensity, i.e. comparing labour costs with
capital costs, for instance in the case of auto repair services versus IT
services. Services can also be defined based on the level of interaction and
customization, for instance service in retail versus services delivered by
lawyers, doctors and architects. Another distinction may be related to the
recipient of the service, i.e. people, for example health care and enter-
tainment services, or objects (things), for example dry cleaning. The
service can be continuous, i.e. electric utility or police, or discrete, for
instance cell-phones or season tickets. Some services require subscription
or membership, i.e. frequent flyer programs or insurance, while others are
more informal in nature, i.e. the use of a public highway or pay phone.
Services may be available at a single site, i.e. theatre or barber shop, or on
multiple sites, i.e. mail delivery. Services may require customers to be
mobile, i.e. theatre, bus services, or they may require the service provider
to be mobile, for instance taxi, mail delivery. Services may have to cope
with peak demands that will cause delays, for instance telephony and
electricity, or peak demands that exceed capacity, like movie theatres or
transportation. Services can be directed at the consumer or business
market, they can be industrial services related to operations and
maintenance or they can be information-based. Services can be classified
according to domains like transportation, hospitality, government,
financial, entertainment, professional services, IT services, industrial
services, et cetera, or they can be based on self-service concepts and the
use of hard- and software, or involve other persons at the moment of
service delivery.
20 H. Bouwman and E. Fielt

1.4.2 Electronic Services

As we mentioned a number of times earlier, services are more and more

enabled by information and communication technology. Since the
emergence of telecommunications, data networks, Internet and, most
recently, mobile Internet, services are becoming even more virtual. These
virtual services, which are provided via the Internet, are referred to as
electronic services. Van de Kar (2004) defines an electronic service as
‘an activity or series of activities of intangible nature that take place in
interaction through an Internet channel between customers and service
employees or systems of the service provider, which are provided as
solutions to customer problems, add value and create customer satisfaction.’
Two common conceptualizations of the technology-mediated nature of
electronic services that emerge are electronic services as information
services and electronic services as self-service (Rowley, 2006). Hofacker,
Goldsmith, Bridges, and Swilley, (2007) discuss three types of electronic
services: (1) complements to existing offline services and goods, (2)
substitutes for existing offline services, and (3) uniquely new core services.
These electronic services have characteristics that are found both in goods
and services, and they also have some unique characteristics of their own
(see Table 1.1).
The major difference between electronic services and many traditional
services is the role people play in the service delivery process. An electronic
service is not delivered by humans but by software programs via computer

Table 1.1. Distinguishing between goods, electronic services, and services

(Hofacker et al., 2007)
Goods Electronic services Services
Tangible Intangible, but need tangible Intangible
media
Can be inventoried Can be inventoried Cannot be inventoried
Separable Separable consumption Inseparable consumption
consumption
Can be patented Can be copyrighted, patented Cannot be patented
Homogeneous Homogeneous Heterogeneous
Easy to price Hard to price Hard to price
Cannot be copied Can be copied Cannot be copied
Cannot be shared Can be shared Cannot be shared
Use equals Use does not equal consumption Use equals consumption
consumption
Based on atoms Based on bits Based on atoms
 Chapter 1 Service Innovation and Business Models 21

hardware and communication networks. This has major implications for the
service characteristics. Electronic services can be accessed anytime and
anywhere. Electronic services are information-intensive: digital information
plays a key role and is very easy to duplicate and transfer. The role of the
customer is also different in the case of electronic services: customers play a
more active role via self-service. Electronic services are less personal and
use websites, web forms and/or email. No personal relationship between
the customer and the company is required. Electronic services can adapt to
the customer via (predefined) options for personalization by the customer or
customization by the provider. With electronic services, (unexpected)
exceptions are not possible, because the rules are set by software and
hardware. Electronic services can be consumer services, for instance
services delivered by the media industry, but also services as developed by
users themselves and are labelled with Web 2.0. But also eHealth, ePayment
services, marketplaces, eTravel, distant education and eLearning, et cetera
are services that are provided via the Internet or via mobile networks.
Mobile services are a specific subset of electronic services. A mobile service
is a service that is offered via mobile and wireless networks. This assumes
mobility on the part of the user of the services, the devices or applications.
We will discuss mobile services in more detail in Chap. 4.
Although electronic services are an example of pure play – complete
digitization of the service channel – in practice we see that multi-channel
approaches are far more common (Simons, 2006). Firms use multiple
channels to deliver services, and look for synergy between channels as
well as channel coherence. Channels have to cooperate to maximize
overall customer value in such a way that the strengths of each channel are
used and the various channels complement each other. A seamless and
consistent customer experience across the channels will evoke customer
trust, which will reinforce the relationship. From a cost savings perspective
it is also crucial to strive for synergy effects between the various channels.
We adhere to the narrow definition of channel synergy (Power, 2000)
which emphasizes reusing assets to minimize costs.
To summarize, electronic services make it possible to provide services
anytime and anyplace. Especially, information-intensive services, as
distinguished from more labour-intensive and personal types of services,
benefit from the emergence of advanced information and communication
technology. Self-service supported by the appropriate software and
hardware allow customers to deal with services on their own conditions.
22 H. Bouwman and E. Fielt

1.5 Service Innovation

Information and communication technology has driven service innovation

by providing new information and communication services and by enabling
innovation in other services. There has been a shift in thinking about service
innovation over the years. According to Salter and Tether (2006), this
evolution started with neglect, and then moved via assimilation and
distinctiveness, to synthesis. For a long time, service innovation has been
considered minimal or none-existent. In the past, the focus has especially
been on technology-driven innovation in manufacturing, and the impact of
(information) technologies on service processes, resulting in what was called
the reversed product life cycle (Barras, 1986, 1990). New technologies lead
to process innovations that increase the efficiency of the services provided.
Next, service quality is increased due to radical process innovation, and
finally new services emerge. In time, service innovation began to receive
more attention, and the distinctiveness of services as opposite to products
was increasingly emphasized in service innovation (Gallouj & Weinstein,
1997). Nowadays, the focus is increasingly on the complexity and multi-
dimensionality of modern services and manufacturing, including the
bundling into ‘solutions’ or ‘offerings’ (Salter & Tether, 2006).
Two approaches have played a central role in service innovation. One
has a strong service focus, ignoring technological developments and
focusing on service-delivery process, like skills of the workforce and
cooperation between departments within the service provider firm. These
types of innovations in services are directed at the quality of the service
delivery process and at optimizing customer satisfaction. As a result, for a
long time service innovation was associated with incremental changes, like
stores staying open longer, service quality based on a personal approach,
or loyalty programs. In the alternative approach to service innovation, the
focus is on the role played by technology, especially on information
technology. To a large extent, this approach can be attributed to the
increasing importance of information and communication technology,
which support services and service innovation. For the first time,
information and communication technology, more specifically the Internet,
made it possible for service innovations to open up entirely new markets,
for instance Netscape, Google, eBay, SAP, Adobe, EasyJet, Starbucks, and
Skype. These new technologies made it possible to move away from the
labour-intensive, interactive services that were set in a physical
environment. Thanks to information and communication technology,
services delivery can be asynchronous and does not require the presence of
a service delivery staff. It became possible to separate services and to
 Chapter 1 Service Innovation and Business Models 23

deliver them at a distance. ‘Technology has transformed many former

inseparable services into services that can be consumed any time or place’
(Berry, Shankar, Parish, Cadwallader, & Dotzel, 2006, p. 57). Moreover,
ICT adds intelligence to the service delivery process, based on back office
applications (e.g. Customer Relation Management – CRM – , tracking and
tracing, multi-channel approaches), redefining the client interface by
adding online communication and distributions modes, as well as service
marketing (e.g. long tail marketing). Information becomes available that
may support innovation in specific service functions along the service
process. ICT drives both radical and incremental service innovation.
According to Berry et al. (2006), service innovation should take a holistic
approach. They discuss nine drivers for service innovation, i.e. a scalable
business model, comprehensive customer experience management, invest-
ment in employee performance, continuous operational innovation, brand
differentiation, an innovation champion, a superior customer benefit,
affordability and continuous strategic innovation. Similarly, Den Hertog
(2000) discusses four dimensions that are particularly relevant to service
innovation: service concept, client interface, service delivery system and
technological options (Fig. 1.1). We extended the service delivery system
dimension of the original model by not only including human resources
but information systems as a resource as well. The characteristics
and capabilities of information systems, as enabled by information and
communication technology, play a key role in innovation of electronic and
mobile services. Often, service innovation involves a combination of the
various dimensions; this means the connections between the dimensions
(interactions, complementarities) are also important. For example, down-
loadable ringtones require an electronic communication network for service
delivery. Particular service innovations are then characterized by the
combination of innovations in one or more of the four dimensions.

New service Technological New client

concept options interface

New service delivery

system
i.e. human resources,
information systems

Fig. 1.1. Four dimensional model of service innovation (based on Den Hertog,
2000)
24 H. Bouwman and E. Fielt

It is clear both from the discussion on innovation in general and from

the specific discussion on service innovation that it is important to look at
innovation from various perspectives (e.g. customer, service provider,
technology) and that a number of disciplines (e.g. marketing, management,
finance) have to contribute to understanding and supporting service
innovation. We address this when we discuss our business model approach
to service innovation (Chaps. 2 and 3), and apply this approach to mobile
services. First, we take a closer look at the development and design of new
services.

1.6 New Service Development and Design

A new service can be defined as ‘an offering not previously available

to customers that results from the addition of offerings, radical changes in
the service delivery process, or incremental improvements to existing
service packages or delivery processes that customers perceive as being
new’(Johnson, Menor, Roth, & Chase, 2000). In marketing literature, New
Service Development usually refers to an overall process of developing
new service offerings, while service design refers to the development of
blueprints for the service outcome and process. These blueprints can be
conceptual (high-level) or operational (low-level) in nature. ‘Better service
design provides the key to market success, and more important, growth’
(Shostack, 1984). Although new service development attracts more and
more attention from researchers and practitioners, methodologies and tools
that are specific for service development are limited, and depend on
product design and engineering. Success factors for new service
development are related to the nature of the service, the product-market
characteristics, the project synergy, the development process and
innovation culture (Johnson et al.). A systematic and formal new service
development process is recommended by all studies into the relevant
success factors. How such a new service development process should be
structured depends on, amongst other things, the type of service innovation
and the kind of service (e.g. Fähnrich & Meiren, 2006; Johnson et al.).
Existing literature (Goldstein, Johnston, Duffy, & Rao, 2002; Johnston,
1999; Menor, Tatikonda, & Sampson, 2002; Tax & Stuart, 1997) agrees on
the limited contribution made by design methods to service definition and
design. Generally speaking, we encounter an engineering-based approach
and a marketing-oriented approach. The engineering-based approach starts
from traditional product design and then moves on to more specific service
design literature, such as service system planning and service blueprinting.
 Chapter 1 Service Innovation and Business Models 25

The marketing-oriented approach starts from the service as a process that

involves the provider, the user and the quality of the service. The service
concept definition, the augmented service offering, and quality function
deployment are examples that we will discuss briefly. According to
Fähnrich and Meiren (2006), services with a low contact intensity and a
low variety may be suitable for the kinds of methods that are used in
traditional product development, while the other kind of services require
methods that are specifically targeted at services.
Cross (1994) provides an overall framework for describing a product
design process. His traditional Fundamental Engineering design process
covers all aspects of the design process, from problem definition to
detailed design. His approach provides a rigorous sequence of steps
towards a final result. Service engineering follows the same approach
(Luczak, Gill, & Sander, 2006). According to Clausing (1994), technical
design principles address only part of the overall design problem, ignoring
the customer interaction and service concept. Clausing calls this ‘partial
design’. According to services literature, partial design and local sub-
optimization are among the highest risks in designing and implementing a
total service offer and system (Ramaswamy, 1996).
The second method we discuss is Service System Planning. Service
System Planning adopts a broad approach. The service system is made up
of (1) the customer, including needs and expectations, (2) the service
concept, (3) the service delivery system, (4) the way the service is
perceived by service providers as well as customers, and (5) corporate
culture and values, which guides the long term service orientation
(Normann, 2000). The design and evaluation of new (additional) services
can be aided by looking in turn at the various service system components,
and by asking how they will (or should) be affected. Heskett, Sasser, and
Schlesinger (1997) provide a lower level insight into the service system,
by zooming in on the service delivery system as such. The design of
service delivery systems should encompass the roles people play (service
providers), technology, physical facilities, equipment and service delivery
processes. Assessing these components yields a useful checklist that can
prove helpful in the evaluation process by listing the various components
and by asking how they will be affected by the new service. However, this
method offers no guidelines on how to manage the design process, and nor
does it include a rigorous follow-up process that will lead to a finished
design. It offers no new design that is based on customer requirements.
The most methodical, process-oriented and design-oriented approach is
Service Blueprinting (Shostack, 1984). Shostack argues that, compared to
the manufacturing systems design, service systems design suffers from a
number of problems. Shostack mentions difficulties involved in describing
26 H. Bouwman and E. Fielt

and documenting the processes involved, which lead to intangible results;

trial and error approaches that fail to include tests with regard to
completeness, rationality and need fulfilment; the absence of a department
supervising the design; a gradual approach to quality controls; and a
tendency for systems to be described rather than visualized. Where
services are concerned, the traditional flowcharting methods that are
typically used in service blueprinting are limited and continue to form the
core of the analysis. They do not, for example, chart customer involvement
in the service provision, and they provide little insight into the organi-
zational structure and its significance in terms of service processes.
In strategic service marketing, Clark et al. (2000) have introduced an
approach based on Service Concept Definition. Key elements of a service
concept are customer value, form and function, customer experience, and
customer and supplier outcome. This approach explicitly defines the
service concept as a bridge between the ‘what’ and the ‘how’ of a new
service. The Service Concept Definition is a ‘detailed description of the
customer needs to be satisfied, how they are to be satisfied, what is to be
done for the customer and how this is to be achieved’ (Goldstein et al.,
2002 p. 123). In this approach, there is also a direct connection between
company strategy and customer value. Dividing a service into the ‘what’
and ‘how’ makes it possible to identify service elements, to check them
against customer requirements or needs, and then to design and deliver
those elements. However, it is a rather limited design methodology. Many
detailed steps still need to be made before the concept is ready to be
implemented. Managing a design process involves more than having a
concept. In fact, this approach at best provides ‘a direction or point at the
horizon for the design outcome’ (Simons & Bouwman, 2004, p. 4), and it
certainly does not set an agenda for concrete actions.
Grönroos’ Augmented Service Offering (Grönroos, 2007) uses the
service concept as input. According to Grönroos, to develop a service
concept, it is necessary to identify the intentions of the organization. The
service concept is the starting-point for the development of a basic service
package that describes the bundle of services needed to fulfil the needs of
customers or target markets. This bundle consists of core services,
facilitating (essential) services (and goods) and supporting services (and
goods). In addition to the service package, which is targeted primarily at
the service outcome, the augmented service offering also addresses the
service process. The process consists of three basic elements (from a
managerial point of view): accessibility of the service, interaction with
service organization and consumer participation. Finally, the service
provider has to manage the company’s image and communication,
including such activities as sales, advertising, sales promotion and
 Chapter 1 Service Innovation and Business Models 27

communication. However, while this approach offers a more detailed

description of the process involved in moving from a more general level
towards a more detailed and implementable design, it lacks the
methodological support needed to map customer benefits with service
activities, and to make and assess service design choices.
Methodological support for design choices is a key element in Quality
Function Deployment (QFD) (Clausing, 1994; Cristiano, Liker, & White,
2000; Hauser & Clausing, 1988). QFD is a systematic, matrix-based,
visual approach to designing quality products and services. It is based on
the principle that the quality of a product should be specified as early as
possible in the life cycle. Quality requirements are obtained directly from
the customers. A list of customer priorities, in words used by the
customers, is used as an explicit yardstick throughout the design process.
Moreover, possible service functions and solutions are prioritized
according to a matrix that is grounded in customer priorities and connected
to competitive scores. QFD uses a series of interconnected matrices that
establish the quality relationships between higher-level (i.e. product or
service level) design activities and their associated lower-level (i.e. sub-
process, subsystem etc.) activities. The higher-level matrices can be used
in planning the design concept, whereas the lower-level matrices are useful
in detailed design and post-implementation monitoring and improvement.
The design standards established early on are carried through to later
matrices (Herzwurm, Schockert, Dowie, & Breidung, 2002). The use of
these matrices enables and stimulates communication between multi-
disciplinary development teams.
Service design becomes even more complicated when one considers the
possibilities of bundling several, more or less independent services into
a service bundle. Chiasson (1999) presents a model for Service Bundle
Design. Chiasson argues that bundling requires a formal process to structure
the economics and strategic value of the bundle and to deliver it to the
market. Issues he considers relevant are the strategic intent of the service
bundle, in terms of market and product strategy, and its functional objectives.
These functional objectives are discussed for channels, marketing, support
systems, billing and telecommunication network consideration. Trade-offs in
the design of bundles are a key issue for bundles to meet a short time to
market, as well as to be profitable and consistent.
Although all of the methods we discussed so far have several
shortcomings (in terms of rigor, customer-oriented prioritizing and the
evaluation of service alternatives), they also have characteristics that
are beneficial to certain aspects of the design process. Fundamental
Engineering makes design steps explicit; service system planning provides
a useful checklist of the main components involved in the service process;
28 H. Bouwman and E. Fielt

Service Blueprinting contains a genuine process for developing a service

(concept) design, providing a visualization of the service system as an
integrated whole, including participants and processes. Service Concept
Definition lists the necessary service elements, as well as integrating
business strategy, more specifically supplier requirements, with customer
needs. The Augmented Service Offering integrates the service as outcome,
with the service as process. QFD, finally, emphasizes the need to use a
complete set of specifications that are traceable to customer requirements,
and that optimize communications within interdisciplinary design teams.
If there is one thing all the more marketing-oriented methods have in
common, it is that they all emphasize the importance of focusing on the
customer throughout the design process and including communication in
the service design. None of the formal service development methodologies
take the fact that the customer will increasingly be a co-creator of
innovative services into account. Moreover, these methods have little or no
attention for the technologies that enable the new services as well as the
organizational setting and the financial issues at stake. Typically, these
issues are discussed in business models.

1.7 From Service Innovation to Business Models

As we discussed above, there is a shift from product oriented innovations

towards service innovations, and service innovations are driven by much
more than technical R&D alone, specifically with regard to information
and communication technology. They often need to be combined with new
concepts, new ways of interacting with clients and new service delivery
organizations. This is particularly relevant when it comes to the
introduction of new electronic and mobile services, where there is also a
strong influence of information and communication technology as driver
and enabler. Moreover, new service development is rarely a well-
structured and systematic process, in which methodologies and tools are
used in a coherent and systematic way. Due to the diverse nature of
(mobile) service innovation, the lack of coherent methodologies, as
illustrated before, and fundamental research that drives and evaluates
service innovation, methods and tools, there is still little insight into the
critical design issues and success factors involved.
Starting from an open innovation perspective (Chesbrough, 2003), we
believe that service innovation is only possible in an open networked
environment in which multiple actors collaborate in delivering innovative
services, each contributing their own specific resources and capabilities.
 Chapter 1 Service Innovation and Business Models 29

However, before this can be accomplished, the underlying business models

have to be attractive to all the actors involved. The business model
addresses the creation of value via service innovation and the capturing
of a portion of that value by mediating between customer needs,
organizational resources and capabilities, financial arrangements, and
technological possibilities (Chesbrough & Rosenbloom, 2002). Business
models are not only relevant for analytical purposes, they also help design
viable and feasible services by taking into account relevant customer
needs, technological feasibility, required and available resources and
capabilities, and suitable financial arrangements. The choice in favour of
a more physical product-oriented or service-oriented offering is based on
the targeted business model of the provider, in particular the intended
customer and network value.
In addition, business models in themselves are a potential form of
innovation. An impediment for service innovation is companies being
locked into their own business models. ‘These companies are reluctant to
take risks with their own business by installing new technology, products,
services, or distribution channels’ (Edvardsson et al., 2006, p. 169).
Innovation cannot take place in the product or service offering and delivery
only, it also requires an innovative approach in the way organizations
collaborate and share resources and capabilities, leveraging existing
information and communication platforms and architectures, and in the way
value is created for the customers and firms involved (i.e. the underlying
business models). A well-known example of business model innovation is
the introduction of direct sales by Dell in the computer industry.
In the next chapter we take a closer look at business models. We start
from a specific service and discuss the elements that make up the business
models. Services and service design are used as a starting point. From
the discussion on (service) innovation, it is also clear that multiple
perspectives have to be taken into account (e.g. customer, service provider,
technology) and that a number of disciplines (e.g. marketing, management,
finance) have to contribute to understanding and supporting service
innovation. In our approach, we ask fundamental questions regarding the
viability and feasibility of mobile service innovation from various
perspectives in a structured way. Moreover, our approach makes it
possible to integrate different perspectives and disciplines. In addition, it
facilitates communication between the various people and organizations
involved and enhances their shared understanding of the business model,
offering them the possibility to discuss and play with different scenarios
before detailed designing and actually implementing a service.
30 H. Bouwman and E. Fielt

Our business model approach is intended to offer a contribution to

the development of service R&D. We believe that service R&D is
fundamental and involves the development of new tools, architectures and
methods to support service innovation. In our view, service innovation is
directed more at the development of new service ideas into functioning
concepts, and basically non-technical in nature. Application of our
business model approach will support the latter type of innovation.
Chapter 2 Conceptualizing the STOF Model

H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

Services and services innovation are directly related to and dependent on

innovations in business models. In this chapter, we discuss the main
theoretical background of the STOF model and its four core components,
i.e. services, technology, organizational arrangements and financial issues,
which will lay the foundations for the method used in designing business
models for (mobile internet) services. We discuss the conceptual
background and translate the theoretical insights into more design-oriented
issues. Then, we make the transition to a model that helps us understand
the dynamics involved in the success of business models, i.e. long-term
profitability and market adoption of the service to be designed. In the next
chapter we will discuss the Critical Design Issues (CDIs) and Critical
Success Factors (CSFs) that are part of the STOF approach.

2.1 Business Model Concept, Typologies and Components

In the 1970s, the concept of business model was used to describe and map
business processes and information and communication patterns within
companies, for the purpose of building Information Technology (IT)-
systems (Konczal, 1975; Stähler, 2001). More recently, business models
have been related to market structures and the place individual companies
occupy within those structures (Porter, 2001). Sometimes, the concept is
used to describe co-ordination mechanisms in economic processes, i.e.
markets or hierarchies, or to discuss intermediation or dis-intermediation
trends (Hawkins, 2002; Mahadevan, 2000; Tapscott, Lowi, & Ticoll,
2000). In other studies, the implementation of a specific market model, for
example the e-shop, e-mall or electronic auction, is discussed in terms of
business models (Ajit & Van Heck, 2002; Timmers, 1998). Very often, a
single aspect is emphasized, for example in the Business to Consumer
(B2C)-model for the retail sector (Lee, 2001; Roussel, Daum, Flint, &
Riseley, 2000), or Business to Consumer and Business to Business (B2B)
32 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

are discussed (Alt & Zimmermann, 2001). Recently, business models have
been related to peer-to-peer file sharing services (Hughes, Lang, &
Vragov, 2007).
In addition, business models are more and more related to strategic
choices companies are making (Hedman & Kalling, 2003; Porter, 2001).
Strategies are increasingly translated into business models. Nowadays,
many business ventures have a limited interest in formulating strategies.
Instead, they formulate business models (Hedman & Kalling). To a large
extent, strategies determine the basis of the business case: the concrete
operational implementation of business strategy in a business model. The
business model is given shape by answering questions with regard to
customer needs, the way services are provided, the availability and the way
in which the necessary technical, financial and human resources and
capabilities are put in place, the way processes are defined, et cetera.
Information and communication technology, i.e. Internet and mobile
technologies, play an increasingly important role, not only in the
organizational processes (back office), but also in the channels that are
needed to deliver products and services to their end-users (front office).
As a result, the concept of business model is also closely related to that of
business modeling, which describes organizational and/or transactional
processes, using Business Process Modeling Notation (BPMN), and object-
oriented modeling language, such as Unified Modeling Language (UML), or
Integration Definition Function Modeling-family (IDEF). The concept of
business models has been established in scientific research within a short
period of time and can be considered to be multi-disciplinary in nature. In
disciplines including strategic management, information systems, innovation
studies, economics, e-business and marketing research has been conducted
with regard to business models. The overall result, however, is that, although
the business model concept is used broadly, as yet a single coherent
description is lacking (Mahadevan, 2000).

2.1.1 Definitions

One of the earliest definitions of business models was proposed by

Timmers (1998), who stresses the architectural and technology elements:
“a business model is an architecture for the product, service and
information flows, including a description of the various business actors
and their roles, a description of potential benefits for the various business
actors, and a description of the sources of revenues”. Based on this
definition, a number of alternatives were proposed from various
disciplines. One of the most complete definitions was probably proposed
 Chapter 2 Conceptualizing the STOF Model 33

by Osterwalder and Pigneur (2002, p. 2): “a business model is nothing else

than a description of the value a company offers to one or several segments
of customers and the architecture of the firm and its network of partners
for creating, marketing and delivering this value and relationship capital,
in order to generate profitable and robust revenue streams.” At the same
time this definition was proposed, the authors of this book were working
on projects involving business models, and proposing similar definitions.
Bouwman and Van den Ham (2003a) emphasize the relevance of drawing
a distinction between the flows of goods, information and money. “A
business model provides a description of the roles and relationships of a
company, its customers, partners and suppliers, as well as the flows of
goods, information and money between these parties and the main benefits
for those involved, in particular but not exclusively the customer”.
Intangible sources also have to be taken into account. We emphasize the
design aspects of the business model, and therefore we define business
models as “a blueprint for how a network of organizations co-operates
in creating and capturing value from technological innovation”. This
definition follows Chesbrough and Rosenbloom (2002) and is expressed
in similar words by Haaker, Faber, and Bouwman (2006, p. 646): “A
business model describes the way a company or network of companies
aims to make money and create customer value”. Reflecting on the various
definitions and taking into account our experience with discussing and
investigating business models over the years, we would now propose the
following definition: “A business model is a blueprint for a service to be
delivered, describing the service definition and the intended value for the
target group, the sources of revenue, and providing an architecture for
the service delivery, including a description of the resources required, and
the organizational and financial arrangements between the involved
business actors, including a description of their roles and the division of
costs and revenues over the business actors”. It is clear that the concept of
service is of central importance in our definition, and in addition, because
in our vision services cannot and will not be delivered by a single
organization or company, a number of companies will have to work
together to create and deliver the service.
The discussion on business models not only focused on the correct
definition of the concept of business model, but also on its components and
taxonomies. The attention to classifications was especially dominant in the
early discussions about business models, whereas more recently the
discussion has focused on the components of business models.
34 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

2.1.2 Classifications

The attention to the classification of business models was driven by the

emergence of the Internet and the new opportunities for companies to
conduct business electronically (Afuah & Tucci, 2001). The use of
taxonomies made it became clear in what respect the Internet business
models would be different from business as usual. Functional integration
as well as the degree of innovation were two key dimensions on
which Timmers (1998) based his taxonomy of eleven business models:
e-shop, e-procurement, e-auction, e-mall, third-party marketplace, virtual
communities, value-chain service provider, value-chain integrators,
collaboration platforms, information brokerage, trust and other services.
Some classifications are based on developments in the area of technology,
others on marketing concepts or product types. In some classifications,
elements like value creation and strategy play a role. In other words, the
concepts and dimensions in these classifications are different for each
author, making a consistent and repeatable analysis and comparison
impossible. As a result, a large number of business models are mentioned in
various other studies (Afuah & Tucci; Deitel, Deitel, & Nieto, 2001; Deitel,
Deitel, & Steinbuhler, 2001; Mahadevan, 2000; Raessens, 2001; Rappa,
2001; Rayport, 1999; Rayport & Jaworksi, 2001; Turban, Lee, King, &
Chung, 2000). Some business models turn up in a number of classifications,
sometimes in slightly modified or more detailed versions. However,
the business models discussed in these taxonomies are according to Weill
and Vitale (2001) versions of Atomic business models, like Content
Provider, Direct to Customer, Full Service Provider, Intermediary,
Shared Infrastructure, Value Net Integrator, Virtual Community and
Whole-of-Enterprise/Government models. In our view, most of the business
models mentioned in the classifications can be traced back to these eight
basic models. Moreover, the classifications are not helpful in themselves,
because they do not help us understand the causal mechanisms that can
explain the success of specific business models, nor do they offer guidelines
for developing those business models. Consequently, it is far more important
to analyze what elements constitute a business model.

2.1.3 Components

Hedman and Kalling (2003) rightfully point out that relevant literature
regarding business models is dominated by descriptions of “specific”
empirically identified business models, and that little attention has been
paid to the theoretical sub-constructs of these models. Business models are
 Chapter 2 Conceptualizing the STOF Model 35

about the components that have to be discussed, designed, catered and put
in place to deliver a service to end-users. The latter is more about
ontology: an explicit (and often formalized) specification of a (shared)
conceptualization (Borst, 1997; Gruber, 1995) into the components or
elements, relationships, vocabulary and semantics of the core object
(Pigneur, 2004). The fact that the conceptualization is shared means that
common concepts can and have to be communicated between the actors
involved.
This leads to the question: what are these basic elements or components
of a business model? Alt and Zimmerman (2001) suggest that there are a
few elements that commonly turn up in definitions of business models:

• Mission. Determining the overall vision, strategic objectives and value

proposition, as well as the basic features of a product or service.
• Structure. This has to do with the actors and the role they play within a
specific business environment (a value chain or web), the specific
market segments, customers and products.
• Process. The concrete translation of the mission and the structure of the
business model into more operational terms.
• Revenues. The investments needed in the medium and long term, cost
structures and revenues.

Afuah and Tucci (2001) see business models as a system of components

(value, revenue sources, price, related activities, implementation,
capabilities and sustainability), relationships and interrelated technology,
while Mahadevan (2000) emphasizes value creation, revenues and
logistics, and Osterwalder and Pigneur (2002) are far more systematic in
their approach to the concept of business models. Based on what a
company has to offer, who it targets, how this can be realized and how
much can be earned, they discuss four basic elements, i.e.:

• Product innovation and the implicit value proposition

• Customer management, including the description of the target customer,
channels, customer relations
• Infrastructure management, the capabilities and resources, value
configuration, web or network, partnerships
• Financial aspects, the revenue models, cost structure, and profit

Recently, Shafer, Smith, and Linder (2005) have offered an over-

view based on twelve core publications, and concluded that the core
components – the number of components mentioned in literature vary
36 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

between four and eight, while in all, 24 different items are mentioned
(Morris, Schindehutte, & Allen, 2005) – can be summarized in terms of
strategic choices, value creation, value networks and capturing of value.
The existence of so many different classifications of components, illustrate
the lack of a common framework. In our approach, we will therefore focus
on customer value, and on the organizational, technical and financial
arrangements needed to provide a service that offers value to customers
and allows the providers of the services to capture value as well. In our
view, business models have to focus on four domains: service, technology,
organization and finance, and within these domains different components
play a role. We will discuss these four domains (see Fig. 2.1) in greater
detail, and also take a closer look at the theoretical and technological
concepts that are the basis for our framework, and that will lead the design
of business models.

Business model
Service domain
e.g. Value proposition,
Target group
S

Value for
customers
Technology domain Organization domain
e.g. Service delivery e.g. Division roles,
system
Network strategy
T O
Value for service
providers

Finance domain
e.g. Revenue model

Fig. 2.1. STOF business model domains

2.2 The STOF Business Model Domains

In our opinion, the starting point for any business model is the customer
value of a product or service that an individual company or network of
companies has to offer and which will satisfy customer demands. We start
from the service definition and focus first of all on the value proposition.
The service definition serves as a reference for the other domains. The
 Chapter 2 Conceptualizing the STOF Model 37

customer value of the service is the most relevant aspect of the service,
specifically if one wants to offer a service that really matters to users.
Although technology is basically a driver for new innovative services and
business models (push-model), from a customer perspective technology is
only an enabler. In the latter case technology pull plays a central role, one
that can only be understood from a customer value perspective and one
that requires an understanding and elaboration of user requirements. After
discussing the service and technology domain, we address the organization
domain, the way resources are made available, and the finance domain,
which includes investments as well as, for instance, pricing strategies.
Each domain description starts with theoretical notions about the
relevant concepts and issues with regard to that domain. The concepts that
are most relevant from a design perspective are subsequently addressed
and included in a descriptive conceptual domain model. The relationships
between the concepts within and between the domains are discussed.
Pricing, for example, is an important concept in both the service domain
and the finance domain, influencing not only customer value, but also the
revenues that can be expected. The four descriptive domain models
together provide a descriptive conceptual framework for the design of
business models. The initial letters of the four domains, Service,
Technology, Organization and Finance, together make up our four-letter
acronym “STOF”, which is the name for our business model framework.

2.2.1 Service Domain

As we discussed before service concepts are the starting point for our
approach. There are a number of generic issues that play a role in
conceptualizing services, such as customer value. Moreover when we
specify the service concept to the mobile domain some other issues ask for
closer attention, for example the concept of mobility, and the specific
value of mobile services. We will discuss these issues in more detail.
Customer value and innovation. There is a long tradition of literature
concerning customer value. Customer value basically consists of what
Ansoff’s (1987) matrix, based on the dimensions of market and product
newness, illustrates. Newness is a fairly troublesome concept, since it may
refer to products that are new-to-the-world (Booz et al., 1982), as well
as to major (Lovelock, 1984) or disruptive (Christensen, 1997) innovations.
Customer value can be seen as a new, innovative offer by a firm to its
customers. In general, we will draw the distinction between products or
services that are new-to-the-world, and new versions of existing products
or services (see also the concepts of versioning as used by Shapiro &
38 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

Varian, 1999). Value is seen as part of an equation in which customers in

target markets compare the perceived benefits and total costs (or sacrifice)
of (obtaining) ownership of a product or service (Chen & Dubinsky, 2003).
The value proposition of a firm must be recognized as being better, and as
delivering the desired satisfaction of human needs and wants more
effectively and efficiently than competitors do. Human needs and wants
are what Kotler (1988) describes as the starting point for marketing: “a
human need is a state of felt deprivation of some basic satisfaction, wants
are desires for specific satisfiers of these deeper needs and demands are
wants for specific products that are backed up by an ability and willingness
to buy them” (Kotler). In our modern economy, products and services not
only have to satisfy needs and wants, they also have to provide valuable
customer experience (Bouwman, Staal, and Steinfield, 2001; Magretta,
2002; Pine & Gillmore, 1999). Although “experience” is a relatively
intuitive concept, Boswijk, Thijssen, and Peelen (2005) describe ten
characteristics of a meaningful experience, some of which are useful for
mobile services as well. These characteristics are for instance a heightened
concentration and focus, involving all of one’s senses. One’s sense of time
is altered and one is emotionally engaged. The process is unique for the
individual, and entails a process of doing and undergoing something.
There are elements of playfulness (flow), although one has a feeling of
having control of the situation. There is a balance between the challenge
and one’s own competencies, and there is a clear objective.
With the increasing importance of electronic networks, i.e. the (mobile)
Internet, the channels that play a role in offering a product or service play
a more central role. That is why Rayport and Sviokla (1994) draw a
distinction between content, that what companies are offering, context,
the way companies are offering it, and infrastructure, which enables the
transaction to occur. These three factors can play a role in defining the
newness of the offering. The product or services can be new. The context
can be new, for instance location-based mobile services or the channel via
which the transaction is executed: mobile, enabled by mobile or wireless
infrastructures. Increasing connectivity to a network is crucial to facilitate
the transaction process of products and services. The intangible nature of
the offering, specifically in the case of services, and the relevance of
information to support a product offering, as well as the increased role
customers play in the transaction process (e.g. self-service) (McNaughton,
Osborne, & Imrie, 2002), become more important and are more indicative
of the service-like nature of offerings via electronic networks.
Perceived value versus experienced value. When designing a service,
providers have a general idea about what they intend to deliver. However,
 Chapter 2 Conceptualizing the STOF Model 39

in most cases, due to all kinds of organizational, technical and operational

constraints, the intended customer value is not the value that will be
ultimately delivered to the customer. In some cases, the intended value and
the value that is actually delivered may be the same, but even in those
cases it is not always the value that will be perceived by the customer. In
many cases, customer value as perceived by the end-user has little to do
with that which that is envisaged in initial business models, depending to a
large extent on personal or consumption context (Chen & Dubinsky,
2003). The classical diffusion of innovation concept of reinvention
(Rogers, 1995) or the appropriation concept we find in the domestication
approach (Silverstone & Haddon, 1996; Silverstone & Hirsch, 1992) play
an important role in explaining the difference between the intended value
and the value end-users will attribute to a service or a new technology.
Users redefine the value and the way they use technologies and/or services
in a way that fits their preferences and their behavior.
Value of mobile services. In discussions regarding mobile services,
customer value is defined in several ways (see for a more extensive
discussion of mobile services, mobility and other relevant aspect of mobile
services Chap. 4). Mobile services can provide many functionalities that
transcend space (and time), enabling people to study, play, work and shop
literally anywhere and anytime they want. Mobile services can break down
the barriers to information access, enhance communication and colla-
boration, and allow users to perform various tasks without regard to time
and location (Wang, 2008). In our opinion, the notion of ubiquity of
mobile services, often formulated in terms of services being available
“anywhere, anytime”, should be more aptly formulated as being available
“here and now in this context” (Bouwman, 2004). Anckar and D’Incau
(2002) have identified time critical needs, spontaneous needs/decisions,
entertainment needs, efficiency needs and mobility-related needs as
relevant value sources. Not every mobile service can fulfill one of these
generic needs, never mind all of them at the same time. Recent research on
the value of mobile services has shown that convenience-focused ideas are
well regarded, i.e. services and applications that help the user in solving
(daily) practical problems. During leisure time more hedonistic
experiences become important, in other words playful and fun aspects are
driving value (Bouwman, Carlsson, Molina-Castillo, & Walden, 2008).
Social aspects of the technology are important as well, i.e. human
interaction and communication, providing a sense of belonging is crucially
important (Klemettinen, 2007).
Personalization and context-awareness are important technological
enablers that have the potential to enhance the customer value of mobile
services. Personalization uses customer preferences, for example stored in
40 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

personal profiles, to adapt services better to suit users. Context-aware

services use the users’ context or that of relevant other entities to adapt the
behavior of services automatically. With regard to location-aware services
(Hegering, Küpper, Linnhof-Popien, & Reiser, 2004). Kaasinen (2005)
have found that user needs revolve around five topics, i.e. topical and
comprehensive contents, smooth user interaction, personal and user-
generated contents, seamless service entities and privacy issues. Tafazolli
(2005) presents the Wireless World Research Forum (WWRF) reference
model that explicitly links the values and the technological enablers or
capabilities. In Fig. 2.2 we combine their model with the distinction
made by Bergman, Frissen, and Slaa (1995) between instrumental, and
and socio-emotional value.

Socio-emotional Instrumental

Self actualisation Safety

Human capability
Control
augmentation

Belonging Privacy

Generic services
Ubiquitous Ubiquitous
Personalisation
communications information

Presence
Natural interaction Context adaptation
awareness

End-user applications and services

Fig. 2.2. Reference model relating customer value and capabilities

Inhibitors of mobile services development. Carlsson (2006) refers to the

mismatch between the mobile services that are being offered and the needs
of customers as an explanation for the slow adoption of mobile services.
As mentioned earlier, mobile services have to offer a precise match with
customer behavior if they are to deliver added value. However, there is a
clear trade-off between the customization and personalization of services
 Chapter 2 Conceptualizing the STOF Model 41

on the one hand, and security and privacy concerns on the other. Several
surveys have identified personal information security and privacy as being
among the most pressing concerns when it comes to using new mobile
technologies (Haaker, Faber, et al., 2006; Klemettinen, 2007). At the same
time, several technologies have been made available to protect people’s
personal information and privacy. With some notable exceptions, very few
of these technologies have been successful in the marketplace. There are
several possible explanations for this dilemma. People may not be aware at
all of information security risks during certain transactions, and even in
situations with full information humans do not always behave rationally.
People may also assume that institutions and government organizations are
providing a secure platform for their actions (Acquisti & Grossklags,
2004).
Individualization of mobile services. Individualization makes assessing
needs and careful targeting crucially important for realizing the potential
of providing tailor-made mobile solutions. Market segmentation involves
dividing the market (of e.g. consumers) into groups with shared needs or
desires, requiring a separate marketing mix (Kotler, Armstrong, Saunders,
& Wong, 1996). This means a market segment is a relatively homogeneous
collection of prospective buyers. There are many variables on which
segmentation may be based, e.g. geographical characteristics, for instance
city versus rural area, demographic characteristics, including age,
psychographic variables for instance lifestyle, or behavioral characteristics
such as purchase behavior or frequency of use (Kotler et al.). Targeting
involves the selection of a market segment for which a service is created or
at which a service is aimed. Specific market segments may be targeted
based on market size, growth potential, fit with the intended value of the
service offering, and – as the bottom line – the ability to reach the segment
profitably. In the mobile consumer market, segments are often based on
lifestyle.
Research in adoption and use of mobile services. Literature regarding
the adoption of new technologies is dominated by (1) studies on the
Diffusion of Innovation (Rogers, 1995), and (2) studies on the Technology
Acceptance Model (TAM) (Davis, 1989), the modifications of TAM as
presented under the label Unified Theory of Acceptance and Use of
Technology (UTAUT) (Venkatesh, Morris, Davis & Davis, 2003). Many
studies have used the TAM concept to investigate the mobile domain (for
a recent overview, see López-Nicolás, Molina-Castillo, and Bouwman
(draft). Existing Diffusion of Innovation literature suggests that
innovations that are perceived by individuals as having greater relative
advantage, compatibility, trialability, observability, and less complexity,
will be adopted more rapidly (Rogers; Ilie, Van Slyke, Green, & Lou,
42 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

2005). The development of routines related to service use increase

people’s motivation to use new services. Important factors that have a
positive effect on adoption and routines are user-friendliness and
frequency and regularity of use (Turpeinen, 1998). Consumers evaluate a
product/service based on their previous consumption experiences, habits
and expectations (Parasuraman, Zeithaml, & Berry, 1988). Past behavior is
a strong predictor of future behavior (Schoenbachler & Gordon, 2002).
The TAM is an information systems theory that models how users come
to accept and use a technology. The concepts used in TAM are perceived
ease-of-use, i.e. “the degree to which a person believes that using a
particular system would be free from effort” (related to Roger’s
complexity concept; Taylor & Todd, 1995), perceived usefulness, i.e. “the
degree to which a person believes that using a particular system would
enhance his or her job performance”, (related to Roger’s relative advantage
concept; Taylor & Todd), and behavioral intention to use (based on Theory
of Reasoned Action (Fishbein & Ajzen, 1975), and Theory of Planned
Behavior (Ajzen, 1991)).
Both of these theories on adoption and use of mobile services, however,
focus on individual preferences. Another line of thought starts from the use
of technology to carry out a specific task or receive a specific benefit
within a given context. Especially in the mobile context, with its
connotation of “anytime, anyplace”, the intention to use a service may
depend on contextual parameters as much as on individual preference
parameters. Bouwman, Van den Wijngaert, and De Vos (2008) have
found that the explanatory value of context parameters is higher than that
of individual characteristics when it comes to preferred technology to
communicate and exchange information in the context of the Dutch police
force. Context plays a more important role than personal characteristics in
the preferences for specific communication technology, and could help
design artifacts that matter in practice.

Service Design

As we have seen thus far, the central issue in designing a service is

“value”: a provider intends to deliver and delivers a certain value
proposition and customers or end-users expect and perceive a certain value
proposition. In our design model, we propose four interrelated concepts:
intended and delivered value on the part of the provider, and expected and
perceived value on the part of the customer or end-user. We use these
concepts to illustrate the match or gaps between the various perspectives
regarding “value” (Parasuraman et al., 1988). As we discussed earlier,
another important issue in service design is the nature of the innovation.
 Chapter 2 Conceptualizing the STOF Model 43

We propose a distinction between two kinds of innovations: “new version

services”, which take an existing service one step further (evolutionary),
and “way new services”, which are new services that are really new
(revolutionary) in one or several aspects.
The concepts in service design are defined as followed:

• Intended Value is the value a provider intends to offer to customers or

end-users of the service. This is the starting point for the innovation, and
is often equated with Value Proposition, although there often is a gap
between Intended Value and Perceived Value – and we would like to
model these gaps. Intended Value is translated into functional require-
ments (technology design), like technical specifications, and into
requirements for the value network (organization design), like roles that
are necessary.
• Delivered Value is the value a provider actually delivers to customers or
end-users of the service. Functional requirements are translated into
technological functionalities (technology design), which in turn determine
the Delivered Value – these translations are not straightforward, and there
are often gaps and mismatches. Delivered Value is also determined by
(non-technical) value activities (organization design), like help desk,
support and (physical) distribution.
• Expected Value is the value a customer or end-users expects from the
service, based on their experience with Previous Versions (technology
design) of the service (in the case of a “new version service”), or with
similar services (in the case of a “way new service”). For Previous
Versions, but also for similar services, it is possible to describe the
“backward” and “forward” (technical) compatibility with previous and
next versions or generations of services. Furthermore, Expected Value is
determined by resources and capabilities (organization design), like trust
and reputation, and by financial arrangements (financial design) like
paying for the device, paying per usage or paying a flat fee, subsidized
handsets or discounts.
• Perceived Value is the value a customer or end-user actually perceives
when they consume or use the service. This is the “bottom line” – it is
the customer or end-user who evaluates the value of the innovation.
Perceived Value is like the difference between Delivered Value and
Expected Value, including functional, emotional and process-related
aspects. The higher the Delivered Value is, or the lower Expected Value,
the higher Perceived Value will be. There are other variables that also
have an important influence on Perceived Value: Customer or end-user,
Context, Effort and Tariff. These concepts are defined below.
44 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

• Customer or End-user. We use the term “customer” to refer to the

person(s) paying for the service, and “end-user” to refer to the person(s)
actually using the service. In the case of consumer services, these roles
coincide, but with regard to business services, they may be separate
entities: e.g. the “customer” role can be played by a “decision making
unit”, and there may be different “end-users”, e.g. employees use basic
functions, while managers use basic functions plus some additional
managerial functions. Within consumer and business markets we can
distinguish Market Segments, each with different needs, wishes and
preferences, which determine Perceived and Expected Value. Important
qualities of the customer or end-user Market Segment are: size of
“installed base” (already have or use similar services or earlier
versions), size of target group, size of maximum potential market. We
can also describe percentages of ownership, adoption (usage), access to
the service (e.g. not owning it, using it sporadic), or (cognitive or
otherwise) expertise levels within specific market segments. Knowing
and understanding customers and end-users is crucial to successful
innovation – and must serve as a starting point for formulating Intended
Value.
• Context. A service is always consumed or used within a specific
context, and an innovation is only successful if it offers benefits in that
specific context. The concept of Context can be described at various
levels of abstraction: there is the context of one concrete situation, e.g.
walking on the street or sitting at home, the context of daily life, e.g.
working or professional life, or private or family, and there is the wider
social-cultural context, including societal trends and political drivers
and constraints. Other products or services with similar functions are
part of Context – the frame of reference in which Perceived Value is
determined. Note that context can thus relate both to static personal
attributes such as professional life, and dynamic attributes such as
current location Knowing and understanding Context is crucial to
successful innovation – and must serve as a starting point for
formulating Intended Value.
• Tariff and Effort. Customers pay a Tariff (price) to consume the service,
and an end-users make an Effort to use the service, whereby Effort
refers to all non-financial efforts the end-user must make. These two
variables have a clear influence on Perceived Value and therefore on the
adoption and use, and thus on the success of a service.
• Bundling of services, or of services and products, is common practice.
In Chap. 12 we specifically deal with this issue. Bundling of services in
general leads to increased value of services to the customer or end-user.
 Chapter 2 Conceptualizing the STOF Model 45

To estimate realistic levels for Tariff or Efforts, one may study the
existing tariffs or efforts regarding similar services, e.g. a first estimate of
a tariff for a news service may be the price of a single newspaper. The
effort concept can best be explored by making use of Rogers Diffusion of
Innovation concepts. According to Rogers (1995), there are five factors
that influence the adoption and use of an innovation: compatibility with
people’s daily contexts and the relative advantage of the innovation over
other products or services (both covered in concepts discussed above),
complexity (how easy the service is understood by the customer), visibility
of the advantages of the innovation, and testability of the innovation. The
last three factors are related to the concept of Effort. Ease-of-use is the
flip-side of effort. The easier to use a service the less effort one has to do.
The introduced concepts in the service domain and their relations are
mapped in Fig. 2.3.

Service domain

Previous Previous influences Expected

Versions Experience Value
T have
influences

Customers,
co-determines
Context End-users

Effort Perceived have

(ease of use) Value
are part of
Financial
Tariff
Arrangements Market Revenue
(pricing)
F Segment Source
F

Bundling

Technological co-determine
Delivered Value
Functionalities
co-determine Value Activities
T O

delivers Value delivers

Proposition
summarised in
Technical puts requirements on Intended Value
Architecture
Value puts requirements on Network
T O

Fig. 2.3. Descriptive model for the service domain

46 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

2.2.2 Technology Domain

Requirements as defined in the service domain determine and specify the

technical architecture, which is part of the technology domain (Fig. 2.4). In
the technical architecture, (mobile) middleware, including web services
play an important role, in addition to network and infrastructure
characteristics, in facilitating the process that enables the service
development, creation, discovery, delivery, bundling, control and
management. Business processes can be embedded in web-services. Web
services contain both IT-functionality and data.
Organizations have a choice in the degree to which they want to embed
processes in IT-functionalities. The most detailed level at which business
processes can be embedded is the CRUD-matrix level (Create, Read,
Update and Delete). At a higher level, objects are defined. Objects are
related to the business and information processes. A complex organization
can use object-models with thousands of objects with a limited scope. At
still higher-level components are used. Components are applications that
can be used by multiple users. At a higher level still, web-services are
discussed (Koushik & Joodi, 2000). Functions and objects are combined
with business processes in a service application that can be used by
“business messages”. Web services have the highest level of granularity.
They are business functions that are exposed to the web through a well-
defined interface, and use standard web protocols like Universal
Description, Discovery and Integration (UDDI), Simple Object Access
Protocol (SOAP) and Web Services Description Language (WSDL)
(Lankhorst, Van der Stappen, & Jansen, 2001). Most web services are
based on a 3-tier infrastructure, defining external client interfaces,
middleware and application services and back end data services. Web-
services can be provided by third parties and do not depend on the IT-
resources of an individual firm. Furthermore, we have to realize that, to
provide services over the Internet and mobile networks, organization
legacy IT-systems or web-services are not sufficient. Mobile web services,
which are also discussed in Chap. 4, offer many opportunities to provide
generic service elements. Here, we discuss some of the generic technical
issues that have to be developed in any service and application, that run
over a network and is offered to customers.
Authentication. Authenticating users in a secure way is required to
identify the user, e.g. when offering personalized services. In addition, if
users are billed for consuming network resources and/or content the user
must be identifiable for service providers. Given risks of identity theft
and fraudulent behavior, security is a key issue in any authentication
process. Generally, diverse solutions exist for authentication, including
 Chapter 2 Conceptualizing the STOF Model 47

username/password or device based authentication. In the mobile domain,

the authentication of mobile devices has been supported by operators using
the Subscriber Information Module (SIM) card model. SIM cards provide
user information to the network and a secure link between the subscriber
account and the operator bill, and allow for personalization and
localization of services (Microsoft, 2003).
Management of user profiles. User profiles containing information such
as preferences, personal data, interest and context need to be gathered,
stored, and maintained. This is especially relevant when offering
personalized services. However, user profiling also can guide service
providers’ future strategies as they provide feedback on user behavior from
which user preferences can be inferred. There are several approaches to
storing user information, involving active user involvement to a greater or
lesser degree (Pashtan, 2005). Sometimes, user information is distributed
among various companies. Although potentially highly interesting, it is not
always legally possible to share the information (cross-domain profiling)
(Ali Eldin, 2006). Another choice is between automatic user profile
generation versus active user involvement. Moreover, user information can
be stored decentralized on the device and can be requested by any service
provider. The role of user profiling is strongly related to having customer
ownership and authentication, as profiling is only possible after identifying
and authenticating the end-user.
Security. Success with regard to the demand of a service offering to a
large extent depends on the level of security perceived by consumers.
Wireless networks have security issues with respect to over-the-air
transmissions and additional gateways between wireless and wired
domains. Standardization organizations, such as 3rd Generation Partner-
ship Project (3GPP) and Internet Engineering Task Force (IETF), deal with
those security concerns.
However, the original World Wide Web Consortium (W3C) specifi-
cations for web service standards provide little or no security, which means
that external mechanisms or standard modifications have to be arranged, and
the question is how to implement these security requirements into Mobile
Web Services (MWS) technology (Pashtan, 2005). Association between
mobile device and user ID has been traditionally implemented in the SIM
card model, which is not a very sophisticated system. This means that a
design choice has to be made between security in web services technology
or more generic network-based security.
48 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

Technology Design

The service design and the generic issues we discussed above, more or less
serve as a guide to the technical design. The most important technology
design variables, and some of their relevant characteristics are:

• The Technical Architecture describes the overall architecture of the

components listed below. Important characteristics of the technical
architecture are: centralized vs. distributed, open vs. closed, inter-
operable vs. non-interoperable.
• The Backbone Infrastructure refers to the medium and long range
backbone network infrastructure. Important characteristics are: high
vs. very high bandwidth, future-proof vs. non-future-proof.
• Access Networks refer to the first and second mile network infra-
structure. Important characteristics are: fixed vs. wireless, high vs. low
bandwidth, universally available vs. deployed in hotspots, scalable vs.
non-scalable.
• Service Platforms refers to the middleware platforms enabling
different functions, including Billing, Customer Data Management.
These platforms provide the generic business functions as authenti-
cation, billing and customer care. Specific platforms offer for instance
location or context information. Important characteristics are:
centralized vs. distributed, personalized vs. non-personalized, secure
vs. non-secure, legacy vs. new, open vs. closed.
• Devices refer to the end-user devices providing access to services.
Important characteristics are: multi-purpose vs. single purpose,
“network intelligent” vs. “dumb interface”, storage facilities vs. no
storage facilities, embedded software vs. open terminal.
• Applications refer to the user applications running on the technological
system. Important characteristics are: communication vs. content,
always on vs. time-critical, personalized vs. non-personalized, secure
vs. non-secure.
• Data refers to the data streams transferred over networks. important
characteristics are: asynchronous vs. real-time, high volume vs. low
volume.
• Technical Functionality refers to the functionality offered by the
technological system. Important characteristics are: always on vs.
time-critical, personalized vs. non-personalized, secure vs. non-secure.
 Chapter 2 Conceptualizing the STOF Model 49

own and invest in Technology domain

Actors Technical generates Costs

Srchitecture
F
O
consists of Data
is used in is used in

Applications

Devices
produce Delivered
Billing Value
S
Platform
Service
Platforms Customer
puts
Data Platform requirements on
delivers
Access
Networks

Backbone
deliver
Infrastructure

Technical
Functionality

Fig. 2.4. Descriptive model for the technology domain

There is a direct link between the technologies that have to be

implemented and used in order to be able to provide the service, and the
organizations involved in supplying these technologies. To a certain degree,
the technology design is connected to the institutional design: the
arrangements between actors regulating their relationships, tasks, response-
bilities, allocation of costs, benefits and risks (Koppenjan & Groenewegen,
2005). We discuss such organizational issues in the following section. It
may be clear that, depending on the choice that are made, the organizations
involved in delivering the resources and capabilities, in terms of technology,
finance, marketing and management, may vary.

2.2.3 Organization Domain

In general, organizational issues revolve around the resources and

capabilities, mainly related to technology, marketing and finance that have
to be made available to enable the service. Although the service may be
offered by a single organization we assume that this organization has to
collaborate with others in order to be able to provide all the necessary
50 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

resources and capabilities that are required for developing and offering the
service to the market, and to develop a viable business model for involved
actors. In their analysis of business models, Hedman and Kalling (2003)
conclude that the bottom line is that economic value is determined by a
firm’s ability to trade and absorb ICT-resources and capabilities, to align
(and embed) them with other resources and capabilities, to diffuse them
in activities and manage the activities in a such way as to creates a
proposition at uniquely low costs or with unique qualities in relation to the
industry in which the company is operating. Collaboration, in-sourcing and
network formation are possible strategies for obtaining the necessary
resources an organization does not have.
In traditional strategic analysis, like specifically theories on Industrial
Organization (Porter, 1985, 1990; Porter & Millar, 1985), and the strategy
process perspective (Henderson & Venkatraman, 1993; Mintzberg, 1983;
Scott Morton, 1990), strategic, economic positioning in an industry sector
plays an important role. These approaches are atomistic in nature, focusing
on autonomous firms that create competitive advantage in specific
markets. Starting from strategy theory, these authors conclude that strategy
has to deal with industry, industry position, customer segment, geo-
graphical markets, product range, structure, culture, and position in value
chain. Value chain analyses have gained popularity through the writings of
Porter (1985), and have since evolved to include a wide variety of models.
Although the original purpose of a value chain was to identify the
fundamental value-creating processes involved in creating a product or
service within a firm, the concept has since been broadened and is often
used to describe an entire industry. An industry-level value chain serves as
a model of the industry, whereby the processes are considered independent
of the firms that may or may not engage in them. This separation makes it
possible to analyze the positions of various firms in the overall industry,
as well as instances of vertical integration or cooperative agreements
(alliances, joint ventures, et cetera).
Despite the strengths of the value chain approach, it has been criticized
from two perspectives. To begin with, its external focus has been criticized
by Barney (1991). In his resource-based view, Barney is more internally
focuses, i.e. on the resources and capabilities a firm controls and that enable
that firm to offer a compelling strategic advantage compared to others. The
core assumption of the Resource-based View of the firm is that competitive
advantage of a firm is derived from the resources and capabilities the firm
controls that are valuable, rare, imperfectly imitable and not substitutable
(Barney, 1991, 2001). A resource can be defined very broadly to include
almost anything in an organizational or inter-organizational setting. This is
clearly visible in some of the most widely used definitions of the term
 Chapter 2 Conceptualizing the STOF Model 51

resource. Firm resources include all assets, capabilities, organizational

processes, firm attributes, information, knowledge, et cetera, controlled by a
firm that enable it to conceive of and implement strategies that improve its
efficiency and effectiveness (Barney, 1991). In literature, little attention is
paid to the kind of resources that should be shared in value webs and how
they are organized. Although there are several resource typologies (Grant,
1991, Allee, 2000a, b: tangible-intangible or knowledge based resources;
Barney, 1991: physical, human and organizational capital resources; Das &
Teng, 1998: financial, technological, physical and managerial, Miller &
Shamsie, 1996: property-based and knowledge-based). These typologies are
too general. We will come back to this after we have discussed the value
web concept in more detail.
Secondly, the value chain metaphor has been criticized by more
network-oriented approaches. Tapscott et al. (2000) note that the chain
metaphor masks the importance of horizontal aspects of a firm’s processes,
in particular their relationships with other firms, for instance in making
resources available. As early as 1978, Pfeffer and Salancik introduced the
resource-dependency perspective. Resource Dependency postulates that
the power an organization wields within the value network depends on the
resource dependency relationship is has with other organizations. This
relationship operates in two ways. If an organization can easily obtain a
resource, the dependence and with it the power of the organization
providing the resource will be low. If a focal organization depends on an
important resource from another organization, there is a dependency
relationship, and the other organization will wield power over the focal
organization. In a relationship each firm can, to a certain degree, withhold
or increase the resources in question. Networks are formed based on this
notion of the sharing of resources between organizations. A firm will try to
form alliances with other firms to ensure a consistent supply of critical
resources and in doing so create interdependence between the partners and
gain access to the other firm’s network. This process allows the creation of
a value network that is critical to its survival, as it makes it possible to deal
with the uncertainty of the competitive environment, provide flexibility
and reduce the need for (risky) investments (Sakaguchi, Nicovich, &
Dibrell, 2004).
The resource-dependency view, and the criticism regarding the
traditional value chain that dynamic forces in the course of production are
ignored and that the value chain model implies that product and service
development is necessarily a sequential process, did lead to the develop-
ment of alternative conceptualizations of the value chain in the form of
business webs and value nets (see respectively Kothandaraman & Wilson,
2001; Tapscott et al., 2000). There is a shift in conceptualization that
52 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

emphasizes the provisioning of information, products and services by

networks that consist of sub-units of organizations and/or cooperating
organizations working together (e.g. Stähler, 2001). Moreover, the
boundaries of organizations are becoming more transparent, and
organizations cooperate in changing constellations, enabled by ICT.
Information, services, and products can be provided by sub-units within
organizations, by single organizations or by collaborations between
companies. More and more vertical integrated organizations are redesigned
in network organizations in order to be more flexible and to be able to
offer new services more rapidly to the market (Versteeg & Bouwman,
2006). We will call this phenomenon, where organizations or organi-
zational units work together to offer new services, value networks, value
net or value web.
The broadening of the value chain concept to that of a value net or web
coincides with the general trend in which greater attention is being paid to
network concepts in strategic management literature (Gulati, Nohria, &
Zaheer, 2000). By definition, plural organizations with various roles and
functions create an organizational network by pursuing a shared set of
objectives (Demkes, 1999). Interorganizational networks, relationships
between firms that extend beyond the dyad or triad, come in many forms,
such as business groups (Granovetter, 1994), cooperative and governance
networks (Wigand, Picot, & Reichswald, 1997), constellations (Jones,
Hesterly, & Borgatti, 1997), network enterprises (Castells, 1996), and
strategic networks (Gulati et al.). These various forms can be differentiated
based on the interaction patterns among the members, as well as the flows
of resources between them (Jones et al.). A more dynamic approach,
specifically directed towards the evolution of networks, seen as complex
systems, is discussed by Monge and Contractor (2003).
With regard to complex value systems, the generation and delivery of
value to the users becomes a mutual interest. Based on the resources and
capabilities that are available in a complex value system, organizations
adjust their functional contribution in the development of customer value.
Their operation in this framework is based on the exchange of information,
products, services and financial assets. Hence, organizations become
dependent on each other, strategically, functionally and financially.
Continuous and repetitive interaction leads to the emergence of relationships
between firms, which may become institutionalized through legal
agreements and contracts. The relationships between the actors can exist at
various levels, e.g. communications, information flows and revenue flows
(Maitland, Van de Kar, When de Montalvo, & Bouwman, 2003).
Complex value systems or value nets have to strive to support customer
processes to the maximum extent possible when they want to improve
 Chapter 2 Conceptualizing the STOF Model 53

customer value (based on Grönroos, 1994). On the other hand, there are
costs associated with every service. Companies can decide whether they
support the entire customer process, or only one or a few stages in the
entire process. Their decision depends on what their core competencies are
(based on their resources and capabilities) (Petrovic & Kittl, 2003). Since
we assume that many services are provided by value networks, this
decision is the basis for the configuration of value webs. Each company in
the web will choose which value (and ultimately which part of the end-
user value) it will offer, or in other words, which part(s) of the customer
process it wants to support. In short, the values and cost are determined by
various organizations performing roles that contribute to the value that is
provided to the customer in the form of the e-service.
The following characteristics distinguish, according to Petrovic and
Kittl (2003) a value net and determine its advantage compared to
traditional businesses:

• Customer-aligned. Customer choices trigger the sourcing, building and

delivery activities of a specific service or product within the value net.
Distinct customer segments are offered customized solutions.
Customers can play an active role. They are not passive recipients of
supply chain output, but actively engaged in the service or production
process in that they provide key information regarding their demands
and personal preferences.
• Collaborative, systemic, and information-based. Companies engage
suppliers, customers and even competitors in a unique network of
value-creating relationships. Each activity is assigned to the partner
best able to perform that specific activity. Significant portions of
operational activities are delegated to specialist providers, for instance
with regard to localization data, and the entire network operates
smoothly thanks to collaborative, system-wide communication and
information management. Information flow design and its intelligent
use are at the heart of the value net. New digital information pathways
connect and coordinate the activities of the value net, its customers
and its providers. Rule-based, event-driven tools take over many
operational decisions. Distilled real-time analysis enables rapid
executive decision-making.
• Agile and scalable. Responsiveness to changes in demand, new
product and service launches, rapid growth or re-design of the supplier
network are all assured through a flexible production and distribution
process, and information flows. Process time and steps are reduced.
All processes in the value net, whether physical or virtual, are scalable.
54 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

Order-to-delivery cycles are fast and compressed. Rapid delivery goes

hand in hand with reliable and convenient (electronic) delivery.

According to Selz (1999), the main characteristics of the organization

domain model are cherry-picking from existing value systems, a value web
broker acting as a central coordinator, an endeavor to come closer to the
final consumer, and an integration of upstream activities, which is
coordinated either with market platforms or with hierarchical mechanisms,
or via a mixed form, i.e. networks (Powell, 1990). The value web model
appropriates various concepts from transaction costs economics (Malone,
1987) and information systems theory. Markets, hierarchies, networks and
information technology are woven into an intricate web of relationships to
make value webs possible (Selz).
Within the value web, relationships between what we might call
“structural” participants in the value networks are the most relevant. The
balance of theory suggests that there are many reasons why firms would
assume such structural roles – ranging from simple opportunism to
requirements for new technological and market knowledge – but that the
solidity of the relationship will depend largely on social and institutional
antecedents. Depending on which actor(s) contribute key assets to the
creation of value and the operating risks involved (Kothandaraman &
Wilson, 2001), different configurations of actors are likely to result, some
taking structural, integrative roles in the alliance and others taking
supporting, facilitating roles. In deciding how to describe such a network is
important to decide on the focal point of the value web and, starting from
there, what the network looks like. It is clear that the description of the
network or value web depends on the perception of the researcher, and it is
difficult to delineate a network or value web and to decide which actor
belongs either to the core or to the periphery of the network.
Although in reality, the lines between some of them may blur, we can
identify at least three basic types of participants in any new value network
(Hawkins, 2002):

• Structural or tier-1 partners. They provide essential and non-

substitutable tangible and/or intangible assets to the value web on an
equity or non-equity basis. They play a direct and core role in
determining the intended customer value and in creating the business
model.
• Contributing or tier-2 partners. They provide goods and/or services to
meet requirements that are specific to the value web, but otherwise
play no direct role in determining the intended customer value and in
 Chapter 2 Conceptualizing the STOF Model 55

creating the business model. If the assets they provide are substituted,
the intended value and the business model could remain intact.
• Support or tier-3 partners. They provide generic goods and services to
the value web, without which the value web would not be viable, but
which otherwise could be used in connection with a wide variety of
intended customer value and business models.

Structural partners make up the core of the network, while contributing

and support partners connected to the network are loosely. As firms create
products and services and engage customers in value exchanges, partners
play an important role and require careful management (Galbraeth, 2002).
A remaining consideration in this scheme is the nature and longevity of
the relationships involved. In principle, the assets and roles of contributing
and supporting partners could be obtained in the wider market, through
long-term or short-term contracts, depending on the circumstances. Many
partners may only be required at specific points in time. Most structural
partners would be in it for the long haul. Almost by definition, for the
business model to survive, a structural partner leaving the alliance would
have to be replaced by another partner bringing the same type of assets to
the enterprise and playing the same role. A variation may occur when a
structural partner’s role is highly temporary – i.e. required to create and
float the business model, but not essential to its subsequent operation. In
such cases, it is likely that the assets contributed by this partner would be
retained through a formal permission or license.
To conclude from a design perspective, specifically with regard to
(mobile) internet services, access to critical resources is the key element in
deciding which actors to incorporate in a value web. Critical resources for
value webs are: access to the Internet and/or mobile infrastructure, to
content, to content developers, aggregators and hosting providers, to
software and application platforms, to customers, customer data, billing,
customer support and management, based on the type of service providers
of specific technology-related services, for instance mobile, location or
positioning applications. Some of the resources may be found within a
single organization, whereas for others more than one organization may be
needed. Some resources may only be provided by one organization
(structural partners), whereas for other resources several alternatives
(support partners) may be available. A specific place is reserved for
financial resources. Investments and the financial performance are
crucially important in delivering value to customers and to the network.
56 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

Organization Design

The organization design describes the value network that is needed to

realize the particular service offering. A value network consists of actors
with certain resources and capabilities, which interact and together
perform value activities, to create value for customers and to realize their
own strategies and goals (see Fig. 2.5). Relevant topics in organizational
design are:

• Actors can have greater or lesser degrees of power within in the value
network, depending on the resources and capabilities they bring to the
table. As we have seen, Hawkins (2002) identifies three basic types of
partners in a value network: structural partners, contributing partners
and supporting partners. In principle, structural partners are in a better
position to exert control over the network than supporting partners are.
Actors can fulfill single or multiple Roles, such as investor roles,
governance body or technology provider.
• Value Network. The number of actors and the frequency and type of
interactions contributes to the complexity and density of the value
network.
• Interactions and Relations. Relations may evolve from reciprocal
interactions. Relationships are important to a value network, because
they contribute to trust and commitment within the network.
Multiplexity refers to the number of levels within a relationship: the
greater the number of levels, the stronger the relationship.
• Strategies and Goals. Actors vary with respect to the strategy and goals
they pursue with the collaboration. Collaboration requires partners to
share information and provide insight into each other’s ways of
working. However, strategic interest may induce partners to act against
what is agreed upon, hide the truth or try to extract confidential
information from their collaboration partners. Organizations may defend
themselves by drawing up legal contracts and strictly monitoring
another partner’s activities. However, these safeguards do not guarantee
that partners will not act opportunistically, which means that trust
between partners is an important condition for an open and constructive
collaboration.
• Organizational Arrangements. Collaboration leads to complex
interdependencies between organizations, because no single partner
has formal authority over another partner. Every adjustment has to be
discussed and jointly agreed (Klein-Woolthuis, 1999). To govern the
collaboration, actors need to agree formally and informally on how to
 Chapter 2 Conceptualizing the STOF Model 57

divide and co-ordinate their activities. These agreements should

clearly define the responsibilities for all actors involved.
• Value Activities are the activities that an actor is supposed to perform
in order for the value network to deliver the proposed service. A
combination of value activities, together with the agreements and
responsibilities, define the role an actor plays in a value network.
Value activities can be seen as costs but also as a source of investment.
If an actor performs a value activity and is paid directly for it, the
activity can be seen as a cost. If the actor donates the activity in
exchange for a part of the revenues later on, it is seen as an investment.
We would argue that an actor who does not invest is not a structural
actor.
• Resources and Capabilities can be financial, social, organizational and
technical in nature. The technical resources and capabilities are the
components with which the technical architecture is built. At the same
time, the existing technical resources of the actors in the value network
impose requirements on the technical architecture, as it has to be built
using the resources that are available.

Organisation domain

Strategies and to participate in Relations

Goals

have Value Network may grow

consists of into
Resources and
Capabilities have consists of

Actors Interactions
is a have

perform negotiate / define

enforce
Financial
Organisational
Arrangements
Arrangements
F
define
Value Roles
Activities combine to

generate
puts requirements
on
Technical Investment Delivered
Costs
Architecture Sources Value
T F F S

Fig. 2.5. Descriptive model for the organization domain

58 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

2.2.4 Finance Domain

Financial resources are one of the most important resources to be required

by the value network. Finance also defines the bottom line of most of the
services to be designed. With regard to financial arrangements, there are
two main issues: investment decisions and revenue models. When it comes
to investment decisions, there are a large number of surveys available
(Demkes, 1999; Renkema, 1996; Van Oirsouw, Spaanderman, & De Vries,
1993). The authors of these surveys describe a number of methods that are
predominantly based on financial criteria. They discuss general financial
methods as well as multi-criteria, ratio and portfolio approaches
(Renkema). Financial methods aim at average cost-effectiveness, net cash
worth and internal return. Multi-criteria methods are those found in
Information Economic, Kobler Unit Framework and the Siesta-method,
which is partly based on the Strategic Alignment model. The ratio-methods
are those found in Return-on-management and IT-assessment. Portfolio-
methods are found in Bedell, investment portfolio and investment mapping
(see Demkes; Renkema). Some methods go beyond the merely financial
considerations, for example the balanced score cards (Kaplan & Norton,
1992, 1996), Value Prism (Neely, Adams, & Kennerley, 2002), while the
option theory is a more detailed elaboration of the net cash worth concept
(Demkes; Renkema). Demkes points out that decision-makers hardly ever
use these kinds of methods.
Costs. Generally speaking, the cost side is reasonably well charted. The
relative importance and absolute magnitude of cost drivers will vary from
industry to industry, and from firm to firm. Exploiting and shaping these
structural factors in defining the financial arrangements is very important.
Drivers are partly related to internal relationships in a firm, partly to
external factors, and partly to the relationship between internal and
external factors (Stabell & Fjeldstad, 1998).
Transaction cost economics explains the firm’s cost structure.
Transaction costs include the costs of planning, adapting, executing and
monitoring task completion. A transaction occurs when a good or service
is transferred across a separable interface. Transaction cost economics
identifies transaction efficiency as a major source of value, because
enhanced efficiency reduces costs. The emphasis transaction cost
economics places on efficiency may divert attention from other
fundamental sources of value, such as innovation and the reconfiguration
of resources (Amit & Zott, 2001). The business logic of the value network
and the individual cost drivers form a framework to analyze and achieve
an insight into the cost structure. Each firm faces the question whether to
perform allocated tasks “in-house” or to outsource them.
 Chapter 2 Conceptualizing the STOF Model 59

The cost structure of most service businesses, including mobile services,

is characterized by a high ratio of fixed to variable costs (Shapiro &
Varian, 1999) and by a high degree of cost sharing such that the same
facilities, equipment, and personnel are used to provide multiple services
(Guiltinan, 1987). The high fixed costs typically lead to economies of
scale, as increased production lowers the average production costs.
Similarly, the high degree of cost-sharing leads to economies of scope, as
the provisioning of a number of different services together leads to
reductions in cost. Modularity in the service provisioning architecture is a
way of obtaining cost advantage, as components or modules may be shared
by several services. Service bundling, i.e. the combined offering of
separate services as a package for a single price to customers, is another
way to achieve cost advantage (Guiltinan). Complementarity between
bundle components may stimulate demand, whereas cost sharing helps
reduce costs.
Revenues. As far as the revenue side is concerned, which from our point
of view includes realizing cost reductions as well as long term advantages
that stem from intangibles, literature is less uniform (Low & Cohen
Kalafut, 2002). Revenue models indicate what methods of payment are
used, what is being paid for, and thus in what way income is generated.
The thinking about models for income generation is less articulated than
that with regard to business models. Furthermore, the distinction between
the two is often vague. When talking about revenue models for the
internet, Mahadevan (2000) distinguishes, for example, subscriptions,
shopping mall operations, advertisements, computer services, general
services, time usage and sponsoring (or free services). Weill and Vitale
(2001) distinguish between (1) payments for transactions, (2) payments for
information and advice, (3) payments for services and commissions, and
(4) advertisement-generated income and payments for referrals. Holland,
Bouwman, and Smidts (2001) discuss the following revenue models for
Internet services: advertisement-based, transaction-based, models based on
the float, subscription-based, licensed-based and models based on utility,
i.e. “pay for” models. Rappa (2005), in addition to the revenue models
mentioned above, considers infomediaries (selling customer data) and
communities (sale of ancillary products).
Risks. Risks need some closer attention. Managers perceive risk in a
way that is less precise and different from the way it is perceived in
decision theory. The key point is that dealing with risk is a balancing act
that should address both positive and negative aspects, taking the
likelihood and subsequent consequences of any defined event into account.
Telecom operators and service providers indicate that they are faced
with a considerable number of risks and uncertainties concerning the
60 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

technological and financial choices they have to make. Actors involved in

the value web constantly examine the prospects of new technologies,
technological possibilities and performance, and must decide whether or
not to replace existing technologies. They are aware of the need to invest
in new technologies and services, and although they may not know in
advance when they may have to invest in new technologies, they have to
be prepared to be able to catch up with their competitors quickly enough
when the time arrives. Other risks associated with implementing new
technologies are the risks regarding the availability of the new technology,
standards (will the technology be standardized to allow for mass
production to occur), the risk of irreversibility of the chosen technology
path, the risk of the chosen technology becoming outdated and path
dependency (future technological choices depend on former paths set in).
To determine the practical impact and risks involved, all these issues need
to be taken into account.
Pricing. Revenues depend on the price associated with the service. In its
simplest form, the price of a service is the amount of money a customer
has to pay for using that service. In an extended definition, price refers to
all the sacrifices the customer has to make to obtain and use the service. In
telecommunication services, switching costs can be considerable. Pricing,
i.e. setting prices for a product or service, is a dynamic process that takes
internal and external factors into account, e.g. cost considerations and
competition from alternative services.
Different pricing strategies may be used for new innovative products or
services. Providers may skim the high-end market for short term profit, or
try to create market share aiming at long term profit (Kotler, 1999). Price
setting then includes pricing of core products, and optional and necessary
complementary products. Price for data transport and content can be
charged individually. Charging for data transport may be session-based,
volume-based, usage-based flat rate or package-based. Content pricing can
be pay-per download, subscription-based event-based, context-based or
value-based. Charging for content services is becoming more and more
advanced, and there is a shift towards new models like context-based and
value-based pricing. This is quite different from the traditional approaches
used in the “mobile voice business”. The former is a form of cost-based
pricing, i.e. setting a price such that costs are covered with an acceptable
margin. This approach has a fundamental problem in that allocating fixed
costs depends on sales volumes that are intrinsically linked to prices. The
second approach is competitive pricing, i.e. prices are set based on similar
offerings in the marketplace. The danger here is that it may stimulate the
notion that services are commodities, and expose the entire industry to
price wars (AT Kearney, 2003).
 Chapter 2 Conceptualizing the STOF Model 61

As far as consumers are concerned, there is no relationship between the

production costs of a service and its value. Unlike service providers,
consumers are simply not interested in the costs of generating the service,
but only in the value the service represents to them. This means that the
price of a service may be based on the consumer’s perception of its value.
This is called “perceived-value pricing” (Kotler, 1988) or value-based
pricing (Jonasson & Holma, 2002). Since consumers may vary in their
perceptions, value-based pricing is quite challenging (Klein & Loebbecke,
2003).
Price discrimination, which refers to charging different prices to
different customers for the same goods or services (Shapiro & Varian,
1999), is also widely applied. Shapiro and Varian distinguish three forms
of price discrimination (1) personalized pricing, (2) group pricing, and (3)
versioning. Klein and Loebbecke (2003) add (4) bundling, and (5) price
discrimination based on sales volume. Empirical data shows that
differential pricing is already widespread in industries that are
characterized by high levels of fixed costs, like the airline, telecom or
publishing industries (Varian, 1996). In the telecom industry, for example,
differential pricing may be based on customer characteristics, e.g.
preference for pre-paid or post-paid, group characteristics, e.g. student
discounts, product characteristics, e.g. tailored bundling of specific
services and features (e.g. device, voice and data services), and volume
(the more minutes you call the cheaper the price per minute). In the airline
industry, business travelers are typically time-sensitive and leisure
travelers typically price-sensitive. To differentiate between business
travelers and leisure travelers effectively, the airline industry offers
cheaper tickets only if a weekend is included in the trip (Klein &
Loebbecke).
Pricing plays a different role in throughout the life cycle of a service. It
may be impossible to charge for a service or required equipment in the
initial phase, e.g. when the value of the service increases with the size of
the installed base. This initially leads to “give-away strategies”, such as
those observed in e.g. mobile telecommunications.
An important question is how investments and revenues are arranged
and shared within complex value networks. Important stakeholders in
complex value systems are close to the core or structural actors, actors that
invest, i.e. banks, or investors that make the roll-out of new products or
services by small starting companies possible, i.e. venture capitalists.
Investment decisions reflect the interests of the actors involved and take
the mutual benefits of multiple organizations into account. Organizations
that are connected through intended relationships and interdependencies
consider sharing risks, solving common problems, acquiring access to
62 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

complementary knowledge to be major motivators for collective

investments. To facilitate interorganizational investments, organizations go
through a collective decision-making process. Compared to internal
processes, these joint processes have the following implications (Demkes,
1999). They require a lengthy decision-making process, demand multiple
rounds of negotiations, while dealing with conflicting interests (not always
resulting in a win-win situation for all parties concerned). Investment in
which multiple actors are involved, incur high transaction costs and
generate disputes.
Interorganizational investments require explicit articulation and
collective agreement on the terms of investment and timing (Miller &
Lessard, 2000). The share of each participant and the corresponding
partnership ratio must be defined. It will be determined what each member
will contribute in terms of financial and technical expertise. The success of
these arrangements hinges on whether or not the role of each member
within the terms of institutional framework is clearly defined (ibid.)

Finance Design

The finance design describes the financial arrangements between the

various actors in the value network. It shows how the value network
intends to capture monetary value. For a business model to be viable, the
division and sharing of benefits and costs should be balanced to create a
win-win for the involved partners. The structure of the value network has a
strong influence on the financial variables resulting in archetypical
financial arrangements (see Fig. 2.6).

• Investment sources. The investments and costs are closely related to the
design choices made in the technology design. However, the question as
to who will supply Capital is another important design variable in the
finance domain.
• Cost sources. The costs may also be influenced by the coordination
costs of the value network.
• Performance indicators. With regard to the evaluation and management
of the financial arrangements over time, performance indicators, like
market adoption, usage, return on investment, et cetera, are necessary.
• Revenue sources. Revenues can come directly from the end-user, but
there may also be other sources of revenue (for example subscription,
advertisement or government subsidy).
• Risk sources. The risks that may exist in the other domains have
financial consequences. For example, if the perceived customer value is
much lower than the assumed value, this may have a negative impact on
 Chapter 2 Conceptualizing the STOF Model 63

the revenues. The way the value network copes with the financial
consequences of the various risks is part of the financial arrangements.
Scenarios for investments, costs and revenues may be used to counter
future risk and uncertainty.
• Pricing. The price and the pricing structure is the most visible part of
the arrangements as far as the end-user is concerned. Possible solutions
are dependent on pre-pay or subscription based pricing, flat free charge,
or per usage pricing.
• Financial arrangements. The financial arrangements between the actors
in the value network describe the way profits, investments, costs, risks
and revenues are shared among the actors. These agreements should
clearly define the benefits for all actors involved.

Finance domain

Value Investment Capital

Activities Sources provide
O

are divided among

Technical
Cost Costs actors according to
Architecture
is a Sources generate
T
monitored
using

Performance Financial determine Pricing

Indicators Arrangements
S

monitored
using
Delivered is a Revenue Revenues
Value Sources generate are divided among
S
actors according to
threaten
co-determines

Market Risk Risk

Segment Sources generate
S

Fig. 2.6. Descriptive model for the finance domain

Based on the analysis of the four domains and the specific issues
discussed for the four domains, it is possible to analyze and design
business models. However, we believe that business models, are not a one
time result, but change all the time, and are dynamic in nature.
64 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

2.3 From a Static Model to a Dynamic Model

Business models are dynamic in nature, with design choices having to be

adapted over time in order to maintain a fit with the environment. External
factors, such as socio-economic trends, technological developments, and
political and legal changes, often require business models to be adapted
over time. In addition, endogenous business model dynamics occur as
changes in one component of the business model may require adaptations
in other components to maintain an internal fit. And finally, the different
stages in which services are developed require design choices to be
adapted in order to be aligned with the characteristics of the phase in the
business model life cycle.
In order to gain insight into how business models change over time, it is
helpful to structure the life cycle of business models in phases (cf. Afuah
& Tucci, 2001). We will begin by discussing such a phased model for
business models, and then take a look at the forces in the environment of
companies that force them to make alterations to their business models.
Finally, we discuss how we use business model components, phases and
external forces as the building blocks for discussing the dynamics of
business models.

2.3.1 Business Model Phases

The development process from business idea to established business can

be divided into a number of phases (Kubr, Marchesi, Ilar, & Kienhuis,
1998). Phasing models helps to understand the evolution of the
competitive landscape in the wake of an innovation or change, and the
consequences of such events for firm strategies and business models
(Afuah & Tucci, 2001). The phases to which we refer here are
conceptualized in several disciplines. We have briefly examined phasing
from five perspectives: innovation management, technical service
development, entrepreneurial and business planning, innovation adoption
and diffusion, and marketing. When we compare the phases as
distinguished in these perspectives, broadly speaking there are three main
phases: the technology/R&D phase, the implementation/roll-out phase, and
the market phase, where the market combines the sub-phases of market
offering, maturity and decline. To get a better view of these phasing
concepts, we provide a brief description below from various perspectives.
Innovation management perspective. According to innovation manage-
ment literature, new products and services follow a life cycle from
innovation to development and maturity. Next, they enter a phase where
 Chapter 2 Conceptualizing the STOF Model 65

new generations of products and services overtake the by now mature

innovation. Rapid and frequent product and service innovation is prevalent
in the early phases, while later stages are characterized by stable product
and service concepts, with only incremental changes motivated by cost
reduction and cost-effective exploitation (Tidd, Bessant, & Pavitt, 2001).
A similar phasing model is proposed by Veryzer (1998), who observes that
the wild exploration of new technologies leads to a converged product
formulation and further specifications. After the specified product is
evaluated, it goes through increasingly specific prototyping stages, after
which the product is commercialized.
Technical service development perspective. According to Räisänen et al.
(2005), the technical service development lifecycle includes functionalities
needed to provide service from development to retirement. They
distinguish the following activities as part of the service life cycle: service
creation, service provisioning and service lifecycle management in general
during (during the complete lifecycle). The service provisioning level can
be divided into service deployment, service usage, service retirement and
service operational management. At the lowest level of abstraction,
Räisänen et al. distinguish the following activities at the service usage
level: service discovery, service selection, service negotiation, service
composition, service adaptation, service execution and service termination.
In each of these phases, there are important hurdles to overcome. In the
service creation phase, technical factors are the most important, whereas
in the service provisioning phase, extra attention should be paid to
environmental factors like legislation and market adoption. It is important
to emphasize that, in practice, the process is not sequential but iterative. It
can be seen as a loop in which deployed services may be optimized on the
basis of on feedback from an operational network as well as other input.
Entrepreneurial and business planning perspective. Also, from entre-
preneurial and business planning perspective, the development process
from business idea to established business can be divided into different
phases. Burgelman (1983) describes four processes that may overlap and
be iterative: defining the activities in the innovation project; gaining
support within the organization; the structural implementation of the new
product; and embedding the innovation in the company strategy. Another
popular model is the one suggested by Mason and Rohner (2002), who
distinguish four venturing phases:

• Phase I – venture vision (validating the concept): the objectives of this

phase are putting a plan together that outlines the product or service and
its uniqueness, the market and why it is attractive, the team and why
66 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

they are qualified, and a high-level business model and the amount of
money needed.
• Phase II – alpha offering (building while planning): in this phase, the
objectives are to build the alpha version of the product/service and its
platform, see how it works, factor in changes and refinements to the
basic specifications, and understand and resolve implications for the
venture’s positioning, its business model, value propositions, as well as
the effects on functional strategies and plans of the rest of the venture’s
departments.
• Phase III – beta offering (testing the concept): in this phase, the
objectives are to test and refine the product or service and (by
implication) the rest of the venture’s program, gain early market
acceptance and customer testimonials from a beta product, and to use
beta stage results to secure funding to do a full market launch. Testing
the business model thoroughly is an important key skill in this phase.
• Phase IV – market offering (calibrating and expanding): the objectives
of this phase are to find customers, become profitable, and get the next
version of the offering to market.

The model provided by Mason and Rohner (2002) is primarily aimed at

how an organization can develop and offer a new service. The Internet
technology life cycle model as described by Afuah and Tucci (2001)
adopts a broader view by phasing the process in which companies in an
emerging industry in general (like the Internet industry) are developing
their services and business models. They distinguish the following three
phases:

• The emerging or fluid phase: in this phase, (many) new entrants as well
as incumbent players choose their profit sites and value network
positions. There is competition between new and old technologies and
between different designs using new technology. Product quality is low,
costs and prices are high, market penetration is low, with mostly lead
users and high-income users as customers. Since product/service and
market requirements are still ambiguous in nature, there are few failures
in this phase.
• The growth or transitional phase: in this phase, a standard or dominant
design defines a critical point in the life cycle of the innovation. The
customer base moves to a mass market. Competition and disappearing
ambiguity with regard to requirements force many firms to exit or make
important changes to their business models. The firms with the best
adapted, and the most viable and feasible business models survive.
 Chapter 2 Conceptualizing the STOF Model 67

• The mature or stable phase: in this phase, companies focus on keeping

and improving their competitive advantages. In markets where imitation
is easy (e.g. most (mobile) Internet services), companies continuously
apply (incremental) innovations to their business models.

Innovation adoption and diffusion perspective. Rogers (1995) discusses

the adoption and diffusion of an innovation in a social system and defines
it as a process with three phases: adoption, diffusion and maturity. In the
first phase of the process, only a small portion of the members of a social
system (the innovators) will adopt the innovation (and the rate of adoption
is still low), but once the early adopters have joined in, the innovation
adoption curve rises steeply (the diffusion process is gaining momentum),
and by the time the late majority has also adopted the innovation only the
laggards are left, who will take considerable time before embracing the
innovation. Then, after the adoption and diffusion of the innovation,
the maturity phase has been reached.
Marketing perspective. The most popular phasing concept from
marketing point of view is the product life cycle (PLC) concept, developed
by Theodor Levitt in 1965 (Kotler, 2000; Moon, 2005). Based on the
assumptions that products have a limited life time, product sales pass
through distinct stages (each posing different challenges, opportunities,
and problems to the seller), profits rise and fall at different stages of the
product life cycle, and that products require different marketing, financial,
manufacturing, purchasing, and human resource strategies in each stage
of their life cycle, he distinguished four stages: introduction, growth,
maturity, and decline. The life cycle stages as described by the more
strategically oriented Johnson and Scholes (2002) are quite similar to that
of Levitt. The stages they distinguish are development, growth, shake-out,
maturity and decline. The shake-out stage can be seen as a “slowing
growth phase” between growth and maturity, in which users and buyers
are increasingly selective with respect to buying services and the weakest
competitors disappear from the market.
There are critics who argue that in reality phases are not fixed. Instead,
there is variability in shape and duration (Kotler, 2000). In addition, life
cycles need not be sequential in practice. Adopting a non-sequential,
iterative view instead of a linear view of life cycles may prove to be
valuable: by versioning or repositioning products or services, their actual life
time can be extended (Moon, 2005). Making these types of changes may
also lead to changes in the underlying business models.
Business model phasing. Based on existing phasing models, we pro-
pose an analysis that includes three phases in the life cycle of business
models, namely (1) Technology/R&D, (2) Implementation/Roll-out, and
68 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

(3) Market. The start of the Technology/R&D phase is triggered by the

initial conceptualizations of the service concept (the solution to a problem)
and business model. In this phase, R&D (basic and applied research) and
technology play a dominant role, the core activities being service or
product definitions, investment in new technologies and collaboration with
technology providers. The transition from the first to the second phase is
marked by the launch of the service on the market (start of the Market
phase). Activities in this phase are testing service concepts in focus groups,
field experiments, the roll-out of technology, testing of alpha and beta
versions of the service, and (small-scale) roll-out on the market. The
business model moves from the second to third phase once the service
reaches critical mass after market experiments prove successful. Core
activities in the market phase are retaining rather than capturing market
share, commercial exploitation on a day-to-day basis, focusing on
operations and maintenance. As such, the market phase subsumes stages of
market offering, maturity and decline. Although our description of these
phases suggests a linear process, feedback loops may occur, especially in
the early phases, when business models do not develop as planned.

2.3.2 External Forces

Maintaining a “fit” with external factors is important in keeping a business

model sustainable over time (Morris et al., 2005). Hughes et al. (2007)
demonstrate that external constraints on business models can be technical,
economic, cognitive, structural, legal, political and cultural in nature.
According to Hill and Jones (1995), there are two types of environments that
can influence the performance of firms: the industry or competitive
environment and the macro-environment. At the industry level, Porter’s
(1985) model of competitive and industry analysis is relevant. At the macro-
environmental level, factors identified in the PESTEL-framework are
relevant, i.e. political, economic, social, technological, environmental, and
legal factors (Johnson & Scholes, 2002). In our STOF model, we summarize
the competitive and macro-environments into market drivers, i.e. influence
of suppliers, customers and competitors, technology drivers, i.e. influence of
changing technology and innovations, and regulation drivers, i.e. privacy,
intellectual property rights, competitive and other kinds of regulation, that
have the most direct impact on the business model.
 Chapter 2 Conceptualizing the STOF Model 69

2.3.3 A Dynamic Business Model Framework

The results from the literature review of business models, value networks,
phasing and dynamics come together in our dynamic STOF model
as depicted in Fig. 2.7, which links the four STOF business model
components, the external forces, and the three phases we identified.

Phases Technology R&D Roll out Market

Market Regulation Market Regulation Market Regulation

S S S
T F T F T F
O O O

Technology Technology Technology

Fig. 2.7. An overview of phases from several disciplines

Now that we have a clear idea of the three core phases of a business
model development path, we can take a look at the causalities between
phases, external forces and business model components. The impact of
external drivers on internal business model components will be different in
each phase. In the Technology/R&D phase, technology will be the major
driver behind new business model development. Specifically, the emergence
of new mobile, wireless and data networks, like the Internet, help to increase
the reach of businesses, while at the same time middleware, web services
and multimedia applications offer new opportunities for enriched,
customized and secure communication. However, new business models can
also be driven by market developments, such as changing customer demand
or new entrants on the market, or by regulatory changes, such as
liberalization or changes in, for instance, interconnection regimes that allow
for kick back fees. With regard to the service concept, technical and
organizational arrangements, as well as finance a large number of issues as
discussed before have to be dealt with in this first phase.
In the Implementation/Roll-out phase, regulators and competitors
become aware of the new product and services, and they will look into
possible regulatory implications and prepare a strategic response, for
instance by demanding stricter regulations. As a result, it has to be certain
that the service complies with regulation regarding such issues as fair
70 H. Bouwman, E. Faber, T. Haaker, B. Kijl, and M. De Reuver

competition, privacy, intellectual property rights, and content restrictions.

Changes in market factors, for instance competitors copying the service
concept, and technology, i.e. the availability of more innovative or cheaper
solutions, can affect the service and business model, but we expect them to
be less conditional in nature than regulation, and have less of an impact on
the business model in this phase. Regarding the internal components,
experimentations in the Roll-out phase lead to information on operations
of technology and perceived ease of use and utility as experienced by lead
users that will have an impact on the customer value of the service and
therefore the viability of the business model. We expect branding and
scalability to be important, both from a marketing and from a technology
perspective. As the focus of the activities shifts from R&D to a more
market-oriented and commercial approach, assets such as market know-
how and promotion become more important, and new partners may need to
be included in the organizational network, for instance to reach specific
market segments. As far as the financial component is concerned, practical
issues such as pricing and bundling of service offerings need to be solved.
Finally, in the Market phase, we expect market drivers to play an
important role, as the focus is on retaining customers and competitors are
starting to revise their business models in response to the service offering.
Regulation is aimed more at the surveillance of existing rules to ensure they
are observed, and technology drivers have a minor impact, as the internal
technology business model component mainly deals with scalability,
operations, and maintenance, requiring periodical updates rather than full
technology architecture revision. With regard to the service component,
questions concerning the delivered value, customer satisfaction and
customer retention become relevant. Organizational component issues deal
with process optimization and operational management. With regard
to financial issues, relevant issues are commercial revenue generation,
maintenance and operation costs, oriented towards effectiveness and cost
reduction.
The discussion of the dynamic STOF model, and the way it is embedded
in literature regarding services, technology, organization, strategy,
innovation studies, forms the basis of our design approach, the Critical
Design Issues and the Critical Success Factors that we will discuss in the
next chapter. In Chap. 8 we will specifically discuss business model
dynamics.
Chapter 3 STOF Model: Critical Design Issues
and Critical Success Factors

H. Bouwman, E. Faber, E. Fielt, T. Haaker, and M. De Reuver

In this chapter we will make the transition towards the design of business
models and the related critical issues. We develop a model that helps us
understand the causalities that play a role in understanding the viability
and feasibility of the business models, i.e. long-term profitability and
market adoption. We argue that designing viable business models requires
balancing the requirements and interests of the actors involved, within and
between the various business model domains. Requirements in the service
domain guide the design choices in the technology domain, which in turn
affect network formation and the financial arrangements. It is important to
understand the Critical Design Issues (CDIs) involved in business models
and their interdependencies. In this chapter, we present the Critical Design
Issues involved in designing mobile service business models, and
demonstrate how they are linked to the Critical Success Factors (CSFs)
with regard to business model viability. This results in a causal model for
understanding business model viability, as well as providing grounding for
the business model design approach outlined in Chap. 5.

3.1 Designing the Business Models

Based on the theoretical and the core technological issues discussed so far,
we derived the first part of our STOF model, i.e. descriptive models for the
service, technology, and organization and finance domains respectively, in
Chap. 2. These models contain the most important design variables in each
domain. We use the term ‘design variable’ to denote that our model
focuses on variables that can be influenced by design teams, business
developers and managers.
72 H. Bouwman, E. Faber, E. Fielt, T. Haaker, and M. De Reuver

A central element in our model is the fact that a viable business model
should create value for customer and network alike. Creating customer
value is not an easy task due to the difficulty of extracting user
requirements, conflicting design requirements and a lack of the resources
needed to provide perfect solutions. Although design choices in the
technology domain should in principle satisfy the design requirements of
the service domain, not every solution will be affordable, which means that
there are also interdependencies between the technical domain and the
financial domain.
Creating value for business actors (network value) is complex due to the
conflicting strategic interests of partner organizations. Actors often
originate from different industries (e.g. network operators, financial
institutions and retailers), and each have their own strategic interests (e.g.
generate traffic, extend services to customers, generate transactions).
Design choices in the organization and finance domains may serve the
strategic interests of the actors involved.
In the business model literature, knowledge on how effectively balance
the requirements and strategic interests within and between the different
domains is largely missing. To develop insight into how organizations can
design ‘balanced’ business models, designers need to understand the critical
design issues (CDIs) in business models and their interdependencies. A CDI
is defined as a design variable that is perceived to be (by practitioner and/or
researcher) of eminent importance to the viability and sustainability of the
business model under study.
To elaborate our approach towards the design of viable business models,
we present the CDIs for mobile services’ business models in the next
section.

3.1.1 Critical Design Issues

We have identified the common and recurrent CDIs from a large number
of case studies involving the business models of mobile services. The
descriptive STOF model we discussed in Chap. 2 has been used to describe
and analyze the business models of a number of cases, including mobile
entertainment services, mobile tracking and tracing services, (mobile)
community services, presence and instant messaging services, business to
employee services and mobile payment services (see Table 3.1).
Chapter 3 STOF Model: Critical Design Issues and Critical Success Factors 73

Table 3.1. Overview of cases

Services type Cases Reference
Mobile entertainment My Babes, Radio 538 ring Maitland, Van De Kar,
services tones When De Montalvo, and
Bouwman (2005)
Mobile tracking and TMC4U (Traffic Faber, Haaker,
tracing services Management Channel for Bouwman, and Rietkerk
You), Traphic SMS alerts (2003) and Maitland
(Vialis), Finder i-mode et al. (2005)
service (KPN Mobile)
(Mobile) community I-Karos, Vaccination Rietkerk and
services database, Botfighter Timmerman (2003)
(Mobile) Presence and Splendo, Jaytown, MSN Kijl and Timmerman
instant messaging services (2003)
Business to employee P-info, Lucio, Zorgpas, Bouwman and Van Den
services Caremore Ham (2003b)
Mobile payment services Moxmo, Mobile2Pay, Faber and Bouwman
Mobipay (2003)

The aim of the case studies was to identify CDIs. Based on the case
study descriptions (see Table 3.1 for more extensive publications on
individual cases), specific CDIs were extracted for every domain, and then
clustered systematically. Based on the recurrence of issues and/or their
perceived relevance with regard to the viability of the business model, as
indicated by the interviewees and coded as such, these issues were
qualified as critical.
We will discuss the CDIs in more detail, establishing what the CDIs in
each domain are, and how they relate to balanced business models. Next,
knowledge on CDIs is used to build causal models describing the
interrelatedness of design issues and their relationship with business model
viability (see also Haaker, Faber, & Bouwman, 2006).

Critical Design Issues in the Service Domain

CDIs that originate from the service domain based on the cases analyzed are
Targeting, Creating Value Elements, Branding and Customer Retention.

• Targeting. An important issue in almost every case was choosing a

profitable target group. Should the service offering be targeted at
consumers or businesses? Should the service offering be targeted at a
niche market or at a mass market? Should the service focus on
youngsters or elderly people? et cetera. Sometimes, service providers
formulated a growth strategy in which the target group evolved from
74 H. Bouwman, E. Faber, E. Fielt, T. Haaker, and M. De Reuver

one market segment to another. For instance, the strategy used by

Moxmo, a payment service provider, was to extend its activities and the
related target group from micro-payments (e.g. ticketing and ring tones)
to medium-sized payments (e.g. payment of compact discs).
• Creating Value Elements. Closely connected to choosing a target group is
formulating a compelling value proposition for end-users. The added
value of a service can be based on value elements like fun, efficiency,
accuracy, speed, personalization, trust, et cetera. It is the augmented
service offering, i.e. the core service plus the support or auxiliary services,
which creates the customer value. For example, the availability of a
helpdesk was found to have a significant influence on customer value in
the case of Caremore, a service that supports homecare professionals with
administrative and informational services. The cases indicate that there is
a clear tension between the possibilities offered by technology and the
wishes and needs expressed by end-users. Quite a number of the studied
services did not have a clear and compelling value proposition and
seemed to be blinded by the technical possibilities. For instance, P-info
(see also Chap. 9), a mobile service for police officers to access
information in police databases, suffered from a poor fit with prevailing
working practices, a cumbersome interface and limited access to relevant
databases. Instead of using the new mobile service to retrieve information,
police officers preferred to use the existing voice-based service via the
control room. In several cases, an important value element was trust. The
main question was how to enhance trust (or reduce the need for trust). In
the cases we studied, the objects of trust varied. In some cases, trust had
to do with the reliability (branding) of business actors (e.g. mobile
payment cases), whereas in other cases trust was associated with the
security and privacy of the technology that was deployed (e.g. presence
and instant messaging cases). Also, different mechanisms were used to
enhance trust. For instance, in the mobile payment cases, we found that
Mobipay used a trusted third party (institution-based trust), whereas
Moxmo relied primarily on recurrent positive experiences (process-based
trust).
• Branding. Branding was found to be an important issue in relation to
reaching the customers that had been targeted. Brands seem to have a
direct influence on the perceived value of service offerings, which makes
it an important means to create customer value. Brands were used for
different purposes in the cases we studied. First and foremost, brands
were used to increase the visibility of services in the market (all cases).
Secondly, brands were also used to communicate value elements, such as
trustworthiness (e.g. mobile payment and community cases) or image
(Radio 538 ring tones). Providers may decide to promote a new service by
Chapter 3 STOF Model: Critical Design Issues and Critical Success Factors 75

bundling it with an existing product, which carries either the same brand
name or a different brand name. The TMC4U traffic information service,
for example, was promoted and sponsored by a manufacturer of Travel
Management Channel (TMC) modules, although it did not carry the
sponsor’s name. In the case of Radio 538 ring tones, the popular Radio
538 brand was explicitly linked to the service to increase service
awareness and communicate service image. An important requirement for
brand choice is brand recognition by the target group and the existence of
a match with the intended value proposition.
• Customer Retention. In addition to choosing a target group and defining
the added value, customer retention was found to be a CDI. Customer
retention refers to marketing strategies aimed to keep customers satisfied
and loyal with the product or service. The cases show that service
providers adopt different strategies to stimulate recurrent usage of their
services. In the entertainment cases, versioning, service bundling and
personalization were used to promote customer retention. Personalization,
accuracy and actuality of information were used in the tracking and
tracing cases to attract and retain users. In the cases involving presence
and instant messaging services, the strategy was to introduce new
versions with new functionality. Finally, in the business to employee
service Caremore, customization of the service was used to enhance the
service’s value for the employee to stimulate loyalty to the service.
The extracted CDIs and related design requirements are summarized in
Table 3.2.

Table 3.2. Critical Design Issues and related design requirements (service domain)
Critical design issue Description Balance of requirements
Targeting How to define the target Generic vs. niche service
group? B2C vs. B2B service
Creating value How to create value for the Technological possibilities
elements targeted users of the service? vs. user needs and wishes
Branding How to promote/brand the Operator vs. content brand
service?
Customer retention How to stimulate recurrent Customer lock-in vs.
usage of service? customer annoyance

Critical Design Issues in the Technology Domain

Based on our case studies, CDIs that originate from the technology domain
are Security, Quality of Service, System Integration, Accessibility for
Customers, and Management of User Profiles.
76 H. Bouwman, E. Faber, E. Fielt, T. Haaker, and M. De Reuver

• Security. Trust of end-users and customers in a service offering is partly

determined by the way security is implemented in the technical
architecture. That is, the way in which access to a service is granted and
how security of communication and (stored) information is realized.
Security often requires a trade-off between ease of use or privacy
considerations and preventing abuse. For example, in the community
and instant messaging cases access ranges from anonymous access, use
of a username (nickname) and password (MSN Messenger), to full user
identification (enterprise Presence and Instant Messaging – PIM –
service). With anonymous access, privacy is guaranteed, but users
cannot be traced in case of abuse of the service. In the case of mobile
entertainment services, authentication of users is simply based on the
SIM card in their mobile phone. Security may be realized more easily in
a closed environment. For example, in the case of enterprise PIM
services, the company may deploy its own Instant Messaging (IM)
server shielded from the outside world by a firewall. Obviously, the
service cannot include contacts from outside the company, thereby
limiting its use and value.
• Quality of Service. In all the cases we studied, the performance of the
technical architecture in delivering the technical functionalities has a
profound impact on the service offering and perceived value. A balance
between the quality of the service and the incurred costs has to be
maintained. A typical performance measure that influenced the quality
of service in the tracking and tracing cases was the accuracy of the
deployed positioning technology. Likewise the value of provided
information depends on the actuality of the information. As far as
mobile entertainment and business to employee services are concerned,
the speed of the service, for example the download time of content, was
found to be an important parameter. Availability of the service under
changing circumstances was important for business to employee
services like P-info and Caremore.
• System Integration. The adoption of the service is in part determined by
the extent to which the new service can be integrated into the existing
technical infrastructure. The trade-off with system integration is
between flexibility and costs. The costs for building on legacy systems
may be lower but provides for less flexibility than an open system based
on standards and open interfaces. For instance, for mobile payment
services the degree of integration with existing payment solutions is an
important barrier for merchant adoption. In the Botfighter case the
Geographic Information System (GIS) was not integrated in the general
platform but included in the specific Botfighter application, as no
Chapter 3 STOF Model: Critical Design Issues and Critical Success Factors 77

generally accepted standard for the GIS was available at that time. In
principle, the use of open standards and architectures allows for easier
integration between systems.
• Accessibility for Customers. The accessibility of the service to the target
group is obviously influenced by the choice of platforms, devices and
architecture. For example, a closed architecture reserves service access
to a restricted target group. This may be intentional, for instance in the
case of business to employee services and enterprise instant messaging
services, or in the case of mobile entertainment services offered
exclusively by an operator to its customers. However, a service may be
unavailable unintentionally when a service requires specific resources
(compliant handset) or capabilities (coping with cumbersome user
interface) from the end-user. For example, the TMC4U service requires
a specific TMC module. Users can only access the service if they invest
in such a module coupled to their car radio. Adoption of the Caremore
service required substantial training of personnel in order to be able to
cope with the mobile device. Similarly, the adoption of the P-Info
service (a mobile data service for police officers) was hindered because
officers had a strong preference for voice interfaces and access to
critical databases was not realized.
• Management of User Profiles. With regard to the personalization of a
service, a user profile that contains user interests, preferences and
behavior must be created and maintained. The management of this
profile, i.e. the creation, use, maintenance and access to the profile,
requires technical functionality that may be realized in different ways.
There has to be a balance between user involvement and automatic
profile generation, and between privacy and access to the user’s profile.
For MSN Messenger the instant messenger server keeps a profile for
each user. A privacy statement is issued to users regarding the
protection of the data they provide. In the case of the Traphic SMS-alert
service, the user controls his profile, containing times and routes of
travel, via Internet. In the i-mode Finder case, the necessary location
information is determined automatically by the operator and transferred
anonymously to the location-based service provider, after the user has
given his consent.

The technology domain’s CDIs and design requirements are

summarized in Table 3.3. Note that the CDIs in the technology domain are
often enablers for the CDIs in the service domain.
78 H. Bouwman, E. Faber, E. Fielt, T. Haaker, and M. De Reuver

Table 3.3. Critical Design Issues and related design requirements (technology
domain)
Critical design issue Description Balance of
requirements
Security How to arrange secure access Ease of use vs. abuse
and communication? and privacy
Quality of service How to provide for the desired Quality vs. costs
level of quality?
System integration How to integrate new services Flexibility vs. costs
with existing systems?
Accessibility for How to realize technical Open vs. closed
customers accessibility to the service for system
the target group?
Management of user How to manage and maintain User involvement vs.
profiles user profiles? automatic generation

Critical Design Issues in the Organization Domain

Based on our case analyses, CDIs that originate from the organization
domain are Partner Selection, Network Openness, Network Governance,
and Network Complexity.

• Partner Selection. An important design issue in all cases is acquiring

access to resources and capabilities needed to realize a service offering.
Firms need to decide whether to outsource certain activities or to perform
them in-house. A distinction can be drawn between business actors
that provide indispensable and irreplaceable (critical) resources and
capabilities, and those who provide supporting resources and capabilities.
For instance, in the traffic information cases (Traphic SMS alerts and
TMC4U), an important issue was whether or not to include the
government in the value network. Given the cost of acquiring and
processing raw traffic data, government funding is considered a critical
resource for any ‘commercial’ traffic service. In the mobile payment cases
(Moxmo, Mobipay and Mobile2pay), an important issue was whether or
not to include a financial institution as transaction enabler and trusted
third party, in the value network. Whereas Moxmo decided to operate
independently from the financial institutions to reduce transaction costs,
Mobipay and Mobile2pay decided to include one or more financial
institutions in the value network to enhance trust (see also Chap. 10).
Access to critical resources and capabilities (e.g. customers, content,
funds, et cetera) was found to be an important strategic interest when
selecting partners.
Chapter 3 STOF Model: Critical Design Issues and Critical Success Factors 79

• Network Openness. The level of openness indicates the degree to which

new business actors can join the value network and are allowed to
provide services to customers. In our cases, we observed two different
organizational arrangements: the closed model, in which a relatively
fixed consortium of partners collaborate, and the walled garden model,
in which new partners are able to join the value network if they comply
to certain rules. In the entertainment cases (My Babes and Radio 538
ring tones), the i-mode Finder case, and community cases (Ikaros,
Vaccination database, and Botfighter), for example, portal providers
used a walled garden model to control the quality of the provided
content. In the presence and instant messaging cases we found instances
of a closed model (Splendo News messenger and Jaytown). No
instances were found of an open model in which partners are free to join
the value network and offer services and content. When choosing
between various degrees of network openness the desired control,
exclusiveness and customer reach of the service were found to be of
main strategic concern. The higher the desired level of control and
exclusiveness is, the more likely partners are to adopt a closed model.
On the other hand, reaching many customers may be an argument in
favor of choosing an open model.
• Network Governance. In all of the cases, we found a dominant actor,
often the one with access to the customers and end-users or the one that
developed the service offering, which was managing the value network.
These business actors often approached and selected collaboration
partners, set the rules with regard to collaboration (organizational
arrangements), and monitored compliance with these rules. For instance,
in the entertainment cases, community cases, and the PIM cases that
focused on B2C applications, the portal provider is the dominant actor,
while in the business to employee cases and some PIM cases, e.g. MSN
messenger, it was the application service provider who acted as the
dominant actor. Typically, actors with access to customers shield these
relationships from other actors in the value network. Customer
ownership thus seems to be of key strategic concern to actors in the
value network.
• Network Complexity. The cases we studied vary with respect to network
complexity. Network complexity may arise from the number of
relationships a focal business actor needs to manage in a value network
and from the effort needed to connect the actors’ IT applications and
systems (technical architecture). We found that business actors tend to
reduce network complexity by using intermediaries, which act as single
points of access. In the i-mode Finder case, for example, we found that
80 H. Bouwman, E. Faber, E. Fielt, T. Haaker, and M. De Reuver

the portal provider (network operator) chose to reduce network

complexity by using an intermediary actor to manage the relations with
the different content providers. In the Zorgpas case we found that the
high number of organizations that needed to collaborate (20) resulted in
an enormous network governance load and efficiency losses. Finally,
Mobipay’s transaction platform for mobile payment requires the
acceptance and collaboration of all major financial institutions in Spain.
Hence, Mobipay is faced with a considerable degree of network
complexity. Moxmo, on the other hand, chose to bypass the financial
institutions for its service offering, in order to reduce network
complexity. There is a trade-off between the need to reduce complexity
and the need to have access to critical resources and capabilities.

The extracted CDIs and related strategic interests are summarized in

Table 3.4.

Table 3.4. Critical Design Issues and related strategic interests (organization
domain)
Critical design issue Description Strategic interests
Partner selection How are partners selected? Access to critical resources
and capabilities
Network openness Who is allowed to join the Desired exclusiveness,
value network? control, and customer reach
of service
Network governance How is the value network Customer ownership and
orchestrated? Who is the control over capabilities
dominant actor? and resources
Network complexity How to manage increasing Controllability of value
number of relations with network and access to
actors in a value network? resources and capabilities

Critical Design Issues in the Finance Domain

CDIs that originate from the finance domain are Pricing, Division of
Investments, Division of Costs and Revenues, and Valuation of
Contributions and Benefits.

• Pricing. With regard to the adoption and actual use of a service, the
perceived customer value must at least equal, and preferably exceed, the
price of a service. In Mobile Payment case examples, the service is free
of charge and even entitles user to reduced prices for purchased goods.
The aim is to attract and retain customers. The traffic information
Chapter 3 STOF Model: Critical Design Issues and Critical Success Factors 81

service TMC4U offers traffic messages via the RDS channel on car
radios. It is free of charge. However, to appreciate this service as a truly
personalized service, the driver needs to invest in a car navigation
system equipped with a TMC module. The service is sponsored by a
provider of navigation systems and TMC modules. The user of Traffic
SMS alerts pays a premium SMS price. The service is characterized by
relatively high variable costs and virtually no fixed costs for end-users.
The i-mode services (Mybabes, Radio 538 ringtones, Finder) use
identical pricing mechanisms: they require users to invest in an i-mode
phone, operator subscription, i-mode subscription, flat fee service
subscription and fees depending on data traffic. The height of the fees,
including those for the services offered by third parties, is set by the
dominant actor, in this case the operator. Pricing seems to be above all
aligned with the aims of the (dominant actor in the) value network, e.g.
it is aimed at maximizing profits or creating market share.
• Division of Investments and Risks. There are financial risks involved in
developing and introducing a new service, as there is uncertainty about
the resulting return on the investment. In the case of Caremore, a
business to employee service for homecare professionals, some of the
uncertainty was reduced by adopting a phased approach. Prior to the
actual roll-out of the service, it was tested in pilot groups. Traffic
information services like TMC4U and Traphic SMS alerts rely on the
government to make large investments in infrastructure for acquiring
and processing raw traffic data. In the mobile entertainment cases (My
babes, Radio 538 ringtones), the content providers are responsible for
the investments needed to provide content in a format that is acceptable
for the operator. Nordic operator Telia introduced a location-based game
(Botfighter), which was targeted at the youth segment. Telia regarded
the investments in the game as a means to win the (long term) loyalty of
the youth. However, to reduce the upfront investment Telia did not
develop the game itself. This was done by It’s Alive!, which in return
receives a monthly fee plus a share from the SMS revenues. The
division of investments seems to match partners’ profitability and risk
profile.
• Valuation of Contributions and Benefits. For fair and viable revenue
sharing arrangements it is important to value the contribution of each
partner to the service offering and the (intangible) benefits each partner
receives. In the Caremore case, for example, the choice in favor of a
specific operator was based on an existing trust relationship, and on the
quality of network coverage. In the same case the appreciation of the
system integrator changed over time. When the health organization
providing Caremore acquired the necessary competences for system
82 H. Bouwman, E. Faber, E. Fielt, T. Haaker, and M. De Reuver

integration itself, the initial external systems integrator was considered

too expensive and no longer included in the value network. For
Microsoft the benefits from its (free) MSN Messenger are mostly
intangible: it ties users to the portal and software of Microsoft. Some
revenues are obtained from its link with SMS services. However, less
than 5% of the revenues of Messenger-SMS’s is distributed to
Microsoft. Most of the revenues (90%) go to the network operator
whose payment relation with the customer provides a strong position in
the value network, apparently resulting in this large percentage. The
main goal of the provider of SMS traffic alerts to start the service was to
learn about the market for traffic information and getting access to
customers on this market. For this benefit the provider was even
prepared to incur a small financial loss. It appears that the valuation of
contributions is based on the access actors have to resources. The
intangible benefits to the actors depend on their strategic interests like
e.g. acquiring market knowledge or access to customers.
• Division of Costs and Revenues. We found that the division of costs and
revenues was different from case to case and that in each case it may
follow a different logic, e.g. cost based or value based. In the i-mode case
the operator and the content partners split the revenues from the fixed
monthly service subscription fees. There is no clear relationship between
the costs and revenues of the content provider. Other cases show a
connection between incurred costs and revenues. The operator in the
Mobile entertainment cases, for example, received revenues based on data
transport. In other cases there is a relationship between invested money
and share of revenue, for example in the Botfighter case game developer
It’s Alive and platform provider Ericsson receive a percentage of the SMS
revenues. In some cases (SMS Traphic alerts, MSN messenger), although
the revenues the dominant actor receives are lower than the costs, the
dominant company feels sufficiently compensated through intangible
benefits. The relationship between costs and revenues for each of the
actors involved seems to depend on their individual access to critical
resources, the valuation of these resources, the risks and level of
investments, and the existence of intangible benefits.

The extracted CDIs and related strategic interests are summarized in

Table 3.5.
Chapter 3 STOF Model: Critical Design Issues and Critical Success Factors 83

Table 3.5. Critical Design Issues and related strategic interests (finance domain)
Critical design issue Description Strategic interests
Pricing How to price the service for Realize network
end-users and customers? profitability Realize
market share
Division of How to divide the investments Match individual partners’
investments among business partners? profitability and risk
Valuation of How to measure and quantify Fair division of costs and
contributions and partners’ contributions and revenues
benefits (intangible) benefits?
Division of costs How to divide the cost and Balance between individual
and revenues revenues among business partners’ profitability and
partners? network profitability

3.2 Critical Success Factors for Customer and Network Value

The viability of a business model is determined by the creation of value for

the customers and for the organizations in the business network. The CDIs
are instrumental in the value creating process as they serve as the starting-
point for our causal model. First, we will identify CSFs with regard to
creating customer and network value. Wohltorf and Albayrak (2005)
describe a decision support system for aiding service design, which is
based on success factors for technical feasibility of the service and
economic viability. CSFs refer to “the limited number of areas in which
satisfactory results will ensure that the business model creates value for the
customer and for the business network” (adapted from Rockart & Bullen,
1981). Secondly, we will formulate design propositions that describe the
relationships between the CDIs and CSFs, creating a break-down structure
that explains how business model viability can be influenced by more
concrete, design-oriented variables that influence the success factors
regarding creating customer and network value.

3.2.1 Creating Customer Value

A number of CSFs with regard to viable mobile service business models

exist as requirements for creating customer value. A Compelling Value
Proposition (service domain) is an obvious requirement when it comes to
creating customer value (Edvardsson, Gustafsson, & Enquist, 2006; Weill
& Vitale, 2001). A value proposition refers to the benefits that are
delivered to the user of a service by its provider. This requires focusing on
84 H. Bouwman, E. Faber, E. Fielt, T. Haaker, and M. De Reuver

what creates value from the point of view of the customer (Edvardsson
et al.) instead of the possibilities of the technology. The CDI Creating
Value Elements (service domain) enables a compelling value proposition.
Moreover, a compelling value proposition is determined by CDIs like
Branding (service domain) and Pricing (finance domain). Customers
perceive a brand as an important element of a value proposition, and it can
be used to differentiate the value proportion from those of competitors
(Kotler, 2000).
A second CSF is a Clearly Defined Target Group (service domain). This
enables the service provider to stay focused on the customers (Edvardsson
et al., 2006). Market segmentation is a compromise between the unrealistic
assumption that all customers are the same and the uneconomic assumption
that all customers can be treated as individuals (Kotler, 2000). This also
means that having a Compelling Value Proposition and a Clearly Defined
Target Group are interrelated. The CDI Clearly Defined Target Group
(service domain) deals with choices between consumer or business market
and between niche or mass market. The result is a clearly defined target
group. The possibilities regarding targeting are co-determined by the Access-
ibility for Customers (technology domain). Here we see that a CDI
originating from the technology domain can influence a CDI originating from
the service domain.
Unobtrusive Customer Retention (service domain) is also a CSF for
customer value. Although firms often strive for customer retention, this
can reduce customer value when obtrusive mechanisms are used.
Obtrusive mechanisms can hamper the ease-of-use (Davis, 1989) and
create negative experiences that frustrate users (Strauss, Schmidt, &
Schoeler, 2005). Therefore, the CDI Customer Retention (service domain)
should lead to unobtrusive mechanisms, the design of which can be
supported by User Profile Management (technology domain) that makes it
possible to personalize of the service.
While the previous three CSFs relate to the service domain, the fourth
CSF is related to the technology domain. An acceptable Quality of Service
delivery (technology domain) is required because, as far as services are
concerned, the quality of the service process (functional quality) is as
important as that of the service outcome (technical quality) (Grönroos,
1994). Because mobile services are delivered via technology, the CDIs that
are related to the technology domain should lead to an acceptable quality
level. The Quality of Service relates to the performance of the technological
architecture in delivering the functionality. The Security deals with the
access to the service and the security of communication and information
processing. The compatibility refers to the level of System Integration with
the existing technical infrastructure, and that between subsystems.
Chapter 3 STOF Model: Critical Design Issues and Critical Success Factors 85

To conclude, the CSFs for creating customer value are Clearly Defined
Target Group, Compelling Value Proposition, Unobtrusive Customer
Retention, and an Acceptable Quality of Service. It is assumed that high
scores on these success factors will result in a service that meets the user
expectations, i.e. a service that generates customer value (Fig. 3.1). A
service that generates customer value in the long run can be expected to
result in a viable business model.

Critical Design Issues Critical Success Factors

Accessibility results in a
Clearly Defined
Targeting
for Customers co-determines Target Group
T S S

enable a
Compelling
Value
Value
Elements
S Proposition S

Security Pricing co-determines

T F
Customer Viability of
Value S
business model

Quality of Branding co-determines

Service
T S

Acceptable
System should realize
Quality of
Integration T Service T

should Unobtrusive
User Profile supports Customer realize
Customer
Management Retention
T S Retention S

Fig. 3.1. Critical design issues and critical success factors relating to creating
customer value

3.2.2 Creating Network Value

There are also requirements when it comes to creating network value. In

the business network firms will, on the one hand, cooperate to create value
based on common interests and, on the other hand, competing to capture
value based upon individual interests (Brandenburger & Nalebuff, 1996).
Whereas some authors emphasize competition, for example Porter’s five
forces model (Porter, 1980), others emphasize cooperation, such as
industrial marketing and purchasing (e.g. Axelsson & Easton, 1992). CSFs
with regard to network value relate to balancing these forces in the finance
and organization domains resulting in acceptable outcomes for the
86 H. Bouwman, E. Faber, E. Fielt, T. Haaker, and M. De Reuver

participating firms, in particular those firms that provide essential

resources and capabilities.
Because financial incentives are important to ensure the participation of
firms in new business initiatives, the profitability and risks for the firms in
the business network are CSFs. Experiences with respect to electronic
business have taught us that paying not enough attention to ‘the bottom
line’ results in the failure of new business initiatives (Holland, Bouwman,
& Smidts, 2001). An Acceptable Profitability (finance domain) should be
acceptable in an absolute sense, that is to say a positive financial result
matching companies’ risk/return profile, as well as in a relative sense, that
is compared to the financial results of the other participating firms. The
CDI Division of Costs and Revenues (finance domain) should result in an
acceptable level of profitability. Acceptable Profitability is determined by
the Pricing and an Acceptable Customer Base (service domain). An
acceptable customer base depends upon CDIs related to Customer
Retention (service domain), Accessibility for Customers (technology
domain), and Network Openness (organization domain).
Acceptable Risks (finance domain) is a CSF with regard to mobile
initiatives because of the high uncertainty with respect to market accept-
ance and technology choices (Haaker, Faber, & Bouwman, 2006). The
CDI Division of Investments (finance domain) should result in acceptable
financial risks. The Division of Investments and the Division of Costs and
Revenues are both enabled by the CDI Valuation of Contributions and
Benefits (finance domain). The measurement of tangible and intangible
benefits is essential to realizing value from IT investments (Ward &
Daniel, 2005).
However, financial factors are not the only kind of CSFs required to
generate network value. Organizational factors also need to be taken into
consideration. A Sustainable Network Strategy (organization domain) is
required for securing access to (inimitable) resources and capabilities,
including capabilities for managing the network (Gulati, Nohria, & Zaheer,
2000). The latter is referred to by Ritter, Wilkinson, and Johnston (2002)
as network competence: “a company-specific ability to initiate, handle, and
use inter-organizational relationships.” The CDI Network Governance
(organization domain) influences the sustainability of a network strategy.
An Acceptable Division of Roles (organization domain) refers to the
distribution of roles among firms and the integration of roles within firms
that participate in the business network. Kambil and Short (1994) have
already drawn attention to the importance of roles and their connections to
the functioning of business networks. This is also related to the decision to
insource or outsource. Outsourcing involves the decision to place activities
outside a firm in order to economize on resources (service level versus
Chapter 3 STOF Model: Critical Design Issues and Critical Success Factors 87

costs) and/or acquire capabilities, allowing a firm to focus on its core

competencies (Smith, Mitra, & Narasimhan, 1998). The CDI Partner
Selection (organization domain) determines the way the roles are divided.
The CDI Network Complexity (organization domain) influences both the
sustainable network strategy and an acceptable division of roles.
In conclusion, the CSFs with regard to network value are Acceptable
Profitability, Acceptable Risks, Sustainable Network Strategy, and an
Acceptable Division of Roles. It is assumed that high scores on these success
factors will result in a ‘win–win’ situation, in which all actors have an
incentive to participate, i.e. a business model that generates network value
(Fig. 3.2). It can be expected that a service that generates network value in
the long run will result in a viable business model.
The CDIs in the organization domain are instrumental for dividing value
activities among multiple actors and aligning their resources, capabilities
and strategic interests. Similarly, the CDIs in the finance domain are
instrumental in defining financial arrangements that lead to a profitable
business for all parties involved.

Critical Design Issues Critical Success Factors

Value Contri-
enable Division of results in Acceptable
butions and
Investments Risks
Benefits F F F

Division of results in
Costs and
Revenues F Acceptable
Profitability
Pricing F

co-determines
F

User Profile supports Customer

Management Retention
T S
is necessary for Network Viability of
Value business model
Accessibility Acceptable O
supports results in
for Customer
Customers T Base S

co-determines
Network
Openness
O

Sustainable
Network contributes to
Network
Governance
O Strategy O

Network influences
Complexity
O
Acceptable
Partner determines
Division of
Selection
O Roles O

Fig. 3.2. Critical Design Issues and Critical Success Factors for network value
88 H. Bouwman, E. Faber, E. Fielt, T. Haaker, and M. De Reuver

Together, Figs. 3.1 and 3.2 form a causal model that explains the
viability of business models based on the assumption that a viable business
model should provide both customer and network value. In this causal
model, the CDIs are the instruments used by designers and managers to
influence business model feasibility and viability.
In Chap. 5, a process model for designing business models will be
presented.
Chapter 4 The Mobile Context Explored

M. De Reuver, H. Bouwman, and T. De Koning

There is a difference between designing mobile services and designing

other electronic services. The specific characteristics of the mobile
services domain shape the context in which design choices on business
models are made. Whereas the previous chapters discussed service
innovation and business model development in general, in this chapter we
take a closer look at our core concepts in relation to the mobile services
domain.
We begin with a brief discussion of the main characteristics that
distinguish mobile services and business models from other electronic
services. Next, we describe the trends that are relevant to each of our four
business model components, i.e. mobile services offered and adopted;
technology trends; resources, roles and models in the organization domain;
and financial models, as used within the mobile sector. Finally, we discuss
typical classifications of mobile services business models and compare
them to other e-business model classifications.

4.1 The Value of Mobility

While the use of other electronic services is bound to a fixed location,

mobile services allow users to consume the service anytime, anyplace.
This mobility is prominent in the definition of mobile services we provided
in Chap. 1, i.e. they assume mobility from the user of the services, the
devices, the sessions or applications, and they may be offered via mobile
and wireless networks. It is important to note that mobile services include,
but are not limited to, services that are offered over wireless networks. For
example, a music file can be side-loaded through the Universal Serial Bus
(USB) connection of a fixed desktop computer, and then consumed while
on the move at a later moment. Similarly, a mobile payment service may
use Radio Frequency Identification (RFID) technology, which works at a
short range but does not provide mobility management. The mobility
90 M. De Reuver, H. Bouwman, and T. De Koning

aspect enables mobile extensions of existing electronic services, as well as

new services that are specifically valuable to users on the move. On the
other hand, the potential obtrusiveness of mobile services is higher, and
there are technical issues with regard to maintaining the quality of the
service experience in different environments that may have to be resolved.
Another differentiator is the personal nature of mobile devices as a
result of the fact that most people have their own, personal mobile device.
There is almost no other item that is carried everywhere by users in quite
the same way. This symbiotic relationship makes it possible to identify
users and collect data about their demographics, handset type or typical
behavior, which can be used to personalize service experiences and thus
strengthen this symbiotic relationship. However, this also means that
issues regarding privacy, security and identity management become even
more important for mobile services than they are for other electronic
services.
In addition to static personal information, real-time user-related context
information can make mobile services more useful and relevant. Context
information can be any information that is relevant to the use of a service.
One example is location information, which is typically generated through
Global Positioning System (GPS) or network triangulation. Other types of
context information are information about the time of day, air temperature,
device battery power, tasks in the user’s agenda, social contacts, or even
blood pressure and heart rate. Context-related information allows for
automatic service delivery at the relevant time, the tagging of user
generated content, and more efficient service usage. However, the use of
context-related information also raises design issues with regard to privacy
and security.
Although the abovementioned characteristics of mobile services seem to
be fairly straightforward, Arnold (2003) discusses the mobile phone as an
innovation with paradoxical consequences, explaining that, while the
mobile phone is wireless and portable, it is fixed as users require a fixed
number to be reachable. And while the personal nature of the mobile phone
makes it a private device, its frequent use in the public sphere makes
it public as well. Moreover, while the mobile phone brings users closer
to the persons they communicate with, it also creates a distance between
themselves and the people around them.
Compared to fixed networks and desktop computers, wireless networks
and devices pose various technological challenges to service developers.
With regard to the networks, data rates are often lower than fixed
networks, while the costs per data packet are higher. Handheld devices
generally possess less processing power, less available memory and
limited battery power, which puts a limit on the use of high-end
 Chapter 4 The Mobile Context Explored 91

applications and compression technologies. Due to the small screens and

keyboards, web-content and navigation techniques have to be adapted,
which is a complex affair because there are many different types of
handsets, operating systems and micro-browsers.
While in the case of fixed Internet, there is almost no formal regulation,
it plays an important role in the mobile services domain. Often, licenses
are required to operate wireless networks, because the available spectrum
is limited. Other current topics in regulation include the unbundling of
value chains and network neutrality. At the level of middleware,
applications and services, however, there is hardly any mobile-specific
regulation.
From an organizational point of view, an important difference is the
high level of dependency between the actors involved in offering services.
While Internet Service Providers (ISPs) merely provide connectivity,
cellular network operators also control access to the customer and billing
services, and impose rules that content providers should adhere to when
offering services over their networks. In this chapter, we take a closer look
at the roles and relationships in mobile services value networks.
The characteristics discussed in this section are some but not all of the
issues that make mobile services different from other electronic services.
In the next sections we discuss the service, technology, organization and
finance-related specificities and trends of the mobile services domain in
greater detail.

4.2 Mobile Services

Although there is a large variety of mobile services being offered in the

marketplace, as far as the consumer market is concerned, most of the more
advanced services have not yet been widely adopted by end-users. SMS
messaging, search services, ring tones and icons continue to be the most
popular services (Bouwman, Carlsson, Molina-Castillo, & Walden, 2007).
While many users have a phone to access the mobile Internet, only a
fraction of them actually uses theirs for that purpose (Forrester, 2006a),
with the exceptions of Japan and South Korea, where there are more
mobile Internet users than wired users. Longitudinal research conducted in
Finland (Bouwman, Carlsson, et al., 2007) shows a gradual increase in the
use of mobile data-services. The most important services in this respect are
mobile e-mail and Internet surfing, the use of which gradually increases
over the years. Travel and mobile commerce-related services are less well-
established. Few users are as yet familiar with context and location-aware
92 M. De Reuver, H. Bouwman, and T. De Koning

services. Ironically enough, some of the services that initially attracted

much attention as possible killer applications, like Mobile TV, stock
trading and mobile adult content, are now among the least popular
services. Analysis of these services makes it clear that services really have
to fit the behavior of consumers and business people. The adoption of
advanced mobile services is most likely limited to specific niche market
segments, and generally speaking is associated with gradual growth rates.
In the remainder of this section, we discuss several types of services that
are enabled by mobile technologies.
Information services. Typical information services include search
services, news and weather, transportation timetables, and yellow pages.
Information can be easily modified, consumed time and again by the same
or different users, and reproduction is fast and cheap. Typically,
information on the mobile Internet includes (Barnes, 2002):

• Text, e.g. news, stock prices, film listings, advertisements, product

descriptions and restaurant locations
• Audio, e.g. voice, wireless Internet radio and music files (including MP3
format)
• Graphics, e.g. wireless bitmap or Graphics Interchange Formats (GIFs)
• Video, e.g. animated graphics files, mobile and wireless TV and video
files

Mobile information services can be delivered through text messaging

(i.e. SMS), Multimedia Messaging Service (i.e. MMS) or mobile Internet.
Mobile Internet making use of Wireless Application Protocol (WAP) was
launched in 1999 by the Japanese operator DoCoMo. Their so-called
i-mode service provided a portal to the content of several providers.
Billing and connectivity are both provided by the operator, while the
unified look and feel of the content gives end-users a coherent user
experience. i-mode has been copied by similar concepts like Vodafone
Live!, T-Zones and Orange World. However, the adoption of these
services outside of Japan has been disappointing. One might argue that the
success of i-mode in Japan is to a large extent due to contextual factors
like low Internet adoption, low PC penetration and long commute trips.
In addition to these on-portal content models, several off-portal WAP
sites have emerged that provide information services. The most successful
among them are those that offer content downloading services for mobile
device personalization, such as ring tones and wall papers.
Location data can be used to make information services more useful,
e.g. by filtering the content that is being distributed to the user. In addition,
 Chapter 4 The Mobile Context Explored 93

they also enable new types of services, including navigation services that
provide driving directions or maps, and tracking and tracing services to
find the location of family members, friends or objects (Van De Kar,
2004).
Communication and messaging services. Mobile data services can
complement voice communication services. The most popular of these
services has been person-to-person SMS, i.e. short text messaging. While
initial expectations regarding this service were low, it has proven to be the
most successful service to date. More advanced messaging using pictures
and video data is made possible through MMS services. Currently, video
telephony services are being heavily promoted by 3G operators. The use of
mobile e-mail is also increasing, mainly via specialized devices like the
Blackberry. A potential disruptive innovation as far as SMS is concerned
is instant messaging or group messaging. Instant messaging is a solution
that has been adapted from the fixed Internet that uses presence
information. In contrast to SMS, users do not pay for every message they
send, but only for the data traffic they generate.
Entertainment services. Entertainment services include downloading
music, watching television, playing games, jokes, horoscopes, gambling,
and chatting. A special type of mobile entertainment services is mobile
TV. While entertainment is often developed by professional artists or news
agencies, there is a growing trend in user-generated content, driven by
camera-enabled phones for making pictures and videos. As a result, users
become active contributors and content developers rather than mere
passive consumers.
Transaction services. Another type of services is related to transactions
and payments. Mobile payments involve ‘wireless transactions of a
monetary value from one party to another using a mobile device […] over a
wireless network’ (Ondrus & Pigneur, 2005, p. 1). These could be micro-
payments, e.g., for transportation tickets or vending machines, or macro-
payments, e.g., for movie tickets, shopping or restaurants (Mallat, Rossi, &
Tuunainen, 2004). A related type of services is mobile banking, i.e.
accessing information on account balances and carrying out transactions
(Mallat et al., 2004). Mobile remittance services are particularly relevant
in developing countries because they make it possible to transfer money
between individuals in the absence of financial institutions (see Chap. 13).
Business services. In addition to consumers, businesses can also benefit
from using mobile services. Examples of business services include mobile
sales-force automation, mobile supply-chain management (SCM), mobile
access to email, Personal Information Management (PIM) applications,
mobile tracing and tracking, and mobile dispatching and scheduling
(Wang, 2007). Benefits associated with the adoption of these applications
94 M. De Reuver, H. Bouwman, and T. De Koning

include reductions in travel time and greater flexibility in working

environments. In addition, back office processes can be streamlined
through automatic and on-the-spot administrative processes. Businesses
can also adopt services aimed at localizing and exchanging data with
goods, for example by using RFID solutions. A specific type of business
service are emergency support services. Police officers, for example, can
benefit from mobile devices that provide access to back office systems, or
they can be alerted when there is an incident in their vicinity that warrants
their attention. Also, fire and ambulance staff may carry devices with
geographical information with regard to risks and proper procedures.
Each of these services provides a specific type of added value, e.g.,
entertainment, information, transactional, or communication. One of the
challenges facing companies in the mobile domain is to find the specific
niche market segments at which to aim their services. Designing a service
that adds value and matches the behavioral pattern of consumers or
businesses is crucially important with regard to successful mobile service
innovation. Even when a company manages to design a successful service,
however, chances are that it will be adopted gradually rather than swiftly.

4.3 Mobile and Wireless Technology

In this section, we explain the major trends and characteristics of

technologies that enable mobile services. To begin with, we focus on
wireless networks, describing recent developments as well as future trends.
Next, we discuss middleware and applications that enable mobile services
and mobile Internet access. We conclude with a brief discussion regarding
handsets.

4.3.1 Wireless Networks

Over the past 15 years, the wireless industry has witnessed a dramatic
technological evolution. Starting from analog, voice-only, circuit-switched
transmission, today’s networks provide high-speed, packet-switched,
digital voice and data services (Kumar, 2001). There are two types of
wireless access technologies. Cellular networks cover large areas up to the
size of countries. Other wireless access technologies, on the other hand,
often provide higher data rates but cover smaller areas. These short-range
technologies are typically used to cover smaller, densely populated areas,
such as city centers or university campuses. Larger coverage can be gained
 Chapter 4 The Mobile Context Explored 95

by configuring them to support hand-offs between antennas or by

integrating them with cellular networks.
Wireless access networks are often classified on the basis of two
dimensions: the data rate for end-users and the range of the network, see
Fig. 4.1. Typically, there are trade-offs between these dimensions: while
cellular network technologies offer high ranges they offer modest data
rates, whereas other technologies, such as WiFi, offer higher data rates but
at the cost of shorter range.

Mobility

High speed

Vehicular (rural)

Vehicular (urban) 3G Long Term

Evolution
GPRS
GSM

Pedestrian UMTS

Nomadic HSPA
EDGE
Fixed urban
WiMAX
Indoor DECT
WiFi
Personal Area Bluetooth
0.1 1 10 100 User data rate

Fig. 4.1. A comparison of wireless access technologies

Deploying a cellular network requires high investments, including the

costs involved in deploying antennas and the underlying infrastructure, as
well as the costs involved in acquiring a license for using spectrum. Because
cellular networks tend to reuse existing antenna sites and core network assets
from previous generations, cellular networks are typically controlled by
large, international network operators, making it difficult for new players to
enter the market.
Short-range access networks, on the other hand, are easier to deploy.
The costs involved in setting up antennas and transceiver stations are
typically lower, and as they cover smaller areas, initial investments in the
network involved are lower. In addition, no licenses are needed for many
of these technologies, which means that there are no costs or hurdles
involved in deploying a network.

Cellular Networks

When the first generation of cellular networks was deployed in the 1980s,
it provided analog voice telephony, and adoption rates were low. Cellular
96 M. De Reuver, H. Bouwman, and T. De Koning

networks became popular when the second generation networks were

rolled out. In European countries, the GSM (Global System Mobile)
standard was an important driver, while cdmaOne, which was used in the
USA, apparently, had less of an impact. These were the first technologies
providing digital voice telephony to rival the quality of wired networks. In
addition, GSM introduced international roaming, i.e. being able to use the
telephone in foreign countries.
Although GSM provides high quality voice telephony, it is less usable
for data services, because data rates are too low. In addition, the circuit-
switched transmission is inefficient, because it occupies a fixed amount of
bandwidth during connection. As a result, users are charged based on the
time they are connected to the network rather than the amount of data that
is actually transmitted. To overcome these problems, GPRS (General
Packet Radio System) and EDGE (Enhanced Data rates for GSM
Evolution) were developed. In addition to providing the higher data rates
needed for Internet browsing, these technologies offer packet-switched
transmission, allowing users to be ‘always connected’.
The third generation mobile networks was expected to deliver true
broadband quality. Currently, there are two competing standards: Wideband
Code division multiple access (W-CDMA), such as Universal Mobile
Telecommunications System – UMTS – in Europe, is the follow-up of
GSM, while CDMA2000 builds on cdmaOne networks. In addition to
offering slightly improved data rates, the main advantage of UMTS is that
it allows prioritization of traffic according to desired quality of service.
Because the capacity and data rates of UMTS are insufficient to allow
efficient broadband access, evolutionary improvements have been
developed. High-Speed Downlink Packet Access (HSDPA) provides
higher download data rates, an increase in the capacity of the antennas, and
a reduction in the response time of the network. This is complemented by
High-Speed Uplink Packet Access (HSUPA), which increases upload
capacity. When the two are combined, data rates can be achieved that are
comparable to wired Asymmetric Digital Subscriber Line (ADSL)
networks. Standardization of follow-up evolutions are currently taking
place, which will probably simplify network architectures, increase data
rates, and reduce latencies and costs per data packet (UMTS Forum, 2006).
An important development with regard to cellular networks is IP
Multimedia Subsystem (IMS), which is part of the UMTS standard. IMS is
a central network component that can integrate cellular networks with
fixed networks and short-range access networks such as WiFi. Because
integration takes place within the cellular operator’s network, the operator
remains in control of the end-user (Cuevas, Moreno, Vidales, & Einsiedler,
 Chapter 4 The Mobile Context Explored 97

2006) and allows operators to limit access to public Internet pages (Braet
& Ballon, 2007).

Short-Range Access Technologies

In parallel to the evolution involving cellular networks, short-range access

technologies are emerging, mostly originating from the fixed Internet
domain. The best known of these technologies is Wireless LAN or WiFi, a
wireless extension of the Ethernet standard that can typically reach around
50 m. There are multiple WiFi standards, providing 11 Mbit s−1 up to over
100 Mbit s−1. The next generation of WiFi, 802.11n, is expected to provide
even higher data rates. While the technology does little more than offer a
wireless access point to a fixed network, access points can be combined in
order to cover larger areas. Compared to cellular networks, WiFi is faster,
cheaper and more efficient when deployed in densely populated areas.
However, security, interference and a lack of wide area coverage are
drawbacks. In practice, WiFi is used for in-home Internet access, corporate
voice over IP and Intranet, public access points to the Internet, and peer-to-
peer networking (Bohlin, Lindmark, Rodríguez, & Burgelman, 2006).
The mobile version of WiMAX (Worldwide Interoperability for
Microwave Access) is a new technology that offers ranges of up to a few
kilometers. Compared to WiFi, it offers higher data rates, wider coverage
and improved security. In addition, it allows for a more efficient use of the
spectrum than WiFi does. On the other hand, it is more expensive to
deploy and less suited for local high-speed coverage. In addition to
providing Internet access, WiMAX can be used to cover the gaps left in
WiFi network access points. It can also be combined with cellular
networks to increase the capacity of these networks.
Several personal area network (PAN) technologies exist that are
typically used for machine-to-machine communication (Frodigh, Parkvall,
Roobol, Johansson, & Larsson, 2001). These short-range technologies
include Bluetooth, Ultra Wide Band and Zygbee. Bluetooth was originally
developed to replace cables at low costs and low power. It uses the same
unlicensed spectrum as WiFi and can cover between 10 and 100 m at low
data rates. Ultra Wide Band is not yet widely adopted because of potential
interference. It uses very low power pulses in a high range of the spectrum
and can reach about 20 m.
A special application of short-range technologies is the use in ad hoc
networks, which are formed dynamically by wireless mobile nodes,
without using a centralized administration or network infrastructure
(Chlamtac, Conti, & Liu, 2003; Niemegeers & Heemstra De Groot, 2003).
If enough users are present, reliability and user mobility could be high.
98 M. De Reuver, H. Bouwman, and T. De Koning

This technology eliminates the need for network components like base
stations and central controllers. As a result, ad hoc networks are typically
quicker and cheaper to deploy than centralized networks. In addition, they
are more flexible and theoretically more reliable, as there is no dependence
on a central network component. Disadvantages are the lack of standard
routing protocols, security issues and a reduced reliability when there are
fewer users.

4.3.2 Accessing the Mobile Internet

There are various middleware and applications that enable mobile devices
to access the Internet. The first attempt to enable mobile Internet was
WAP, the purpose of which was to enable the easy and fast delivery of
relevant information and services to mobile users. Although WAP-based
browsers never met these expectations, the transport mechanism is still in
use (Jaokar & Fish, 2004). The central part of the WAP architecture is the
WAP gateway between the application server and the mobile device. The
gateway communicates with the application server using regular Hypertext
Transfer Protocol (HTTP) traffic. However, with the end-user client it
uses Wireless Mark-up Language (WML) to overcome the limitations
associated with HTTP on the wireless Internet (Jaokar & Fish). WAP can
also be used to push Internet content to end-users by using the WAP push
protocol, i.e. by including the link in an SMS message. The WAP protocol
has been the basis for i-mode, which is a proprietary technology designed
for browsing WAP sites on a mobile device.
An alternative to accessing applications on a remote server is to run
applications on the handset itself using Java 2 Micro edition (J2ME) or
Binary Runtime Environment for Wireless (BREW). Extended Hypertext
Markup Language (xHTML) mark-up is used for J2ME to adapt the
content to fit the screen of the device.

Mobile Web Services

A promising new approach to realizing mobile Internet access is web

services technology (Farley & Capp, 2005; Pashtan, 2005). In recent years,
web services have become increasingly popular in the IT world. Web
services are the underlying tools of the Service Oriented Architecture
(SOA), which defines three basic roles. The service requestor is the party
requesting to receive a service from an external party. The party providing
the service is called the service provider. The services that a provider
offers are published in the database of the service broker, and a service
 Chapter 4 The Mobile Context Explored 99

requestor can find the right provider for his needs by querying this broker.
Communication between service provider and requestor takes place via
asynchronous messages. Web services define a set of protocols that can be
used to implement SOA. The SOAP-standard (Simple Object Access
Protocol) is used to send messages between service requestors and
providers. The messages are built up using the XML protocol (Extensible
Markup Language). Web Service Description Language (WSDL) is the
standard being used to describe the services published by the service
provider. WSDL files are stored by the service broker using the UDDI
protocol (Universal Description, Discovery and Integration). All these
standards are open, meaning that any service provider and requestor can
use web services to establish mutual interaction. The standards also
‘shield’ the internal complexity of the application hosted by the service
provider, simplifying communication between providers and requestors,
and guaranteeing interoperability between their systems. Because it is
fairly easy for service requestors to switch to other services provided by
other providers, web services are very flexible. Another advantage is that
services offered by providers are reusable, i.e. a service offering’s generic
functionality that is usable for multiple end-user services can be used over
and again in many service compositions.
As mobile communication networks increasingly offer high speed data
communication, a logical next step would be at least to consider applying
web services technology to mobile devices. This approach is known as
mobile web services (MWS) (Farley & Capp, 2005). There are many
benefits associated with MWS compared to the way service development
and execution currently take place. Because MWS uses open standards, it is
much easier to develop new services, and it is easier to reuse services
(Farley & Capp, 2005), the latter of which is especially relevant to generic
service components that can be integrated into other services, such as authenti-
cation, billing and context information services. In addition, MWS will enable
dynamic service discovery and is expected to benefit the interoperability of
mobile devices (Pilioura, Tsalgatidou, & Hadjiefthymiades, 2003). Given
the many different mobile devices and the diversity of operating systems and
parsers, interoperability is currently not guaranteed, which leads to cost
inefficiencies. MWS is also expected to benefit end-users, as the ease of
developing services will probably lead to a greater variety and number of
services, a higher level of personalization, better and simpler user interfaces,
and the provisioning of services over the most appropriate access technology
(Farley & Capp, 2005).
To illustrate the potential of MWS, some applications can be
considered. A problem that MWS could solve is that users may have
multiple mobile devices such as phones, PDAs and laptops, and that the
100 M. De Reuver, H. Bouwman, and T. De Koning

user’s contacts are typically not stored in all of them. To solve this, the
contacts could be stored in a central database, and users can then access
the data via MWS (Farley & Capp, 2005). Another application of MWS is
to use the technology for providing generic service components, such as
geographical maps or authentication and billing services. Instead of having
to develop these components for various service offerings, service
providers can reuse and integrate them into their specific service offerings.
Generic authentication and payment services are in fact the main services
advocated in the MWS architecture proposed by Microsoft and Vodafone
(Microsoft, 2003). In addition to requesting (generic) services from the
outside world, MWS can also be used to enable external parties to request
information from the mobile device. For example, a context-aware
application offered by a service provider may request information about a
user’s location or current occupations. If standard web services published
by the user in a UDDI are used to this end, any service provider could, in
principle, easily add context awareness elements to his value proposition.
In a similar approach, services could request context data from portable
sensors, contact information, payment information or other personal
information from the user (Berger, McFaddin, Narayanaswami, &
Raghunath, 2003).
Although the benefits of MWS are clear in terms of flexibility, inter-
operability and reusability, there are also several challenges mentioned in
literature when it comes to applying web services in a mobile context. One
obvious difference between a mobile and a wireline device is the
portability and the mobility of the device, i.e. a mobile device can move to
another location. In addition to mobility, the personal nature of a mobile
device also differentiates MWS from fixed Internet web services. A mobile
device is generally owned by one person only, which makes it possible to
link the device to a specific user identity. This offers opportunities, for
example with regard to personalizing the MWS. However, it also raises
issues involving identity management and privacy that are more serious in
the mobile setting than they are in fixed web services (Farley & Capp,
2005).
We also identify a set of challenges related to the specific performance
limitations of both mobile devices and infrastructures. Although we agree
that some of these issues may become less urgent as technology advances,
MWS today have to be designed in such a way as to limit their use of
computation, memory and energy resources (Berger et al., 2003). Another
issue involved here is that the user interface with small screen and
keyboard makes it more difficult to fill in forms, which has an impact on
the usability of MWS (Farley & Capp, 2005). Also, because bandwidth is
still smaller and more expensive in mobile networks than it is in the fixed
 Chapter 4 The Mobile Context Explored 101

Internet, limited data rates need to be taken into account. Issues regarding
bandwidth and processing power are especially challenging for MWS, as
web services use XML and SOAP protocols to code the messages.
Processing XML messages on mobile devices requires higher levels of
processing power compared to HTML messages (Limbu, Wah, & Yushi,
2004). In addition, XML messages generate a larger overhead than HTML
pages, as they can reach up to five times the size of content messages
(Tian, Voigt, Naumowicz, Ritter, & Schiller, 2004). In cases where
bandwidth is indeed limited, or where users are charged per packet of
transmitted data, this may well become a constraining issue.
Although standardized MWS architectures have not yet been defined,
industry parties like Microsoft and Vodafone (Microsoft, 2003) are
working together in developing a MWS architecture, as well as Nokia and
Sun (Nokia & Sun, 2004). The open Internet standardization body OMA
(Open Mobile Alliance) is also working on a standardized MWS
architecture. An important trade-off in these efforts involves the choice
between using open protocols to implement MWS or using proprietary
standards. Of course, using proprietary standards may well put inter-
operability at a risk, and may lead to walled garden alike business models.

4.3.3 Devices

While early mobile phones offered only voice calling and text messaging
functionalities, the current trend is towards multifunctional consumer
electronics devices. At the moment, high-end mobile devices offer
radio/music/video players and editors, Internet browsers, agenda functions,
voice recorders and cameras. In addition to offering GSM access, most
devices nowadays include Bluetooth and Infrared functionalities, and they
can increasingly access 3G and WiFi networks. While mobile phones are
taking over these traditionally separated consumer electronics functions,
there is also an opposite trend that involves MP3-players being equipped
with cellular communication functionality, e.g., Apple’s iPhone.
In parallel, processing power, data storage capacities, and screen
resolution have increased tremendously. Having said that, there are
considerable differences between high-end devices like Personal Digital
Assistants (PDAs) and smartphones on the one hand, and regular mobile
phones on he other. In terms of software, today’s devices are capable of
executing Java applications, browsing the Internet through specialized
mobile phone browsing software, and have specific operating systems, e.g.
Microsoft Windows Mobile and Symbian.
102 M. De Reuver, H. Bouwman, and T. De Koning

Enabling technologies for mobile and wireless services are developing

rapidly. The capacity, data rates and cost effectiveness of wireless
networks are increasing continuously. In addition, increasing functionality
of software components and intelligence of devices are changing the
landscape of involved actors in the mobile domain.

4.4 Organizational Arrangements

In the era of plain voice telephony, the mobile telecommunications value

chain was fairly simple, consisting only of network operators and equipment
manufacturers. Operators controlled most of the activities, i.e. operation and
access, the sales and after-sales of handset and services, and end-userbilling
(Maitland, Bauer, & Westerveld, 2002; Roland Berger, 2005). As such,
operators controlled both the wholesale side of the value chain (i.e. the
communications network) and the retail side (i.e. customer interaction and
support services) (Sabat, 2002). The manufacturers developed network and
device equipment. Although diversification and expansion strategies of both
operators and manufacturers gave the market a seemingly dynamic look, the
division of roles remained relatively stable.
The introduction of mobile data services disrupted this well-organized
value chain. The high investments in UMTS licenses and the costs made to
implement the diversification and expansion strategies led to financial
problems for operators (Maitland et al., 2002). At the same time, the
subscriber base for voice services was saturated, while the average
revenues per user were falling (Olla & Patel, 2002). Data services were
seen as the best way to recoup license and network roll-out investments,
while at the same time increasing ARPU rates. Data services added a
number of activities to the value chain, such as Internet access and
development and provisioning of middleware, content, applications,
platforms and portals (Jaokar & Fish, 2004; Maitland et al., 2002; Roland
Berger). As a result, actors were entering the mobile services domain from
the content, IT and consumer electronics sectors (Olla & Patel, 2002).
Because it is no longer possible to identify the roles involved clearly,
and many relationships between the actors go beyond the structure of a
linear chain, it makes more sense to see the mobile data services industry
as a value network (Li & Whalley, 2002).
In this section, we first discuss the roles and resources that are typically
required for mobile data services. After that, we describe typical
governance models used in these value networks by contrasting walled
garden and open models of collaboration.
 Chapter 4 The Mobile Context Explored 103

4.4.1 Roles in Mobile Value Networks

Actors providing mobile services can fulfill a variety of roles, and there is
no generic role division that applies to all services. In this paragraph, we
link the resources and capabilities needed to deliver mobile data services to
the typical roles suggested in the STOF model.

Network Roles

For a service to be delivered, connectivity is required between the end-user

and the service provider. This connectivity is provided by the network
operator, i.e. the actor operating the cellular or short-range network. The
UMTS Forum (2002) defines the key function of a network operator as the
provision of access and transport services, typically holding the license to
use the network. As network operators provide connectivity to the end-
user, they have access to the customer. They also dictate which mark-up
language content providers should use in delivering their content. The
largest European operators are Deutsche Telecom (T-Mobile), Vodafone,
France Telecom (Orange), Telefonica, Telecom Italia and British Telecom
(O2). Generally speaking, the series of consolidation moves and expan-
sions have led to a fairly consolidated market (in the USA there were nine
operators before 2005, with only four remaining in 2006) (Estenfeld,
2006). Similar trends can be observed in individual European countries.
Mobile Virtual Network Operators (MVNOs) play the role of agent
between the network operator and end customers (UMTS Forum, 2002).
Kuo and Yu (2006) divide MVNOs into two categories; other tele-
communication operators and non-telecommunication operators. The non-
telecommunication operators are usually actors operating in different
industries in which they already have an established brand and retail
channel. Kiiski (2006) distinguishes data-only, voice only and voice and
data MVNOs. As MVNOs purchase capacity from an infrastructure
company, they have limited physical assets, and they will be able to use
their resources in a different way should their core business become
unsustainable (Li & Whalley, 2002). This makes them relatively flexible in
terms of their service portfolio and relationships with other actors and
allows them to focus on niche markets where possible. The number of
MVNOs varies per country, e.g. in the USA, UK, Finland and the
Netherlands there are many of them, while in Japan, Italy and South Korea
none are active as yet (Netsize, 2007).
104 M. De Reuver, H. Bouwman, and T. De Koning

Hardware Roles

The network infrastructure consisting of antennas, base stations and core

network is provided by network manufacturers. While they may not play a
direct role in every single mobile service offering, they are important in the
long term because they have a say in which new technological standards
will be developed. Typically, a network infrastructure is leased to
operators. Consolidation has taken place in the network manufacturing
market as well, and there are currently four dominant players, i.e. Ericsson,
Huawei, Lucent-Alcatel and Nokia-Siemens (Netsize, 2007).
End-users require handsets to receive services. These handsets are
provided by handset providers. Especially for more advanced mobile
Internet services, handsets are important. Network operators often bundle
subscription packages with ‘free’ handsets in order to encourage the
adoption of advanced handsets. In the current market, there are about 100
vendors producing over 2,000 different phones. The market is dominated
by four major players, i.e. Nokia, Motorola, Samsung and Sony-Ericsson
(Netsize, 2007).

User Related Roles

If end-users have to pay for a service, billing facilities are another

necessary resource. Billing consists of several activities, i.e. charging,
billing and accounting (Koutsopoulou, Kaloxylos, & Alonistioti, 2004).
The billing and collections provider ‘issues bills (or the equivalent) and
arranges for collection of payments from customers’ (UMTS Forum, 2002,
p. 3), either through prepaid or post-paid billing arrangements. Accounting
and dividing the revenues among the actors involved in offering the
service is usually carried out by the same actor. The billing provider has a
direct contact with the end-user. At the moment, it is usually the network
operator who plays the role of billing provider, although other actors in the
fixed Internet and banking domain are also adopting this role.
To allow for personalized services to be provided, users must be
identified and authenticated. Typically, this is done by the same actor
playing the role of network operator, by authenticating the user based on
the SIM card. However, alternative models exist in which authentication
can take place, for example, via web services.
In addition to demographic user information, information about the
handset, browser and application on the handset is often required for a
proper adaptation of the content to ensure a good service experience. This
information can also be provided by the network operator, who typically
has specialized systems to retrieve this type of information. However,
 Chapter 4 The Mobile Context Explored 105

alternative models exist, for instance by adding an application to the

handset that transmits the relevant information.
Customer support is another resource that is often required for mobile
Internet services. While many actors can be involved in offering a service,
there is often one point of contact available to the end-user in case of
problems. This role can also be played by network operators, or by content
providers.
To allow context-aware services to be provided, dynamic information
about the context of the user is needed. An important example of this type
of information is location information, which can be provided by the
network operator by triangulating the position of the user, but it can also
be provided by an independent party, for example using GPS technology.

Software Roles

Most types of services require applications and platforms, both to run on

user devices and at the service providers’ end. Specifically, content
adaptation platforms are often required to adapt web-based content to a
WAP-based format that suits the specific user device. Users may require
micro-browsers and Java applications to access services. Developments
like MWS and, increasingly, intelligent devices pave the way for a more
prominent role of software related actors in the near future.
Applications run on platforms that allow consumers to access Internet
services on their mobile devices and enable enterprises to extend their
commercial applications to the mobile network (Kuo & Yu, 2006).
Because at the moment only few platforms are developed in-house, the
actors involved primarily come from the computing industry, for instance
operating system and middleware vendors (Tilson & Lyytinen, 2006).
To provide location-based services, expertise and data is needed on
geographical information systems (GIS). For example, maps and geo-
spatial data needs to be available to be able to offer routing information to
users, and geospatial calculation will be required to compute meaningful
spatial information from raw coordinates about the user position.

Content Roles

With regard to content services, various additional roles can be

distinguished. First of all, raw content needs to be created. Kuo and Yu
(2006) use the term ‘content developers’ to denote actors who provide,
design and produce various kinds of products or services for all kinds of
end-users. Raw content is typically sold on a wholesale basis to operators
or providers of content and applications. As we discussed earlier, there is a
106 M. De Reuver, H. Bouwman, and T. De Koning

trend towards user-generated content, and users can to a certain extent take
over the role of the traditional content providers. However, content
developers are also developing new formats based on this trend.
A content provider is an actor providing and distributing content
(Grover & Saeed, 2003). Although content providers can create their own
content, they usually provide content obtained elsewhere. The UMTS
Forum (2002, p. 3) defines ‘content provider as a provider of services that
add value to access and transport services. Value-added services can be
produced by the content provider itself or purchased from others.’
While content developers and providers may focus specifically on mobile
services, for many organizations the mobile channel is just another channel
to distribute their content. For example, broadcasting organizations, traffic
information providers, banks and tourist information offices already provide
content services to customers using traditional channels like TV or the fixed
Internet.
Advertisers form a specific type of content providers, because they offer
sponsored content. They basically provide sponsored content to content
providers, aggregators and service providers, to be included in their
content services, for which the advertiser pays a fee. Advertisers can also
provide free (sponsored) services or content on their own. Advertisers can
be any actors willing to pay for the distribution of his brand name and
products and services. Advertising agencies will play an important role in
delivering and possibly adapting advertisements to the mobile devices.
Similar to the content providers, advertisers can focus specifically on the
mobile channel or extend their marketing mix with mobile advertising.
When content from a number of providers is combined in a single
service offering, a content aggregator is required. Generally speaking,
there are passive aggregators, who merely bundle the content, and active
aggregators, who carry out filtering, editing, or customization (Barnes,
2002; Li & Whalley, 2002).
As the amount of content on the mobile Internet is increasing, search
engines become more important. Search engine providers can help manage
content and the complexity of content. Often, actors from the fixed
Internet, such as Google or Yahoo!, play the role of search engine
provider.
As discussed in this chapter, many mobile Internet services are based on
portals: ‘a network site that aggregates, presents, navigates, and delivers a
wide range of Internet communication, commerce, and content services to a
large number of visitors.’ (Sabat, 2002, p. 522). The portal is a ‘gate’ to the
mobile Internet, as it is the first point of browsing (Kuo & Yu, 2006). Barnes
(2002) places the portal under ‘market making’, as the portal is aimed
primarily at marketing and selling content, including program development,
 Chapter 4 The Mobile Context Explored 107

service delivery and customer care. Compared to regular Internet portals,

mobile Internet portals have a strong need for customization and
personalization (Barnes). On the mobile Internet the most widely used
portals are those of the operators. However, other content aggregators, for
instance Internet players, increasingly provide mobile portals.
To assure the adoption of the service, promotion and marketing are
often required. In principal, any actor involved in the service offering can
play this role. Because operators have strong brand names and large
marketing budgets, they often play this role.

4.4.2 Governance Models

Typically, network operators play many of the roles discussed in the

previous section. As a result, content providers depend on operators to gain
access to the customer, and to perform the activities involved in
authentication, billing and localization. Operators have adopted various
strategies to determine how much freedom they grant content and service
providers in terms of access to their customers. Feijóo, Marín, Martín, and
Rojo (2006) have identified a continuum between full operator control
without participation from other parties, and full participation of others
without operator control. These two extreme options are called the walled
garden and the open model, respectively.

Walled Gardens

Jaokar and Fish (2004) define the walled garden as ‘a mechanism to

restrict the user to a defined environment, i.e. forcing them by some means
to stay within the confines of a digital space’. In this model, users can only
access content on the operator’s portal, and have no access to other WAP
sites (OVUM, 2006). Although most content on a portal is developed by
third party content providers, operators take care of most activities
including controlling, approving, and managing quality of the content, and
navigation and customer care (Feijóo et al., 2006; Forrester, 2006b;
OVUM). The brands of the operator and the content providers are more or
less merged, and their relationship is close (OVUM).
For end-users, the advantage of the walled garden portal is that they
receive a consistent end-user experience, because all content has the same
look and feel (Forrester, 2006b). However, their freedom of choice is
limited by the amount of content on the portal (Feijóo et al., 2006;
Forrester). Operators choose walled garden models because they guarantee
them large shares of the revenues (Feijóo et al.), and reduces the risk of
108 M. De Reuver, H. Bouwman, and T. De Koning

them becoming mere connectivity providers. However, some analysts

claim that operators, due to their limited creativity, have not appeared to be
able to provide good user experience (Forrester). In addition, the visibility
of operator portals is low, because operators mostly have to take care of
promotional activities by themselves (Forrester).
The walled garden models are threatened by emerging billing solutions
that bypass the operator, the increasing availability of good content,
alternative solutions like PC-side loading to downloading of premium
contents, and the increasing popularity of independent WAP sites (OVUM,
2006). In addition, operators are becoming increasingly aware of the
strategic option of generating revenues with off-portal data traffic and
additional revenues like sponsored search (OVUM). As a result, walled
gardens are being opened up.

Open Models

In an open access model, users can access content from any provider
(Feijóo et al., 2006). Aside from optional agreements on billing and
authentication, there is no relationship between operator and content
providers. In an open access model, customers can access more diverse
content and content providers are not constrained by demands from the
operators (Forrester, 2006b). Competition between content providers and
greater freedom to experiment may lead to more innovative services. On
the other hand, operators may stop investing in innovative network and
middleware technologies if they are uncertain whether they can still recoup
a sufficient portion of the revenues. Also, a lack of central billing, security
and customer support may increase complexity for consumers (Forrester,
2006b).

Hybrid Models

There are several hybrid models for the coexistence of third party
providers and content services by the operator, (Feijóo et al., 2006). In
these models, operator and third party branded content are mixed. An
example of such a model is the i-mode ecosystem model, which offers
users official and unofficial sites that both use operator billing facilities,
i.e. a semi-walled garden model that allows users to browse and optionally
download content off-portal from a set of exclusively approved partners
(OVUM, 2006). In this model, operators only provide connectivity and
billing, and do not control the content provider using its billing services.
Nevertheless, operators impose certain conditions on content providers, for
instance a maximum content fee for end-users. A related model is the one
 Chapter 4 The Mobile Context Explored 109

used by Orange’s Gallery WAP site, which provides access to other WAP
sites to users from any network (OVUM).
Depending on the intended offering, a diverse range of resources and
capabilities is required to provide mobile services. Actors who play roles
relating to content, software, hardware and networks, have to work
together to make the business model work. While governance mechanisms
have traditionally relied on operators organizing the activities in a walled
garden model, technological and strategic developments have put this
position under pressure. As a result, the industry is shifting from closed
models of collaboration towards more open models that allow flexible
collaboration between content providers, application providers and
operators.

4.5 Financial Arrangements

An equitable division of costs, revenues and investments is required to

make the collaboration worthwhile for all the organizations in a value
network. In addition, a proper end-user tariff has to be installed to collect
the necessary revenues. In this section, we discuss models for the
distribution of costs, revenues and risks among the actors in a network.
After that, we discuss typical choices in end-user tariffs used to charge for
mobile services.

4.5.1 Division of Costs, Investments and Revenues

There is a diversity of investment models for the various mobile industry

actors. As far as content providers are concerned, most investments are
made during the development of content and the costs of reproduction are
typically low (Shapiro & Varian, 1999). To increase return on investment,
cross-media strategies are often applied, i.e. the content is distributed to
end-users over various channels, of which the mobile Internet channel is
but one. It is generally difficult to predict the eventual market success of
specific content. Often, investment is required in developing specific
applications that allow the content to be offered to mobile users. While
offering services, the main costs facing content providers include
marketing and promotion, customer care, and possibly a fee to network
operators for using their networks.
The main investment costs of operators have to do with building
a network rather than with developing individual services. Capital
Expenditure (CAPEX) comprises the costs of buying licenses and
110 M. De Reuver, H. Bouwman, and T. De Koning

equipment, the installation of base stations and site engineering. While the
costs of rolling out a cellular network are typically high, for short-range
technologies such as WiFi the investment costs may be lower. Once a
network has been rolled out, the marginal costs of adding users or content
services is low. This explains the wholesale strategies of operators, in
which excess network capacity is sold to virtual network operators of
content providers. With regard to operators, operational costs involve
leasing the site where base stations are installed, interconnection and
roaming fees, electricity consumption, backhaul transmission, and
operation and maintenance (Rendón, Kuhlmann, & Aranis, 2007). In
addition, non-network related operational costs include service support,
marketing and promotion, billing, bad debt and fraud, subsidies on
handsets and customer care.
Revenues are typically collected by the operator who has a billing
relationship with the end-user. To divide the revenues, a revenue share
model is often used. For example, in the i-mode model the operator shares
84% of the revenues with its content providers. When using SMS-based
charging for WAP services, the revenue share or kick-back fee may be
reduced to 50%. In some cases, operators buy content from content
providers in order to sell the content via the portal. Mostly, the operator
pays a fixed fee to the content provider for this. Application providers
often charge a fixed project development fee to content providers and
operators for the development of the application, in addition to a monthly
fee for support and maintenance.

4.5.2 End-User Tariffs

End-users typically pay for two service components: the use of the radio
network resources (i.e. connectivity) and the value of content services
delivered over that network (i.e. content). For connectivity charging, many
models are being used, e.g., metered charging, packet charging, expected
capacity charging, edge pricing, paris-metro charging, and market-based
reservation charging (Cushnie, Hutchison, & Oliver, 2000). Basically, these
models can be divided into fixed and packet-based charging. Fixed or flat
fee charging is based on a fixed fee regardless of the actual traffic on the
network, while packet-based charging is based on the amount of traffic
generated or time spent online. While packet metering used to be the
dominant way of charging for network resource usage, flat fees are
beginning to enter the market. The amounts charged for network resource
usage vary. The highest tariffs are found in Japan and Germany, followed by
the USA, and they are lowest in South Korea, Denmark and Finland (TNO,
 Chapter 4 The Mobile Context Explored 111

2006). Generally speaking, the average revenues per user (ARPU) are
decreasing, especially when it comes to services (Roland Berger, 2005). A
large proportion of these revenues is still related to voice services, while data
ARPU currently comes mainly from plain SMS services rather than from
advanced mobile data services (Forrester, 2006b).
While customers are commonly used to paying for connectivity, they
are less used to paying for content, because on the fixed Internet content is
often free. For content charging, various models are in use, e.g., pay-per-
download, subscription based, event based, context pricing, personal
pricing and value-based pricing. In terms of technology, various models
are used for content charging, such as premium-SMS and WAP billing.
Other models for generating revenues, such as advertising and sponsoring,
are increasingly considered.
Generally speaking, there are two types of tariff schemes. In post-paid
billing, users generally pay a fixed fee per month as well as a fee for
calling and data traffic. Often, users get their device for free with the
subscription, through subsidization by the operator. In the case of prepaid
billing, users pay in advance and calls and data traffic are credited against
the prepaid balance. This scheme is especially common at the lower end of
the market. While prepaid and post-paid tariffs used to be strictly separated
in the past, they are currently converging, because users may want to pay
for some services through a pre-paid system (e.g. content downloads),
while they want to be charged for more predictable costs (e.g. monthly
contract or voice calls) via a post-paid billing system (AtosOrigin, 2006).
Generating revenues with mobile services is challenging, as customers
are not used to paying for content services on the fixed Internet. The
industry is trying to solve this through flat fee models for network resource
usage, and a mix of flat fee, fee per usage and free, advertisement based
models for content services. Typically, revenues are collected by operators
that have the billing relation with the end-user, and are divided among
content providers through revenue share models.

4.6 Typical Mobile Services Business Models

Thus far, in this chapter we have illustrated the context in which mobile
services business models are developed, and how this context is different
from that of other e-services. While there are various largely accepted
classifications of fixed Internet business models (e.g., Rappa, 2000), their
applicability in the mobile domain is limited (Leem, Suh & Kim, 2004).
Several authors propose alternative mobile business model classifications
112 M. De Reuver, H. Bouwman, and T. De Koning

or atomic business models. Typical shortcomings of these models include

their focus on the service component rather than the full business model
and their bias towards consumer-oriented rather than business-oriented
models (Leem et al.). In this section, we discuss classifications based on
generic principles, design parameters, and dominance of players. Because
we focus on business models on the level of the entire value network, role
level classifications such as the one proposed by Camponovo and Pigneur
(2003) fall outside the scope of this chapter.
A common classification of business models is related to the allocation
of roles to the various actors. Panagiotakis, Koutsopoulou, and Alonistioti
(2005) and UMTS Forum (2002), for example, discuss three basic business
models based on who is the dominant player, i.e. the network operator
centric model, in which the operator owns the customer contact and
performs roles of connectivity provider, content aggregation and charging;
the service/content aggregator centric model, in which the content
aggregator combines content from third parties into a service offering and
collects payment independent from the network operator; and the
service/content provider centric model, in which the publishing of content
and billing/payment is conducted by the content provider. A key parameter
in these three models is customer ownership, which is located respectively
at the operator, content aggregator and service/content provider. An
example of applying this type of classification to mobile payment is
provided by Van Bossuyt and Van Hove (2007), who distinguish carrier-
centric and payment service provider-centric models. A related discussion
regarding business models for mobile Internet services is the contrast
between Internet-based and telecommunications-based business models. In
the telecommunications business model, access to the network and access
to content are controlled by the same entity, i.e. the operator, whereas in
the Internet model these roles are divided, because Internet service
providers typically do not provide content services. A clash between these
models can be seen in the mobile Internet domain.
Killström et al. (2006) distinguish four generic business models based
on innovative mobile services in the consumer market, by identifying the
most important component of the business model. In the technology-driven
model, technology providers play a central role; the advertising-based
business model focuses on an advertising based financial component; the
mobile extension model focuses on extending existing business with a
wireless component; and their fourth business model focuses on selling
content through the mobile channel. Methlie and Pedersen (2007)
distinguish three dimensions in mobile business models: service strategy,
i.e. mobile specificity, breadth of proposition, and market focus;
governance form, i.e. hierarchical (closed) and relational/market (open);
 Chapter 4 The Mobile Context Explored 113

and revenue model, i.e. content-based and transport-based. They focus on

the contrast between open (e.g., Nordic countries) and closed (e.g., i-
mode) models of collaboration, and their unclear impact on performance.
They argue that internal choices influence the extrinsic service attributes of
indirect and direct network effects and intrinsic service attributes of ease of
use, usefulness, compatibility, service quality and innovativeness. They
theorize, for example, that hierarchical forms lead to a lack of diversity in
services, but a higher quality when it comes to complementary services.
And that relational governance is positively related to innovation speed.
Ballon (2007) argues that a classification of mobile business models
should be based on a set of key design parameters and a limited set of
options per parameter. He proposes four levels of mobile services business
models in which design parameters can be found, thus adapting our STOF
model. These levels are the value network level, comprising the specific
combination of assets, the level of vertical integration, and customer
ownership; functional model level, comprising the modules and interfaces
between models, distribution of intelligence within the system, and the
interoperability with other systems; financial model level, comprising the
cost (sharing) model, revenue model, and revenue sharing model; and
value proposition level, comprising positioning, user involvement and
intended value. For each of these parameters, he identifies the two main
options that require a trade-off and that can be used to classify mobile
business models. The approach is applied in the classification of business
models for flexible spectrum provisioning by Delaere and Ballon (2007),
and in the analysis of peer-to-peer versus IMS business models by Braet
and Ballon (2007).
For each design parameter, Ballon provides only two extreme options.
For example, his design parameter Intended Value is either ‘price/quality’
or ‘lock-in’. He argues that any other approach would produce an almost
infinite number of potential mobile business models. However, it could be
argued that at least some of the parameters actually offer a continuous
range of options. To stay with the example of Intended Value, one could
imagine that companies chose to offer both a good price/quality ratio and
at the same time try to lock-in their customers, rather than choosing one
of the extremes. Moreover, some of the parameters could have options
on multiple dimensions. Intended Value could have other dimensions, such
as reliability, flexibility, ease of use and security, depending on the
application domain, as Ballon (2007) argues. As such, the classification
constrains the richness of potential mobile business models under study,
and may even lead to false dilemmas. In addition, Ballon’s approach is
inconclusive about the causal relationships and trade-offs between the
choices, i.e. whether or not they are expected to be interdependent.
114 M. De Reuver, H. Bouwman, and T. De Koning

Moreover, the approach is high-level and does not provide practical

guidelines on how to design and develop mobile business models. In sum,
although Ballon’s approach appears useful when it comes to analyzing
mobile business models on a high level of abstraction, it is not applicable
as a design approach. In the next chapter, we provide our own approach to
mobile business model design which provides more practical guidelines.
Chapter 5 The STOF Method

H. De Vos and T. Haaker

The STOF model describes the main concepts and design variables within
the four business model domains, i.e. service, technology, organization,
and finance (see Chap. 2). We have argued that the design choices that are
made in these domains need to be balanced to realize viability and
feasibility. To support a balanced design we introduced Critical Design
Issues (CDIs) and Critical Success Factors (CSFs), as well as the specific
issues regarding the business models of mobile services (see Chaps. 3 and
4). In this chapter, we introduce the STOF method, using a step-by-step
approach to create a business model design for a specific service concept
(Bouwman, Haaker, & De Vos, 2005; Bouwman, Haaker, Steen, & De
Vos, 2003; Haaker, Oerlemans, Steen, & De Vos, 2004). The STOF
method explicitly helps designers to create viable, feasible and robust
business models that create value for customers and providers alike.
The method is especially useful in the early stages of service
innovations: the exploration and initial elaboration of various ideas and
options. When the method is used at an early stage, the service and
technology design can be adjusted to satisfy the business requirements and
increase market potential at a later stage.1
The STOF method consists of four steps. In the first step – the Quick
Scan – an initial sketch of the business model is made. This basically
means a description of the service and the intended value proposition, a
value network, a technical architecture and a financial model. In the
second step – evaluation with CSFs – the viability of the Quick Scan result
is assessed. The initial business model is refined in step three, by
specifying the CDIs. A robustness check is carried out in step four. These
steps will be further explained in the next sections.

1To facilitate the use of STOF method, a handbook is available via http://www.
stofmethod.com, providing templates for the design of business models using the four-
step method. It can be adjusted to suit the specific needs and issues of a design session
and is available in Dutch as well as English.
116 H. De Vos and T. Haaker

The STOF method can be applied in different ways. For example,

individual designers can use it to structure and guide their design and
design process. An especially fruitful way of using the STOF method is
through a design session, i.e. a workshop in which multiple participants
discuss the business model issues as outlined in the method and together
formulate design choices. We discuss different ways of applying the STOF
method in the final sections of this chapter. First, we turn to the design
process.

Illustrative Example

Throughout the description of the STOF method, we use one example to

illustrate the various aspects of the design. The example is based on a new
mobile service idea for which design sessions were conducted including
groups of researchers during a workshop about business models and
business model design. These sessions were organized while the STOF
method was being developed, and were among the first occasions that the
method was being used. The service involves a guided tour along the
Dutch megalithic tombs – so-called Hunebeds – with the use of a mobile
device. Examples of such mobile tourist guides are currently commercially
available, for example Abel (2007), which provides personalized cycle
tours from hotel to hotel. The services Abel provides operate on a
dedicated PDA without mobile connectivity. Similar services are the
mobile navigation services of, for example, TomTom and Garmin, which
operate locally on a (dedicated) device, with optional real-time support
services and add-ons.

5.1 Design Process

The STOF method consists of four subsequent steps, illustrated in Fig. 5.1.
The input that is required is an initial new service idea or service concept.
Step 1 refers to the Quick Scan, in which specific design variables of
the four domains are examined and initial design choices are formulated
for the service idea under investigation. Answers to basic questions
regarding the service concept, the technological architecture, and the
organizational and financial arrangements, yield a broad outline of the
business model. The business model concepts considered in the Quick
Scan are related to the domain models of Chap. 2.
 Chapter 5 The STOF Method 117

New service idea

Service
Technology
Basic Quick Scan Organization
Step 1
questions Finance

Business model outline

Critical Success Evaluation based

Step 2 on CSFs
Factors (CSFs)

no
OK? STOP
improve yes

Critical Design Specification

Step 3 of CDIs
Issues (CDIs)

Business model design

Internal and Robustness

Step 4 check
external issues

Viable and feasible

business model design

Fig. 5.1. Design steps in the STOF method

In step 2, this outline is evaluated on the basis of the eight CSFs (see
Chap. 3), with the aim of assessing the expected viability of the business
model. One example of such a critical success factor is the extent to which
the proposed value proposition appeals to the target group. The evaluation
helps to determine which parts of the business model have to be modified.
Alternatively the business model is fine and further specification is not
necessary, or the evaluation step shows that no viability can be achieved
and the design process is stopped.
If there are doubts with regard to certain criteria, specific elements of
the business model are reexamined or further specified in step 3. Here, the
relevant basic information provided by the Quick Scan is worked out in
greater detail and the business model is refined using the CDIs that were
introduced in Chap. 3. The CDIs are related to design choices that have a
strong influence on the assessment of the CSFs. These choices typically
demand a careful balancing of the requirements and/or the interests of the
various parties involved. The design issue Personalization, for instance,
not only affects the attractiveness of the value proposition, it also has an
impact on the costs of the service and on the requirements concerning the
management of user profiles. Both refining the elements of the business
118 H. De Vos and T. Haaker

model and balancing the interests lead to modifications in the original

business model design. Steps 2 and 3 can be repeated in an iterative
process, until a feasible and viable business design is created, or a decision
can be made to stop the process due to a lack of business potential. While
this may seem an unsatisfactory result at face value, it is in fact a very
efficient way to filter out less promising service ideas at an early stage.
Steps 1 to 3 have an internal focus, i.e. the design of a specific service with
added value for customers and existing partners. Step 4 involves an
internal evaluation, i.e. checking the relationships between the domains, as
well as an external evaluation, i.e. focusing on the robustness of the
design, for instance the sensitivity of the business model with regard to
changes in the value network (What if new partners join? What if partners
leave?), or its sensitivity with respect to competition.
We want to emphasize that in this chapter we provide the basic outline
of the STOF method and describe the most important steps and issues. The
workbook (see Footnote 1) is more refined and provides greater detail.
After the four steps have been completed, a business model has been
designed that, in the opinion of the designers, is viable and feasible with
respect to the context and conditions that are expected. Of course, this is
no guarantee for a successful service design. The advantage of using a
systematic approach is that it provides a more rigorous business design,
thereby reducing the chance of overlooking important issues and prevent
market failure. Based on the business model that emerges, follow-up
activities can be formulated and a start can be made with the development
of an actual business plan or business implementation (cf. Chap. 6).

5.1.1 Step 1: Quick Scan

In the Quick Scan phase, a rudimentary business model is developed,

which includes aspects from the four domains of the STOF model. The
Quick Scan focuses on design choices for design variables in the
descriptive domain models presented in Chap. 2. The Quick Scan typically
starts with the service design.

Service Design

The Quick Scan starts by outlining the value proposition from the point of
view of the customers and/or end-users. We need to keep in mind that the
customer of a service, i.e., the one paying for the service, is not necessarily
also the user of the service. The main issue with regard to the service
 Chapter 5 The STOF Method 119

design is, therefore, ‘What is the service concept, and what is the added
value for the customer and/or user?’
To answer this question, service design focuses on the following set of
design variables (cf. Chap. 2): Intended Value of the service, Customer and
End-user, Context of use, service Tariff and Effort. Typical questions that
need to be answered are ‘Who is the customer, who is the user?’, ‘What is
the specific service? Why would someone want to use it?’, ‘What is the
context of use?’, ‘Are there alternative products or services?’ and ‘What
would customers be prepared to pay?’ The result is a clear description of
the service, its target customers and the intended added value for these
customers, sometimes illustrated by a ‘walk through’ (see Fig. 5.2). Based
on these results, requirements and restrictions with regard to the
technology, organization and finance domains can be identified.
The ideas, assumptions and requirements that are addressed in the
service domain serve as a starting point for the other domains. It is our
experience that, when addressing other domains, it is often necessary to
reconsider design choices that have been made in the service domain.

The Hunebed Case: Service Design

A regional Tourist Board wants to offer a personalized tour along the

Dutch megalithic tombs – the so-called Hunebeds – in the region. Broadly
speaking, there are two groups of tourists that visit the region: families
with (young) children, who visit during the holiday season, and active
seniors, who come on short breaks. Because the interests of these groups
are quite different, the service will be designed specifically with the senior
target group in mind. Because most senior couples visit the region by car,
the service should support car-based mobility. The location-based service
is provided via a dedicated PDA, equipped with GPS and small speakers.
The PDA can be rented and dropped off at any tourist office in the region.
It can be powered using the car’s cigarette lighter. All information is stored
on the PDA. The GPS is used to determine the customers’ location and
to ensure that relevant information is provided. The service provides
navigation and tourist information based on the location of the customers.
Alternatives to this service are traditional paper guides. The added value
compared to paper guides is that the information that is provided is
location-specific and the service offers various multimedia options.
Generally speaking, paper guides costs around € 5 to € 6, which means that
the consumer price for the new service should cost about the same. The
service is called Hunebed&Breakfast, since it is targeted at people who
take short breaks, and also provides information on restaurants, hotels,
et cetera. An illustration of the service concept is presented in Fig. 5.2.
120 H. De Vos and T. Haaker

GPS
What shall we do? To the left you see
an ancient Hunebed

This is exiting!
Let’s get into the car.

Fig. 5.2. Service design walk through for the Hunebed case

Technology Design

To deliver a value proposition requires a variety of infrastructure and

technologies. Following the core variables of the STOF model (see Chap. 2),
the technology design outlines the design choices for Technological
Architecture, which consist of Applications, Devices, Service Platforms
(including Billing and Customer Data Management), Access Networks and
a Backbone Infrastructure. Furthermore, the Technical Functionality is
defined and the specific Data streams are specified.
The technology domain focuses on the core technologies that are
required, and on their possibilities and limitations. The technologies that
are selected should match the results of the service domain. Technology
should be in line with the value proposition, be usable for and available to
the customers and match the expected price level expressed in the service
domain. Often, there are various ways to realize a value proposition. With
regard to high-end services with quality as a core aspect, an expensive
solution is suitable. In a mass market that is characterized by low customer
fees, a lean and less expensive solution is preferred. The value network
should be aligned with the technology design. In many cases, iterations
between designs in the technology and organizational domains are needed
to realize this alignment, for example when existing hardware and software
have to be incorporated into the value network.
The main questions in the technology domain are ‘Which technologies
are needed?’, ‘What are the specific requirements?’ and ‘How can the
infrastructure be specified?’ Based on the answers to these questions, an
initial estimate of the costs can also be made.
 Chapter 5 The STOF Method 121

The Hunebed Case: Technology Design

The technology that will be used in the Hunebed case has been roughly
defined in the service domain, since it is very much a part of the value
proposition. A decision is made to use PDA’s. As far as the intended target
group is concerned, it is important that the application be easy to use, and
the content and symbols should be clearly legible. A low-cost solution is
selected, with all the content stored on the PDA and periodically updated
by the Tourist Board with aggregated information based on the content of
several content providers. According to the service design, all information
is stored on the PDA, which means mobile connectivity is not required.
Obviously, this is a very important design choice. If real-time data transfer
was required, the technology, organization and finance design would be
quite different. The solution would become much more expensive. Instead,
all the maps, content and software are stored on the PDA, and can be
periodically updated.
Since most customers travel in pairs, a PDA with built-in speakers
makes it possible for both persons to listen to the audio. The information is
linked to the customers’ location. A GPS module is used to determine their
location. A possible technical architecture is presented in Fig. 5.3. The
application can be easily modified for use in other regions, simply by
changing the content.

Application

PDA with GPS

application module

Content Aggregator

Content
manager

Content providers

Hunebed Add
museum provider

Fig. 5.3. High-level technical architecture for the Hunebed case

122 H. De Vos and T. Haaker

Organization Design

After defining the service concept, the value proposition and the
technological infrastructure, the organizations that have to be involved in
delivering this service concept can be selected. In most cases, multiple
parties are needed, since mobile services require access to complementary
assets provided by various organizations. For a co-operation to be
sustainable, every organization must benefit, either in tangible or in
intangible terms. Furthermore, the goals and interests of the partners must
be aligned, and not clash. Following the core variables of the STOF model
(see Chap. 2), the organizational design focuses on the Activities that
combine into roles, the actors that have the required Resources and
Capabilities to play these roles, and the Organizational Arrangements.
To begin with, a list of roles can be drawn up with regard to the
activities and resources needed to deliver the service. Each role can be
characterized by the output it provides in terms of service, product and
value. The roles, together with the value exchanges between them,
determine the Value Network of the service. The exchanges that take place
may be of a tangible (providing devices or content) or intangible nature
(providing financial or marketing-related expertise). Each role has specific
responsibilities and will deliver a specific resource or capability needed by
others. It is useful to identify the structural, integrative and the supporting,
facilitating roles in the value network. What specific roles the various
actors play will depend on their individual resources, capabilities and
strategic interests, and on the competitive environment. Often, multiple
value networks are possible, which differentiate with respect to the actors
that take on structural roles. The Quick Scan of the Organization domain
results in a preliminary design for the actors involved, the organizational
arrangements, and the value network structure, as well as a description of
the actors’ strategies, goals and value activities, and the resources and
capabilities they contribute.
In some business design sessions, defining the roles in the value
network design will be enough. In other sessions, it is useful to assign
specific actors, for example organizations or departments, to the various
roles. Because roles can often be assigned to different actors, in the end
this leads to several possible organizational arrangements.

The Hunebed Case: Organization Design

Normally speaking, the Tourist Board would be the initiator of the service
as well as the central actor in the value network (see Fig. 5.4). Information
providers (or content providers) are needed to provide information
 Chapter 5 The STOF Method 123

regarding regional points of interest. The Tourist Board takes care of the
physical distribution of the PDAs, the marketing and the aggregation of the
content. The Tourist Board takes care of customer contacts. To develop
and maintain the PDA applications, the services of an application
developer are used. A device provider will handle the supply and
maintenance of the PDAs. Finally, the Tourist Board has to negotiate
agreements with advertisers. The Tourist Board may cooperate with local
shops and tourist offices to ensure customers to be able to pick up and to
return the PDA’s at any address. Figure 5.4 provides an illustration of the
value network.

Application
developer
Application Distributor

Tourist Board

Content on
Content Content Content PDA Service
End user
provider aggregator provider Service and
distribution

Add Device and

space maintenance

Device
Advertiser
provider

Fig. 5.4. Hunebed case value network

Finance Design

The bottom line of the business model is addressed in the finance domain.
According to the STOF model, this involves the following design variables
(see Chap. 2): Revenues on the one side and Investments, Costs and Risks
on the other. The main issue is whether the service yields sufficient
revenues for all the parties involved to be compensated for their efforts,
costs and risks? First of all, the finance design outlines the revenue sources
and the cost-, investment and risk sources. Taking part in a value network
can have other, less tangible, benefits, in addition to monetary revenues,
for instance market expertise, access to a new technology or insight into
the business strategies of relevant business partners. With regard to the
viability of a business model, it is important to make sure that all the
parties involved somehow benefit, which means that finance design
124 H. De Vos and T. Haaker

outlines the Financial Arrangements that cover an acceptable Division of

Revenues, investments, costs and risks. The financial arrangements in the
Quick Scan will initially be based on the designs in the other domains
and on assumptions regarding cost levels, tariffs, and number of users,
et cetera.

The Hunebed Case: Finance Design

End-users will pay the Tourist Board a fixed daily rate of € 6. This price is
set to match the price of the competitive paper guides. Making a profit is
not a target for the Tourist Board, in fact, breaking even is enough. In
addition, advertisers will pay the Tourist Board for placing their location-
based ads on the PDA and directing customers to interesting offerings
along the way. Finally, the Tourist Board settles the account with the
application developer and device provider. The content providers think it is
such a charming idea that they do not need to be paid. They feel that taking
part in this project will help their reputation and promote their brand. The
distribution of the revenues is shown in Fig. 5.5.

Application
developer

Application development
€200.000 Distributor
Fee €6
Tourist Board
Fee €6

Content For free Content Service

End user
provider aggregator provider Fee €6

Advertisement Annual fee for lease

€100 €200 per PDA

Device
Advertiser
provider

Fig. 5.5. Revenue streams in the value network for the Hunebed case

As far as the technology design is concerned, a relatively ‘cheap’ and

basic solution is selected that does not involve any real-time data
exchange. This decision was made for financial reasons: the solution was
sufficient to deliver the value proposition at a reasonable price.
 Chapter 5 The STOF Method 125

Table 5.1. Hunebed case’s rough estimates of annual revenues, investments and
costs
Revenues
From usage, based on a € 6 fee per use and 15,000 customers € 90,000
Advertisements, based on 100 advertisers paying € 100 each € 10,000
Total revenues € 100,000

Investments
Development and maintenance application € 200,000

Exploitation costs
PDA lease, based on 100 PDA’s and € 200 fee per PDA € 20,000
Annual budget for marketing and communication € 10,000
TOTAL annual exploitation costs € 30,000

Annual result
Revenues € 100,000
Depreciation of investments (in 3 years) € 66,667–
Exploitation costs € 30,000–
Result € 3,333

Rough financial estimates can be made to form an impression of the

returns on investment. The estimates presented in Table 5.1 are based on
the availability of 100 PDA’s, which are expected to be used 150 days per
year. Including maintenance, the leasing costs for the devices is about €
200 per year. The development of the application and maintenance will
cost € 200,000 over a three-year period. Based on these assumptions, an
annual positive result of a little over € 3,000 is expected. Provided the
Tourist Board manages to realize the content aggregation and distribution
for this amount, the project will break even.

Balancing the Domains

After the Quick Scan has been carried out, there are four domain-related
designs that together make up the initial business model: a description of
the service and the intended value proposition, a value network, a technical
architecture and a financial model. It is likely that the requirements in the
four domains affect each other. Before moving on to the next stage –
evaluation – fine-tuning between the domains is relevant. Because the
Quick Scan design is relatively sketchy, this can be done in a quick,
relatively basic and qualitative way. Questions that drive the balancing
activities between domains are listed in Table 5.2.
126 H. De Vos and T. Haaker

Table 5.2. Balancing the Quick Scan domains

Service domain Technology domain Organization
domain
Technology Can the technology – –
domain design deliver the
value proposition?
Organization Is the value network Does the value –
domain able to deliver the network match the
service and its value technology
proposition? architecture?
Finance Are service fees in Are the estimated Has a win-win
domain line with the value investment regarding situation been
proposition? implementation achieved?
realistic?

To increase the balance between the domains, some simple adjustments

can be made to the business model before proceeding to the evaluation.
Additionally, the domain models can be checked superficially with regard
to their robustness, simply by asking what-if questions like: ‘What will
happen if one of the partners ends the participation?’, and ‘What if a
competitor offers a similar service?’

5.1.2 Step 2: Evaluation with CSFs

The evaluation of the Quick Scan design looks at how well the business
model satisfies the CSFs for business model viability. The CSFs have to do
with creating value for end-users (customers) and service providers, as
discussed in Chap. 3. The evaluation is based on the causal models
presented in Chap. 3, which state that design choices with regard to the
CDIs have a strong influence on the CSFs, and thereby on business model
viability as well. Consequently, the CDIs are of the utmost importance to
business model designers and managers. By carefully specifying the CDIs
they can positively influence the CSFs and as a result the business model’s
viability.
The evaluation in step 2 focuses on the CSFs. The underlying logic is
that a negative assessment of certain CSFs implies that there will be
bottlenecks in the business model’s viability, and that CDIs related to such
CSFs should be redesigned. Table 5.3 provides an overview of the CSFs
and CDIs that should be reexamined when a CSF is evaluated negatively.
For an elaborate description of CSFs and CDIs, we refer to Chap. 3.
 Chapter 5 The STOF Method 127

Table 5.3. Overview of the CSFs and their relationship to the CDIs
Critical Success Related critical design issues in the factors
Factors Service domain Technology Organization Finance
domain domain domain
Clearly defined Targeting, Accessibility to
target group creating value the target group
elements
Quality of Creating value Security,
the value elements, management of
proposition branding, user profiles,
customer accessibility to
retention the target group
Quality of Security, quality
the service of the service,
delivery Management of
user profiles,
system integration
Acceptable Partner
division of selection,
roles network
openness,
network
governance,
network
complexity
Acceptable Pricing,
profitability division of
investments,
valuing
contributions
and benefits,
division of
revenues
Clear joint Partner
strategy selection,
network
openness,
network
complexity
Unobtrusive Customer User profile
customer retention management
retention
Acceptable Valuing
risks contributions
and benefits,
division of
investments
128 H. De Vos and T. Haaker

The evaluation of the CSFs can be qualitative or quantitative in nature.

For example, the Quick Scan designer(s) or others may express a general
impression of the extent to which the CSFs are satisfied, or they may adopt
a more formal approach to scoring the CSFs. Hence, the results of the
evaluation in step 2 are a set of (qualitative) judgments on each of the CSFs
identified in the Quick Scan design, rating them as either satisfactory or
unsatisfactory. When at least one CSF is unsatisfactory, the CDIs related to
this CSF have to be refined or re-evaluated. In addition to reconsidering the
CDIs, it is also possible to add more detail to the core concepts.

The Hunebed Case: CSF Assessment

The assessment of the CSFs in the Hunebed case is summarized in

Table 5.4.

Table 5.4. Selection of CSF assessments for the Hunebed case

CSF Assessment
Clearly defined Positive. The service focuses on short breaks for senior
target group couples, a clearly defined target group
Quality of the Negative. The service supports these short breaks by offering
value proposition personalized tours and tourist information. It assumes that
such a service will appeal to senior couples, which ideally
should be confirmed, for example through market research.
Another issue has to do with the distribution of the service,
which is organized through the local tourist offices, with
specific opening hours. It is likely that the target group
requires a greater flexibility, such as more pick-up and drop-
off points, independent of opening hours
Quality of the Negative. To reduce the probability of a break-down, a
delivery system robust device can be chosen. Since connectivity is not an
issue, no problems are expected with regard to the
technology. However, a helpdesk should be available to
assist in case of any problems or questions
Acceptable Positive. The tourist board orchestrates the network,
division of roles contacts advertisers and is responsible for the distribution.
Since the service is a regional initiative without profit goals,
the division of roles is acceptable
Acceptable Positive. Advertising fees are low and advertisers expect
profitability additional revenues to outweigh their expenses. Profit is not
an issue for this service, although breaking even is desirable
Joint network Positive. The network consists of parties in the tourist sector
strategy that focus on bringing visitors to their region and to specific
sites of the network participants. The service offering is a
new way to realize this objective, which fits a joint strategy
 Chapter 5 The STOF Method 129

Quality of the Value Proposition and Quality of the Delivery System are
unsatisfactory. If we look at Table 5.3, this implies that several CDIs from
the service and technology domain, for instance Creating Value Elements
and Quality of the Service, should be reconsidered.

5.1.3 Step 3: Specification of CDIs

In this step, a selected set of CDIs is specified in greater detail, depending

on the evaluation of the CSFs in step 2. Generally speaking, there are two
ways to approach this refinement. Since CDIs are related to the domains as
well as the CSFs, one approach is simply to consider the CDIs for each of
the domains, while the other involves refining sets of CDIs for each of the
CSFs.
Refining CDIs for each domain starts with the service domain, for
example by addressing Targeting or Creating Value Elements. This may
lead to a redesigning or detailing of design variables like Market Segment
or Value Proposition. After that, the next domain is examined, and so on.
When all the CDIs have been refined, the domains have to be balanced.
This process is visualized in Fig. 5.6. If necessary, some of the basic issues
in the domains can also be reconsidered.

Service domain
Evaluation Specify
of CSFs relevant CDIs

Technology domain
Specify
relevant CDIs

Balancing
Organization domain domains
Specify
relevant CDIs

Finance domain
Specify
relevant CDIs

Fig. 5.6. Specification of CDIs per domain

The alternative approach involves re-evaluating sets of CDIs that have a

strong influence on the CSFs, i.e., following the evaluation of Step 2.
These sets consist of related CDIs in the various domains. For example,
Targeting in the Service domain and Accessibility in the technology
130 H. De Vos and T. Haaker

domain are both related to the CSF Clearly Defined Target Group’. Hence,
when the target groups are further specified in the Service domain, the
focus in the technology domain is on how these target groups are to be
given access to the service: Which technologies do they use? Do they need
to purchase specific equipments? The result will be a balanced technology
design with specific target group characteristics. When refining CDIs for
each CSF, attention is paid to balancing the domains automatically, due to
related CDIs. This approach is illustrated in Fig. 5.7. Also, this approach
will lead to redesigning or detailing design variables.
1. Clearly Defined Target Group
Evaluation Specify
of CSFs relevant CDIs

2. Quality of the Value Proposition

Specify
relevant CDIs

3. Quality of Service Delivery

Specify
relevant CDIs

4. Acceptable Division of Roles

Specify
relevant CDIs

5. Joint Network Strategy

Specify
relevant CDIs

6. Acceptable Profitability
Specify
relevant CDIs

7. Unobtrisive Customer Retention

Specify
relevant CDIs

8. Acceptable Risks
Specify
relevant CDIs

Fig. 5.7. Specification of CDIs per CSF

Refining a CDI involves a well-founded selection of a specific design

option for that CDI. Chapter 3 provides some general clues with regard to
the available choices for every CDI, and the consequences of specific
design choices. In addition, the balancing requirements are also described,
i.e. the relationships with other business model domains, and the criteria
that guide the selection of a specific design option. Table 5.5 provides an
example of the options, results, balancing requirements and criteria that
 Chapter 5 The STOF Method 131

apply to the CDI Targeting, which is linked to the success factor Clearly
Defined Target Group.

Table 5.5. Aspects of CDI Targeting

Design issue: Targeting
Options 1: generic service 2: aimed at a specific target group
Consequences Mass service Tailor-made solution
Balancing Fit between the set-up of primary processes (large-scale or
requirement small-scale, expertise areas), scale of services and wishes of
end-users
Criteria Access to specific target groups
Size of company and primary processes (small company fits
tailor-made solutions, large fits mass services)
Areas of expertise

The example provided in Table 5.5 is described in general terms. The

exact design options, consequences and criteria will of course be case
dependent. Determining these options and other elements is an important
part of the creative business model design process.

The Hunebed Case: Specification of CDIs

As far as the Hunebed case was concerned, the CSFs Quality of Service
Delivery and Quality of the Value Proposition were unsatisfactory. This
implies that the related CDIs should be refined or reconsidered. One of the
CDIs involved is Creating Value Elements, which refers to value creation
for the targeted users of the service, i.e. senior couples. Elements regarding
mobile ICT services that are relevant to the Hunebed case are accuracy,
support and distribution. Accuracy involves the exact positioning of the
users and an up-to-date map that contains sightseeing information and
small roads for hiking and cycling. This needs to be taken into account in
service development in the technology domain. The service aimed at a
target group that is not necessarily used to this kind of technology. A user-
friendly device and software are necessary, including support in case of
any questions and problems. The PDA could be equipped with a direct
telephone connection to a helpdesk. Alternatively, a help function or
frequently asked questions could be provided. Distribution is another value
element. The initial business model uses the local tourist offices for
distribution, which means users are dependent on a limited number of
pick-up points, with limited opening hours. Preferably, every small village
has at least one location where PDAs can be picked up and dropped off
132 H. De Vos and T. Haaker

throughout the day. This requires a network of distributors, a well-

designed PDA tracking and logistics system, and a way to reduce expenses
due to loss, theft and damage.

5.1.4 Step 4: Evaluation

The focus of the business model design process has been on realizing a
viable design, adding value for the intended customers as well as the
providers. Step 4 involves the evaluation with respect to robustness and
adaptivity. As we have seen in Chap. 2, business models evolve over time
under the influence of the external business environment. Robustness of
the business model has to do with the ability to cope with changes in the
business environment. Is the service, for instance, dependent on the
availability of complementary products or services which it does not
control? In addition to robustness, the business model’s capacity to adapt
to external influences is an important evaluation criterion. Typical
examples of external influences are changes in user requirements,
regulatory changes, emerging new target groups and changing scale of
operation, the application of a different revenue model or the incorporation
of a new technology.
Robustness may be assessed by asking what-if questions, for instance:

• Is the design of the technological architecture modular? If this is the

case, modifications to the technological infrastructure can be carried out
on a modular basis.
• Is there a vendor lock-in that makes it hard to switch between suppliers?
• Is the technological architecture capable of absorbing a new and cheaper
technology should such a technology become available on the market?
And what are the consequences with regard to the other domains?
• What will happen to the organisational and technology domain designs
should there be a huge demand for the service (100 times the estimated
demand)? What are the consequences of such an event with regard to
the other domains?
• What will happen to the Service design when it becomes clear that the
service appeals to other target groups than expected, for instance retail
customers rather than business customers?
 Chapter 5 The STOF Method 133

5.2 Applying the STOF Method

In the previous sections, we have provided a fairly generic description

of the ‘what’ of the STOF method. In short, the method consists of a
structured approach to designing a business model for an idea or concept.
The method includes questions and assignments that guide the designers
through the various domains. In addition, criteria are provided for internal
evaluation, i.e. whether or not the designers are satisfied with CSFs, and
external evaluation, i.e. whether the business model is robust and can adapt
to external influences. In this section, we take a look at how the answers to
the various questions and assignments may be obtained, i.e., how the
method can be applied.
The aim of the STOF method is to provide a structured approach to
designing viable, feasible and robust business models for (mobile)
services. As such, it is relatively unique, since many design methods
contribute little to service definition and design (see Chap. 1). To the
extent that similar approaches exist, they focus on project learning and
time to market (Blazevic, Lievens, & Klein, 2003), issues that are only
marginally related to our approach. For example, Quality Function
Deployment (QFD) (Clausing, 1994) is not very suitable for mobile
services, although an adjusted version aimed at mobile services is available
(Herzwurm, Schockert, Breidung, & Dowie, 2002). System engineering
lacks a multiple perspective approach. Van De Kar and Verbraeck (2007)
have developed a system engineering method that is inspired by the STOF
model.
Wohltorf and Albayrak (2005), describe how an investment decision
support system may be used to assess and evaluate the robustness and
viability of the business models of mobile services. Compared to our
approach, their method is more telecom-oriented and less flexible in the
specification of the design choices.
There are a number of ways to apply the STOF method. Depending on
the design goals, different ways of designing and discussing the business
model and of acquiring relevant business model data can be chosen. To
obtain relevant market data desk research, interviews, surveys and focus
groups can be used. For the discussion and actual specification of the
design choices, facilitated design sessions and action research can be
applied (see Table 5.6 for an overview).
134 H. De Vos and T. Haaker

5.2.1 Alternative Ways to Use the STOF Method

In Table 5.6, we provided an overview of common types of research with

regard to applying the STOF method. However, when it comes to applying
the method, there is no single success formula. Often, a variety of tools is
used, depending on the specific goals of a given business model design. In
this section, we discuss a few generic goals: gaining insight into the viability
of a new service concept, designing alternative business models for a
research prototype, and realizing a service design based on existing services.

Table 5.6. Overview of common ways of using the STOF method

Tools Description Typical use
Desk research Searching, analyzing Market scan, case descriptions.
and interpreting Relevant to all domains. Typically
literature applied in the Quick Scan or
refinement step
Focus groups Potential users discussing Discussing service domain issues.
service concepts Refinement step
Interviews Obtain individual Applicable in all steps. Relevant to
opinions and preferences all domains. Obtaining input or
feedback from experts, potential
users, stakeholders, et cetera
Workshops Discuss opinions, Applicable in all steps. Relevant to
exchange of ideas all domains. Alternative to
interviews
Market research Obtaining service Research into added value and
domain input from service domain issues in refinement
future customers and step
users, e.g. by surveys
User trials Pilot or try-out by users Evaluation of value aspects and
of a demonstrator or design choices. Typically this is a
prototype refinement step in the service and
technology domain
Investment Assessment of risks, Calculation of returns, investments
assessment uncertainties and tangible and costs in the refinement step. Cost
and intangible benefits price calculations in the Quick Scan
Design session Specific instance of a Relevant to all domains and all steps
workshop. Joint effort to
design the Quick Scan
Action research Action and critical reflec- Iterative business model design
tion in turns. The reflec- following the actual service design.
tion concerns review of Relevant for all domains and all
the previous action and steps
planning the next one
 Chapter 5 The STOF Method 135

Derive Insight into the Viability of a Service Concept

A Quick Scan, i.e., the design of a first draft of a business model, is

typically aimed at gaining insight into the viability of a service concept, to
decide whether or not to continue developing the service. Typically, this
involves some desk research, with a focus on competitive services and
price levels, followed by a design session, during which participants
together fill in the domains designs of the STOF model. Ideally, such a
design session involves four to six participants from different background,
e.g. marketing, technology and finance. Ideally, the participants represent
potential partners of the service provisioning network. Alternatively,
external experts can be invited to fill in certain knowledge gaps. During
the session, a made-to-measure workbook is used that explains the service
concept and the method, and that describes the questions and activities
involved.

Business Model Design for a Research Prototype

Often, research prototypes in the service area focus on technology

development, with user needs and requirements as input. When one of the
objectives is to transfer this prototype to the market, there is a clear need
for a business model design trajectory. Typically, the business case for
such a prototype is unclear. One of the ways to start such a trajectory is by
involving potential providers or stakeholders and using interviews,
workshops and/or desk research as a supporting methodology. Desk
research is aimed at finding potential partners or stakeholders, and creating
business model alternatives. In this respect, the organizational
arrangements and revenue models of related services can be used as
inspiration. In interviews and/or workshops, the service concept and
business model alternatives are discussed with potential providers and
other stakeholders. Another important issue addressed in the interviews is
the potential role of the interviewees in the service provisioning network.
The interviews result in an overview of the advantages and disadvantages
of the alternative business models. Additionally, stakeholders can be asked
to assess the CSFs with respect to the business model alternatives.
Examples of how to transfer research results to a business model are
provided in Chaps. 9 and 14, where mock-ups are used to evaluate the
service domain design. Chapter 16 illustrates an approach to design a
complete business model from a technological design, using multiple
design sessions with experts, supported by desk research. Chapter 17
provides an illustration of a process where a decision-making support tool
136 H. De Vos and T. Haaker

was used to assess the viability of business model alternatives with respect
to the relevant CSFs.

Develop a Service Based on an Existing (Successful) Service

Service concepts are often based on services that are implemented in

different contexts or with different objectives. The business models of such
services could provide a valid starting point for service concepts that
require a business model design. This means that the business models have
to be described according to the STOF model, i.e. including the four
domains as well as the CDIs. Additionally, some desk research and/or
interviews could be conducted to gain insight into the background and
context of the existing services, and to generate selection criteria for CDIs.
The resulting business model is analyzed with respect to the context of the
new service concept, i.e. the differences are identified. A common design
process can then commence, starting with a partially filled Quick Scan.
This approach can be combined with action research, as illustrated in
Chap. 13, where actual service design and business model design are
realized via iterations.
Chapter 6 What’s Next? Some Thoughts
and a Research Agenda

H. Bouwman, E. Faber, T. Haaker, and R. Feenstra

In this chapter, we conclude part I and provide an outline for further

research. We add some thoughts about topics that complement the issues
discussed in Part I, e.g. with regard to service bundling and service
composition, business processes, and the internal and external validity of
our approach. We will also introduce the application chapters that will be
presented in Part II of this book.

6.1 Summary and Outlook

In part I, we discussed the relevance of service innovation in generic

terms. Service innovation is becoming more and more important in our
current service-oriented economy. We discussed trends and drivers that
stimulate service innovation and defined our core concepts. Our focus
is on the design of (mobile) service(s) (bundles) and their underlying
business models. At the moment, there is no common framework for
service design, nor is there a common framework for designing business
models. In the first part of this book we have tried to develop these
frameworks.
Chapter 2 discussed the theoretical foundation for our business model
approach, defining the business model concept as well as the core concepts
and specifying the relevant concepts in the business models domains. We
looked at the interdependencies within as well as between the domains. In
Chap. 3, we discussed the core concepts from a design perspective, and
discussed the Critical Design Issues (CDIs), and the requirements that have
to be balanced for the four specific domains: service, technology, organi-
zation and finance. We also introduced the more analytical perspective,
directed at the explanation of the viability and feasibility of business
models, by looking into Critical Success Factors (CSFs). We want to
understand what the effects are of specific choices and what really
138 H. Bouwman, E. Faber, T. Haaker, and R. Feenstra

contributes to the viability and feasibility of a business model. In Chap. 4,

we discussed the mobile context, looking more specifically what kind of
services are relevant, how technology plays a role both as a driver as well
as an enabler of services, and we discussed main trends in the organization
domain. In Chap. 5, we introduced the STOF design method in more
detail, and illustrated the use of this method in a generic way by discussing
a case, that was supportive in developing our approach. In the next part of
the book we will discuss some real life cases in which the model as well as
the design method were used.
Although our approach has been applied in several cases, as we shall see
in the next part, we are aware of some limitations to the STOF model and
design method. First of all, we adopt a service provider perspective with a
focus on realizing customer value. We are aware of user-centered, and
even group or we-centered design approaches. However in this book we
don’t focus on this aspect, although it is an important aspect of our
research, see Steen, Van Eijk, Gunther, Hooreman, and De Koning (2005).
Another limitation has to do with service concepts and creating
awareness of the issues that are at stake when trying to understand the
implications with regard to technical choices and organizational inter-
dependencies. The STOF model helps structure discussion concerning
the financial issues, i.e. investments, risks and pricing, and helps in the
transition from a service concept towards a service that can be implemented.
Nevertheless we are aware that, at a practical level, the implementation of
the services requires a more detailed analysis of the processes that are
relevant, both from a provider’s perspective and from the point of view of
mobile services that are intended to support business processes. With
regard to consumer services this is relevant, although we really have to
understand how the use of mobile services can be embedded into day-to-
day practices of users as well as of users that work in organizational
processes, and where mobile applications have to support them.
In this book, we touch on (mobile) service bundles in several places, but
in most cases a single (mobile) service is developed or analyzed.
Elsewhere, we studied mobile service bundles for a consumer market
(Bouwman, Carlsson, Molina-Castillo, & Walden, 2007). Based on this
research, we may assume that services in a common domain can often be
bundled in a meaningful way: specifically entertainment services, mobile
(travel) commerce services, mobile Internet services, as well as mobile
security and localization services. Consumer surveys provide relatively
general patterns with regard to what mobile services consumers prefer.
More detailed study of service bundling, for instance based on conjoint
analysis, result in more concise and coherent bundles (see, for instance,
 Chapter 6 What’s Next? Some Thoughts and a Research Agenda 139

Bouwman, Haaker, et al., 2007). Starting from definitions of services

bundles (what services should be bundled), the relevant question is how
bundles can be designed and enabled using common components that are
part of or supporting specific mobile service bundles (the how question).
Insight in how to bundle may open further research paths.
This brings us to more practical questions regarding implementation.
Due to the holistic nature of our approach, we are aware that tools
supporting the implementation of services are needed. This is an important
topic for future research. In the next section, we describe three core issues
we think may merit closer research. In addition to the practical impli-
cations, more academic concerns about the validation of the dynamic
business model framework, and the effectiveness and performance of the
design method need further attention. The predictive validity and
robustness of our models also require further research. These issues will be
discussed after a discussion of the more practical implications.

6.2 Practical Implications

Three core issues are at stake when discussing the practical implications of
our design framework. The first has to do with the support of the service
design with more practical marketing-related tools, the second with how
bundles of services can be composed, and the third with the embedding of
services in the existing business processes of the organizations involved.

6.2.1 Support Tools

The first question is how to get from high-level service definitions and
business models to a more specific, down to earth and practical
implementation. Our design method provides generic guidelines and
approaches, and includes options to use more elaborate, focused and/or
detailed methods and tools. In Chap. 5 we give some indications about
which methods and tools can be helpful, but we don’t offer a systematic
overview of how to deal with specific issues. For example, e3value
(Gordijn & Akkermans, 2001) provides an ontological approach to
modeling networked value constellations. In some of the cases that will be
presented in the next part, the need for more detailed methods and tools
was felt. In a next phase of our research into service business model, we
will provide additional tooling and practical manuals on how to use our
design method.
140 H. Bouwman, E. Faber, T. Haaker, and R. Feenstra

6.2.2 Service Bundling and Service Composition

Composing service bundles requires careful analysis and selection of

services that complement or supplement to each other. Empirical research
among users helps to gain insight into which service bundles may be
favored by users, but still than the question remains how specific services
have to be composed, which specific service components are available and
which have to be used. Generic service components are for example
security, privacy enhancement, and billing. Such service components can
be used to constitute a service when combined with specific functional
applications.
In general, decisions regarding the composition of a service are taken
within a network of different actors and aim at implementing the
technology design. Service Oriented Architectures (SOA’s) may provide a
starting point for the discovery and execution of relevant services.
However, an accepted standardized way to describe the characteristics of
services is still missing. Recent developments have extended the SOA
paradigm with the use of semantics and ontologies in order to be able to
define the service characteristics. The paradigm of the semantic web can
be used to extend current web services standards that lack the means
to express non-functional attributes of services (reliability, availability,
response-time, perceived user experience etcetera). These attributes are
key to dynamically selecting the services that best meet user needs
(Maxmilien & Sigh, 2004).
To constitute services and service bundles use can be made of a service
composition method that supports the process of relating several services
and service components. During the process it is decided which
service components should be included. Such service components are
commonly provided by different suppliers, such as GIS-providers providing
location information services, and third parties or mobile telecom operators
providing generic services like security, privacy-enhancing applications and
billing services. The service composition process consists of three stages.
These three phases are part of the exploration phase of the development of a
service (bundle) and the supporting business model:

• During the orientation phase, an initial technical design is developed

where services or service bundles to be developed are described only
in general terms, and there is an initial idea about the generic,
supplementary and complementary services that may be used. Typically
such a design is the result of applying the STOF method.
• The negotiation phase is where parties decide – in cooperation – which
services and service components are needed, who will deliver which
 Chapter 6 What’s Next? Some Thoughts and a Research Agenda 141

services and what the specifications of these services will be. This is an
essential phase, as the actors should have a common understanding of
the end service to be delivered, and the role of constituting services in
the final end-user service.
• The moment agreement is reached regarding the services to be used and
their specifications, the composition can be realized. Subsequently, the
implementation phase starts, in which the combined services (the
composition) are realized and tested in an experimental setting or on a
test market.

Reaching agreement regarding service composition is a crucial step in

the process. All parties in the value network should be aware of what can
be expected, since the impact of a failure can be substantial Technical
problems that can occur are for example related to integration of legacy
systems and lack of suitable interfaces. Dependencies between services
and service components should be clear, consequences of failure should be
made explicit and should be discussed in the value network. Conflicting
interests between actors might also be a bottleneck.
Regarding the process of service composition, it is important to specify
requirements as a first step (Dym, Agogino, Eris, Frey, &, Leifer, 2005).
This includes functional and non-functional requirements. The functional
requirements all relate to the purpose of the composition, and to the tasks it
has to accomplish. The non-functional requirements relate to the Quality of
Service aspects, e.g. the overall reliability and availability. Another issue
during the service composition process is to consider alternative services
and service components, such that, in case one of the generic services fails,
alternative compositions can be used. We feel that further research into
service bundling and composition is an important next step in research into
service innovations, and business models.

6.2.3 Business Models and Business Processes: Towards

a Modeling Approach

Starting from the service bundling and service composition perspective, it

will be clear that the processes that support the development, execution,
operational use and management of services and service bundles are highly
relevant. It is necessary to understand business processes in order to
describe their relationships with business models. “A process is a specific
ordering of work activities across time and place, with a beginning, an end,
and clearly identified inputs and out-puts: a structure for action”
(Davenport, 1993, p. 5). Business processes are discussed at great length in
142 H. Bouwman, E. Faber, T. Haaker, and R. Feenstra

existing literature. Various researchers consider them in terms of redesign

or innovation (for example Davenport; Hammer, 1990; Melão & Pidd,
2000; O’Neill & Sohal, 1999; Teng & Kettinger, 1995). Many studies are
also dedicated to the modeling of business processes (for example
Bergholtz, Jayaweera, Johannesson, & Wohed, 2003; Dietz, 1996;
Gordijn, Akkermans, & Van Vliet, 2000; Law & Kelton, 1982; Melão &
Pidd; OMG, 2006; Recker, Indulska, Rosemann, & Green, 2005) and the
influence of IT (for example Mooney, Gurbaxani, & Kreamer, 1995; Teng
& Kettinger). Business processes are the underlying processes responsible
for the deliverance of services. Designing business processes, which have
to be in place to enable specific services, requires a cross-functional view;
this often means that process design adopts a top-down approach, because
designers are the only actors with an organization-wide view. This does
not mean, however, that other actors should not be involved in the process.
The people performing the actual processes are just as important a source
of information, and the same applies to customers. To delivering services
in today’s networked world, inter-organizational processes have to be
taken on board, which is why Davenport opts in favor of a ‘networked’
view of processes. Designing business process involves the modeling of
the business process as they are and as they should be. In the next section,
we describe process modeling and the various available techniques.
Process modeling. Process modeling involves the graphical represent-
ation of actual processes. The various modeling techniques offer a
standardized approach to bridging for the gap between the business
process design and process implementation (White, 2004). Many
techniques involve the use of ICT tools and are developed in computer
sciences. Process modeling, however, is somehow distinct in that the
modeled phenomena are to be interpreted by humans rather than machines
(Curtis, Kellner, & Over, 1992). Different goals require a different view on
modeling and different levels and objects of modeling. According to Curtis
et al. and Giaglis (2001), there are four perspectives that are most
commonly used:

• The functional perspective represents the process elements that are

being performed, and the flows of informational entities (e.g., data,
artifacts, products) that are relevant to these process elements.
• The behavioral perspective indicates when process elements are
performed (e.g., sequencing), as well as referring to aspects of how they
are performed through feedback loops, iteration, complex decision-
making conditions, entry and exit criteria, etc.
 Chapter 6 What’s Next? Some Thoughts and a Research Agenda 143

• The organizational perspective refers to where and by whom (which

agents) in the organization process elements are performed, the physical
communication mechanisms used for the transfer of entities, and the
physical media and lo-cations used to store entities.
• The informational perspective represents the informational entities
produced or manipulated by a process; these entities include data,
artifacts, products (intermediate and end) and objects; this perspective
also includes the structure of informational entities.

In recent years, many different modeling techniques have emerged,

many with a practical origin and few with a theoretical origin. Examples
are Archimate (Lankhorst, 2005), BPMN (business process modeling
notation), UML (Unified Modeling Language), simulation modeling and
soft system modeling. Many more modeling approaches exist, such as
ebXML, Action workflow, Business Action Theory, Resource-Event-
Agent framework (Bergholtz et al., 2003). However, from a service and
service bundling and business models approach, it is important to
understand the general background behind these approaches and the degree
to which they are applicable for our purposes. Although business models
and business process models have different purposes, they are closely
related. Choices that are made in one of the models are bound to influence
the other model. There is a lack of methods designed to translate business
models into business processes. Further research in this area is required.
In future research, we will therefore focus on developing of a tool or
architectural approach that combines the more abstract STOF model that
support service innovation with more practical and operational business
processes, in order to model the value, and information exchanges, as well
as the exchange of resources and capabilities at a process level, making it
possible to relate service business models to the business processes that
support them.

6.3 Academic Implications

From an academic point of view, we have only just begun working on the
validation of our concepts and model. Moreover, we also are looking for
possibilities to reflect on our business model approach in terms of
robustness and predictive validity. In this section we deal with these three
issues in greater detail.
144 H. Bouwman, E. Faber, T. Haaker, and R. Feenstra

6.3.1 Business Models and the Testing of Core Concepts

and Causal Models: Internal and External Validity

In Part I, we did describe how concepts and ideas with regard to service
innovation and business models evolved from definitions of the core
concept toward a development and design method, and subsequently the
development of causal models. These causal models are not only related
to how we can understand the dynamic relationship between external
conditions, phases and the customer and network value of our models, but
also to the causal relationship between CDIs, CSFs and the value for the
consumers and providers of the services. One of the core problems with
regard to these analyses is that the number of cases available to us, as well
as the nature of the information that we need in order to be able to do
rigorous testing, is limited. Cases are not always as rich as we expect them
to be, the information we need is only partially available or accessible,
specifically with regard to financial data, and cases are of an unequal
magnitude or scale (see also Chap. 7). It is clear that further validation
is required, but that practical conditions hinder a rigorous validation.
Nevertheless, we have the opportunity to test our concepts in an indirect
way, by looking at the research perceptions of the business developers,
designers and managers involved in projects regarding innovative mobile
services and their business models.

6.3.2 Validation of our Design Method

As we have seen, the STOF method is useful in the early phases of

innovation: in exploring and contemplating different ideas and options, i.e.
the innovation process is modeled as subsequent phases and iterations,
where each phase consists of a divergent (generating ideas) and a
convergent (choosing and detailing ideas) part (Buijs, 1984; Buijs &
Valkenburg, 1996). In the design sessions of the STOF method, insights
are used from creative techniques like brainstorming and boundary
examination, insights that facilitate – in a relatively ‘free format’ – the
generation and specification of ideas. The method may be applied
whenever people set out to envision and develop business models for
innovative services that require cooperation between (a number of) parties.
As we have seen, the method consists of a number of steps. In Part II of
this book, we will show that it can be used to approach a broad range of
topics. Thus far, we have conducted a limited amount of work with regard
to the evaluation of our approach. In an explorative research project
(Bouwman, Faber, &, Van Der Spek, 2005), we have looked at the effect
 Chapter 6 What’s Next? Some Thoughts and a Research Agenda 145

of using specific parts of our method, the role of the facilitator and the
nature of the topics that are being discussed, on the performance of our
design method. This research, which is both qualitative and quantitative in
nature, was based on six sessions in which the STOF method was used.
The study confirmed the usefulness and value of the method. The results
provide sufficient reasons to continue our business model research in the
direction that we have chosen. We have since conducted a larger number
of sessions and used the method in a number of projects that resulted in
mock-ups, prototypes, and even some services that have been brought to
the market. Having said that, we realize that further research is needed into
the performance of our approach. Future work will have to focus on of
improving the evaluation and validation tools, which in turn will yield
improved versions of the STOF method.

6.3.3 Business Models and Wind Tunneling: Predictive Validity

The STOF method includes a validation of robustness of the business

model design, mainly focused on the way the design can adapt to external
changes. For further testing the robustness of our business model approach
and the business models use can be made of knowledge from futures
studies and our experiences in analyzing existing business models on the
one hand, and the development of business models on the other. Futures
research explores, captures and describes possible alternative futures
(Miles, Keenan, & Kaivo-Oja, 2002). It has yielded various approaches to
investigating future developments, examples of which are scenario
analysis, back-casting, road-mapping, normative forecasting and foresight.
Increasingly, different methods are being combined (Bouwman & Van Der
Duin, 2003). Scenarios provide insight into the way the future may
develop, based on clearly defined assumptions concerning the relationship
between relevant developments. Usually, these developments are based on
input from other methods of futures research, such as trend analysis.
Relevant trends serve as the primary axes along which the alternative
scenarios are constructed. A proper scenario study addresses criteria like
plausibility (scenarios are not science fiction), consistency (preventing
combinations of mutually incompatible trends), completeness (scenarios
are more than variations on a theme) and the validity of the underlying
assumptions (Van Der Heijden, 1996). Business model evaluation with
scenarios is relevant when future market circumstances, technology
developments, regulations etcetera, are uncertain, which is often the case
for the mobile industry. Scenario methodology is a powerful tool for
thinking through the implications of business model choices. Rather than
146 H. Bouwman, E. Faber, T. Haaker, and R. Feenstra

assuming a fixed (often implicitly assumed) future, scenarios offer a range

of possible outcomes used not as predictions or forecasts but more as
‘wind tunnels’ for plans or policies. Using scenarios the uncertainty
regarding the future marketplace can be harnessed, and business model
choices can be evaluated and possibly adapted. The business models are
described in terms of design choices within the business model domains.
Future scenarios are defined in terms of the outcomes of scenario
indicators. We can assess the impact of the indicator outcomes on the
business model design choices. Such analysis provides insight into design
choices which can be regarded as robust, i.e. choices that are valid in
multiple future scenarios. If certain design choices are not robust, they may
be changed to provide more carefully tuned business models that fit certain
future scenarios. This provides the flexibility to adapt a business model to
changes in the environment.
Furthermore, we feel that the STOF model and method provide
important elements in the strategic analysis of scenarios. Evaluation based
on scenarios allows us to determine what the relevant concepts are and
how they are interrelated, and how they can be used in everyday practice,
which in turn helps us improve our method of design. This is one of the
ways we test the usability of the method, the relevance of our
conceptualization and the robustness of our approach. We have used this
approach in a specific case that deal with services of intermediaries in the
financial service industry (Bouwman et al., 2005), in which it proved to be
very valuable. Chapter 11 illustrates the use of scenarios for business
model evaluation for the IPTV business model domain. Generally
speaking, it is our impression that scenario analysis helps establish the
robustness of a business model.

6.4 Introduction to Part II

In Part II of this book, we shift our focus from the description and
conceptualization of our business model framework toward the actual
application of the STOF model and method. The cases themselves, and the
goal and results of applying our model and/or method, vary considerably.
The diversity of applications are proof of the generic applicability of our
approach to the business models development in different mobile services
domains and sometimes even beyond, i.e., for e-services in general. In all,
we have included eleven cases. Some applications have as their primary
objective the validation of (parts of) the STOF model. In Chap. 7, the
validation of (critical) design issues and success factors for business model
 Chapter 6 What’s Next? Some Thoughts and a Research Agenda 147

viability is addressed from a practitioner’s point of view. The question is

whether practitioners actually agree with the CDIs and CSFs we have
identified and presented in Chap. 3. A large-scale international survey
among operators, service and content providers, application developers and
experts dealing with mobile services sheds light on this question. In Chap. 8,
we look at how the dynamic STOF model works in practice. It shows how
the dynamic business model framework discussed in Chap. 2 can help in
analyzing the dynamics of business models in a structured approach. As
such, it provides a validation of the relevance of the external drivers for
change in a business model, i.e. technology, regulation and market, in the
phases of the business model life cycle that we identified. Other case studies
use the STOF model mainly for analytical purposes, e.g. to identify the most
important CDIs or to assess the robustness of business model design choices.
In Chap. 9, the service concept and underlying business model for a context-
aware, we-centric service for police officers is considered. The we-centric
concept and the specific police context point to Creating Value Elements
and Network Governance as the most important CDIs. Mobile payment
services, in Chap. 10, have two types of customers (buyers and merchants)
and require service providers to find a balance between the interests of end-
users, merchants, operators and financial institutions. We use the STOF
model to analyze how three different mobile payment providers tried to
position themselves in an emerging mobile payment market. Chapter 11
concerns the evaluation of the robustness of mobile service business models,
which is a difficult task, albeit a necessary one when it comes to achieving
some predictive validity according to the discussion in this chapter. In this
chapter scenario analysis is used to assess the robustness of business model
for digital television services. Chapter 12 deals with mobile service bundles.
Mobile services may sometimes be bundled into meaningful service
bundles, e.g. to satisfy related user needs. From a business model
perspective, both what should be bundled, and how it should be bundled are
relevant questions, as discussed earlier in this chapter. In Chap. 12, these
questions are addressed by looking at CDIs that relate directly to the
bundling of mobile services. The ‘what’ question leads to issues like bundle
composition, whereas the ‘how’ question refers to issues like service
integration and bundling strategy.
Finally, we have considered cases in which the STOF method is primarily
used to design business models for specific service concepts. Often, the
design of the business models is followed by some form of analysis, i.e.
cross-case comparison (when multiple service concepts are involved) or
within-case comparison (when business model alternatives are compared).
In Chap. 13, the STOF method is used to design a business model for
the introduction of a mobile remittance service in a developing country.
148 H. Bouwman, E. Faber, T. Haaker, and R. Feenstra

The design was preceded by an analysis of the business model of a

remittance service in another developing country. The analysis of the
existing service on the basis of the STOF model proved helpful in
identifying and guiding the design of the most relevant CDIs. It provides
an example of how existing business models may be analyzed and
translated to new contexts. Chapters 14–17 address the important question
of how to move from a research mock-up or prototype to actual market
exploitation. This is quite problematic in practice as many prototypes
never make it past the pilot phase, and financial returns on investments in
innovation are often perceived as being too low. A more systematic
approach to new service development and underlying business could be
beneficial here. Chapters 14–17 provide examples of how the STOF model
and method may at least partially provide such a systematic approach. In
particular, Chap. 14 shows how the STOF method can be used to assess
the business potential of the kind of project mock-ups that are often
created in technology-oriented projects for the purpose of demonstration or
user testing. However, the mock-ups can also be analyzed from a business
perspective. The analysis reveals, for example, which mock-ups should not
be pursued, given the apparent lack of business potential. In Chap. 15, a
music vending service for a newly industrialized country is examined, in
which the STOF model provided the relevant questions with regard to the
design of the service; in particular the CDIs were carefully considered.
Chapter 15 also provides insight into how the information needed to
answer the questions was obtained, e.g., via interviews and user prototype
testing. In Chap. 16, we look at a mobile health service, using the STOF
method to bridge the gap between a research prototype and an actual
service offering. Basically, the approach used is the Quick Scan we
discussed in Chap. 5. Several business model design sessions were
organized to discuss and identify the necessary design variables. An
interesting observation was that the existing prototype is a high-end
solution that may not be suitable for commercial exploitation, at least not
with regard to the basic service considered most viable in the near future.
Chapter 17, finally, provides another example of a healthcare service,
albeit not of a mobile nature. In this case, the STOF model was used to
design and compare the value networks of alternative business models
for a personalized information system providing tailored information
regarding services for people suffering from dementia and their informal
caregivers. Even though the customer and societal value of such a service
may be evident, the design of a viable business model and a business case
is problematic. In particular the CSFs were used to assess alternative
business models with different focal actors. A decision support tool aided
the practical implementation of the evaluation of the CSFs.
 Chapter 6 What’s Next? Some Thoughts and a Research Agenda 149

Table 6.1 summarizes all application, showing the primary purpose of each
case (validation, analysis, design), as well as other case characteristics, i.e. the
number of services considered in each case (single, multiple), the degree of
domain specificity (generic, specific), the focus of the cases (business model
domains, CDIs, CSFs), and finally the target market\b2b, b2c).

Table 6.1. Overview of the applications of Part II and their characteristics

Chapter Purpose Single or Domain Focus Target
multiple specificity market
services
7 Critical design issues Validation Multiple Generic CDIs b2c
and success factors:
practitioner’s view
8 The dynamic business Validation Multiple Generic Domains b2b
model framework in and CDIs and
practice b2c
9 A we-centric service: Analysis Single Specific Domains b2b
the PolicePointer and
b2c
10 Balancing customer Analysis Multiple Specific Domains b2c
and network value in and CDIs
mobile payment
services
11 Robustness of IPTV Analysis Multiple Specific Domains b2c
business models
12 Mobile service Analysis Multiple Generic CDIs b2c
bundles
13 Mobile remittance Design Multiple Specific Domains b2c
services in developing
countries
14 Assessing the business Design Multiple Specific Domains b2c
potential for new
mobile services from
mock-up evaluation
15 Digital music vending Design Single Specific Domains b2c
machine and CDIs
16 From prototype to Design Single Specific Domains b2b &
exploitation: mobile b2c
services for patients
with chronic lower
back pain
17 From prototype to Design Multiple Specific Domains b2c
exploitation: Organi- and CSFs
zational arrangements
for Personalized
Dementia Directory
150 H. Bouwman, E. Faber, T. Haaker, and R. Feenstra

Part II starts with the chapters on the validation of the STOF model. The
subsequent chapters focus on the analytical uses of the STOF model and
method. The final chapters focus on the application of the STOF method in
designing business models.
Part II Applications
Chapter 7 A Practitioner View on Generic Design
Issues and Success Factors

M. De Reuver and H. Bouwman

What are the generic design issues and success factors for mobile business
models that practitioners find the most critical? In Chap. 3, we defined
Critical Design Issues (CDIs) as topics that need to be addressed in the
service, technology, organization and finance domain of business models.
Ultimately, Critical Success Factors (CSFs) predict whether a business
model will be viable, i.e. whether it will create sufficient value for customers
and capture sufficient value for the providers of the service. Generic design
issues and success factors are in contrast to critical design issues and success
factors not directly related to a specific to be designed service. This chapter
deals with practitioners’ views on such generic issues and factors.
The design issues and success factors are derived from a set of
exploratory case studies (see Chap. 3). The question is whether they are
supported by a broader group of practitioners, dealing with business
models that we did not study before. Do the various types of players in the
industry agree on which generic design issues and success factors should
be addressed? And are they of equal importance throughout the business
model life cycle? In this chapter, we address these questions by presenting
the results of an international survey among operators, content providers,
application developers and experts dealing with mobile services.
We start with a brief discussion of the methodology underlying the
survey. Next, we present the results regarding design issues, discussing
their relevance in general and in relation to the type of organization and the
phases in the business model life cycle. Similarly, we present the results
for the success factors.

7.1 Research Methodology

The data were collected through an online questionnaire between

September and November 2007. The respondents were presented with a
questionnaire containing the list of design issues and success factors from
154 M. De Reuver and H. Bouwman

Chap. 3. They were asked to rate the extent to which they take these issues
into account when designing services. To put the questions into context,
we asked respondents to focus on their most important service offering.
Additional questions were included regarding the type of organization of
the respondents.
Finding respondents for such types of surveys is challenging, keeping in
mind that there is no database that contains all the relevant practitioners in
the mobile services industry. In total, 521 directed invitations were sent
out, resulting in 137 business participants and 16 academic experts. The
reasons provided for not taking part in the survey were lack of time, lack
of expertise to answer the questions and no interest in the study. A specific
group of non-respondents consisted of hardware providers and network
manufacturers, who commented they did not feel involved in mobile
services, but only with technology platforms. Several academics also
turned down our invitation, predominantly because they felt they had
insufficient expertise to answer the detailed survey questions.
The final sample contained 153 respondents, 78% of whom came from
industry, with 22% academic and consultancy experts. Although the survey
targeted an international audience, most respondents are from the
Netherlands (64). Other regions included in the sample are Scandinavia (18),
Germany (9), USA (8), Austria (7), UK (6), Italy (6), France (3), Latin-
America (2), Asia (1), Australia (1), South-Africa (1) and other European
countries (7). Most industry respondents work at organizations that have
been active in the mobile domain since 2000 (65%), while 35% work at
organizations that were active even before that date. Similarly, 41% of the
respondents were active in the mobile field before 2000, while 59% entered
the domain at a later date. Our sample represents a wide variety of ‘most
important services’, including advertising, banking, blogging, communi-
cation, e-mail, entertainment, erotic, games, health, Internet, location-based
services, news, office, portal, radio, sports information, streaming, surveys,
transport information, TV, user-generated content, weather information and
workforce management. Of the total number of respondents, 32 adopted the
point of view of a (virtual) network operator, 20 that of an application/
software provider, 27 that of a consultancy firm, 31 that of a content/service
provider, publisher or content aggregator, and only three that of a
hardware/equipment manufacturer.
Of the organizations in our sample, 77% collaborate with other
organizations to provide a service. They interact on a day-to-day basis with
no (27%), one (20%), two (19%), three (15%), four (6%), five (4%) or
even more (10%) organizations.
Chapter 7 A Practitioner View on Generic Design Issues and Success Factors 155

The survey included questions relating to the respondent’s core

activities, to determine in which phase of the business model life cycle the
companies for which they work find themselves (see Chap. 2). Of those
that completed these questions, 18 services are in the Technology/R&D
phase, 29 in the Implementation/Roll-out phase, and 33 in the Market
phase. Strikingly, 74% of the content/service providers are in the Market
phase. Apparently, content providers choose as their ‘most important
service’ one that is in its commercial stage rather than one that is still
being developed or rolled out. With regard to application developers, 57%
are in the Implementation/Roll-out phase. Probably, they choose these
types of services as their most important services as implementation and
integration are their core activities. In this phase testing first versions of the
application and rolling out technology are core issues. As far as operators and
consultants are concerned, the number of respondents per phase is balanced.

7.2 Design Issues

This section presents the results of the generic design issues’ importance
based on 119 completed questionnaires. The respondents were asked to
what extent they took the design issues into account, on a 7-point scale
ranging from ‘not at all’ (1) to ‘great extent’ (7).
The most important design issue in the service domain is Defining the
Target Group (see Table 7.1). The second most relevant issues are Trust
and Branding. Overall, all design issues appear relevant, as their score is
remarkably higher than 4. The standard deviation varies between 1.2 and
1.6 for the service domain issues, which indicates mixed opinions.
In the technology domain, the most important issues are Quality of
Service and Accessibility for Customers. What is interesting here is that
Accessibility for Customers is viewed as being considerably more important
than Accessibility to Content Providers. User Profile Management is
considered less important. Presumably, many of the services that are
currently being developed do not yet use profiling techniques. It is also
possible that these techniques are not being used because authenticating
users is difficult for content providers. The design issue Security shows a
remarkable pattern: while the average rating is only 4.9, the rating that is
given most often is 7, i.e. ‘Great extent’. This indicates that opinions among
the respondents vary considerably. The average score for technology design
issues exactly equals the average score in the service domain, which means
that the two domains can be considered equally important.
156 M. De Reuver and H. Bouwman

Table 7.1. Importance of design issues – service and technology domain

(N = 119)
Service design Average Standard Technology design issue Av Stdev
issue deviation
Defining the 5.60 1.20 Quality of Service 5.89 1.08
Target Group
Trust 5.32 1.31 Accessibility for Customers 5.74 1.14
Branding 5.31 1.28 Scalability 5.19 1.51
Personalization 5.13 1.47 System Integration 5.10 1.41
Unobtrusive 5.06 1.39 Use of Accepted Standards 5.04 1.49
Customer
Retention
Versioning 4.61 1.61 Security 4.93 1.63
Accessibility to Content 4.77 1.49
Providers
User Profile Management 4.68 1.66
Average 5.17 Average 5.17

Generally speaking, design issues with regard to the organization

domain are considered to be less important than those in the service and
technology domains (illustrated by the lower average rating and higher
standard deviation on all items in Table 7.2). Especially Outsourcing is
considered relatively unimportant, although the high standard deviation
indicates mixed opinions among the respondents. More important design
issues in this domain are Customer Involvement in the service domain and
Partner Selection in the organization domain.

Table 7.2. Importance of design issues – organization and finance domain

(N = 118)
Organization design Average Standard Finance design issue Av Stdev
issue deviation
Customer 4.95 1.48 Pricing 4.91 1.67
Involvement
Partner Selection 4.87 1.47 Investment Planning 4.30 1.40
over Time
Network Governance 4.68 1.35 Valuing Contributions 4.22 1.54
and Benefits
Orchestration of 4.61 1.39 Division of Costs and 4.21 1.48
Activities Revenues
Network Openness 4.53 1.55 Division of Investments 3.94 1.35
Outsourcing 3.83 1.67
Average 4.75 Average 4.32 1.67
Chapter 7 A Practitioner View on Generic Design Issues and Success Factors 157

Finally, in the finance domain, Pricing stands out as the key issue.
Topics relating to dividing investments, risks, costs and revenues among
partners are considered less important. However, it should be noted that
more than a quarter of the respondents indicate that, because they do not
work together on a day-to-day basis with other organizations in providing
the service, this type of financial issues is less important to them. The
average ratings in this domain are lower than in the other domains.
Overall, we find evidence that suggests that all design issues are
relevant. With the exception of two of the design issues (i.e. Outsourcing
and Division of investments), all are given a score above 4. This
indicates that the respondents do take them into account when they design
a service. We find that service and technology-related issues are perceived
as being slightly more important than organization issues and far more
important than finance issues. Given that service and technology issues
are related to creating value for customers rather than capturing value
for the providers, organizations appear to focus more on value creation
than on value capturing.
Based on the fact that organization and finance-related design issues are
given less attention, one might argue that this explains why many mobile
services turn out to be less profitable than expected. While organizations
seem more comfortable when they are dealing with service and technology
issues, the more strategic organization and finance-related issues do not
appear to receive sufficient attention. This may indicate that there is a need
for greater awareness with regard to organization and finance-related
issues, and for the development and diffusion of theories and tools to deal
with these issues. On the other hand, the fact, that more than a quarter of
the respondents does not work together with other organizations in
providing the service, may also explain part of the lower ratings.

7.2.1 Importance of Design Issues Related to Type of Organization

Different players care about different issues. When comparing the ratings
of design issues, there are variations among the four most prominent
organization types in our sample, i.e. operators, content providers,
application providers and consultants. The variations are presented in Fig.
7.1, on a 7-point scale for importance, ranging from ‘not at all’ (1) to
‘great extent’ (7).
In the service domain, it appears that Branding and dealing with
different versions of the service (Versioning) are considered less relevant
by consultants. On the other hand, Personalization is considered more
important by application providers. This may be because personalization is
158 M. De Reuver and H. Bouwman

especially driven by advances in software platforms that are dealt with by

application providers.
Although in the technology domain there are not many differences, it is
interesting that content providers do not take System Integration and
Security into account to the same extent that the other organizations do.
This could be because these issues are typically solved within applications
or within an operator’s network, which means it is less of an issue as far as
content providers are concerned. Another difference is that operators do
not take the use of accepted standards into account as much as the other
organizations do. This may be because operators tend to dictate billing,
authentication and other standards to which content providers and
application developers are expected to adhere.
In the organization domain there are few differences of opinion. One
remark can be made about outsourcing, which appears to be much more
important to operators than it is to application providers. This may have to
do with the fact that application providers are the ones who deal with the
outsourced activities relating to software and platform development, and as
a result they are less likely to perceive outsourcing as something they deal
with themselves. On average, operators find organization design issues
slightly more relevant than the other players, but this difference is
statistically insignificant.
As far as financial issues are concerned, Pricing is more of a core issue to
operators than it is to the other players. Operators often assume the role of
billing and collections provider, and as such they determine the prices that
service providers are able to charge. Like in the organization domain,
finance-related issues appear to be more important to operators than to the
other players.
The five most important design issues relative to the organizational type
is presented below. It is interesting to see that consultants find technology-
related issues the most important. As far as the other players are
concerned, a mix of service and technology related design issues are
considered the most critical.
Operator Content/service Application/software Consultancy
provider provider
1 Branding Accessibility for Personalization Quality of
Consumers Service
2 Quality of Quality of Clearly Defined Target Accessibility
Service Service Group for Consumers
3 Clearly Defined Branding Accessibility for System
Target Group Consumers Integration
4 Pricing Trust Quality of Service Security
5 Accessibility for Clearly Defined Scalability Clearly Defined
Consumers Target Group Target Group
Chapter 7 A Practitioner View on Generic Design Issues and Success Factors 159

Consultancy (N=25) Content

Operator (N=31) Application provider
/ service (N=20)
provider (N=28) Content/service provider
Application provider (N=28) Consultancy
(N=20) Operator (N=31)
(N=25)

Branding*
Branding*

Personalization
Personalization

Dealing with
Dealing with versions
versions

System
Systemintegration*
integration*

Security*
Security*

Use
Useof
ofaccepted
accepted
standards
standards

Outsourcing*
Outsourcing*

Pricing
Pricing

0 1 2 3 4 5 6 7

Fig. 7.1. Importance of design issues in relation to organizational type (Kruskal–

Wallis test, * p < 0.05)

7.2.2 Design Issues and Business Model Life Cycle

Some of the decisions concerning a new business model have to be made

on day one, while others can be postponed. In this section, we discuss the
relevance of the design issues within each of the three phases of the
dynamic STOF model, i.e. Technology/R&D, Implementation/Roll-out,
and Market. The most interesting differences are presented in Fig. 7.2.
In the service domain, we see that Branding is relevant in the first stage of
a new business model, and becomes even more important when the service
is rolled out and commercialized. Because branding a service is especially
important when it is offered on a commercial basis, this makes sense. On the
other hand, Personalization appears to become less relevant in the roll-out
phase, possibly because services that use advanced forms of personalization
are probably still in their pilot phase and are not yet widely adopted.
The attention to technology design issues does not increase throughout the
product life cycle, opposite to what one might expect. They are addressed at
the start of developing a business model, and remain relevant over time, with
160 M. De Reuver and H. Bouwman

exception of User Profile Management, which seems to be most important

in the initial stages of a new business model. The explanation here is similar
to the one we suggested with regard to Personalization in the service
domain: existing services do not yet use innovative profiling and
personalization technology. This explanation is supported by a strong
correlation between User Profile Management and Personalization.
In the organization domain, we see that Network Openness, i.e. offering
opportunities for new partners to become involved becomes less relevant
over time. This issue appears to be most important at the start of a new
business model life cycle, when there is a quest to find partners in the value
network. Network Governance, i.e. managing relations with partners, on the
other hand, is most important in the Implementation/Roll-out phase. A
possible explanation for this state of affairs is that managing relationships is
most crucial when moving from service concepts to implementing the
technology and service in practice, because there are many things that may
happen in the course of this process, building relationships becomes more
important. It is possible that the stakes go up when a service is actually
launched and investments and losses are being made.
In the finance domain, the relevance of issues hardly seems to be
dependent on the phase of the business model life cycle. Only Valuing
Contributions and Benefits becomes less important over time.
Technology / R&D phase (N=21) Roll-out phase (N=34) Market phase (N=32)
Market phase (N=32) Roll out phase (N=34) Technology / R&D phase (N=21)

Branding*
Branding*

Personalization
Personalization*

Scalability

Security
Security

User profile
profile
management
management

Managing
Managing relations
relations with
with partners*
partners*

Openness
Openness to
to new
new
partners
partners

Valuing
Valuing contributions
contributions &
& benefits
benefits

0 1 2 3 4 5 6 7

Fig. 7.2. Importance of design issues in relation to life cycle phase (Kruskal–
Wallis test, * p < 0.05)
Chapter 7 A Practitioner View on Generic Design Issues and Success Factors 161

A top-5 of most important design issues for each of the phases in the
business model life cycle is presented below. Generally speaking, most of
the design issues are equally relevant in all the phases. Quality of Service,
for example, appears the most critical issue in all phases.

Technology/ Implementation/ Market/

R&D phase Rollout phase Commercial phase
1 Quality of Service Quality of Service Quality of Service
2 Clearly Defined Target Accessibility for Branding
Group Consumers
3 Personalization Scalability Accessibility for
Consumers
4 Accessibility for System Integration Customer retention
Consumers
5 Generating trust among Clearly Defined Target Clearly Defined Target
customers Group Group

7.2.3 Success Factors

Respondents were asked to what extent they included success factors as

objectives for their service offering. For each of the factors, a number
of items were assessed, which we developed ourselves, except for
Unobtrusive Customer Retention that was derived from Appiah-Adu,
Fyall, and Singh (2001). After an exploratory factor analysis, each factor
was assigned the average score for the corresponding items, ranging from
‘not at all’ (1) to ‘great extent’ (7). Table 7.3 provides an overview of how
our respondents evaluate the success factors. We draw a distinction
between success factors leading to value creation for customers, and those
leading to value capturing for the network of service providers, i.e.
network value. With regard to network value, we found that items relating
to Acceptable Profitability and Acceptable Risks are strongly related.
Respondents that stress profitability related objectives are likely to find
risk related objectives important as well. Consequently, we combine these
success factors in the analysis.
Generally speaking, all success factors have a score exceeding 4,
implying that they are considered relevant. With regard to customer value,
the major success factor is having a Compelling Value Proposition.
Ratings were very high on the items relating to this success factor, such as
a clear definition of added value and clearly communicating the value of
the service. Clearly Defined Target Group is also important. The ratings
for Acceptable Quality of Service and Unobtrusive Customer Retention are
lower, but still above average.
162 M. De Reuver and H. Bouwman

Generally speaking, success factors relating to capturing value for the

providers are rated slightly lower than those relating to value creation for
customers. This seems to be in line with our findings with regard to the
design issues, where service and technology-related issues score higher
than organization and finance-related issues. What is most important
is having an Acceptable Division of Roles, followed by Acceptable
Profitability and Acceptable Risks.

Table 7.3. Importance of success factors

Success factor Average rating Standard N
deviation
Customer Compelling Value 5.74 0.83 122
Value Proposition
Clearly Defined Target 5.24 1.20 123
Group
Acceptable Quality of 4.88 1.27 120
Service
Unobtrusive Customer 4.48 1.22 119
Retention
Network Acceptable Division of 5.05 1.04 119
Value Roles
Acceptable Profitability 4.89 1.11 119
and Risks

To summarize, the top-3 success factors for mobile business models are:

1. Compelling value proposition

2. Clearly Defined Target Group
3. Acceptable division of roles

7.2.4 Importance of Success Factors Related to Type

of Organization

One might expect the various players to pursue different goals with their
mobile services and business models. However, when we compare the
ratings for the four types of organizations in the sample (i.e. operators,
content providers, application providers and consultants), then we don’t
find statistically significant differences. There is an indication, however,
that operators consider Acceptable Quality of Service more critical than
content providers and application providers. This may be due to the fact
that operators are more responsible for the actual quality of service, and
because they are more directly involved with issues relating to the quality
Chapter 7 A Practitioner View on Generic Design Issues and Success Factors 163

of the service system, such as security, authentication and end user

privacy. The top-3 success factors per organization type are:

Operator Content/service Application/software Consultancy

provider provider
1 Compelling Compelling Compelling Value Compelling
Value Value Proposition Value
Proposition Proposition Proposition
2 Acceptable Clearly Defined Clearly Defined Target Acceptable
Quality of Target Group Group Division of
Service Roles
3 Clearly Acceptable Acceptable Acceptable
Defined Division of Profitability and Risks Quality of
Target Group Roles Service

7.2.5 Success Factors and Business Model Life Cycle

Although one might argue that the objectives of service offerings shift over
time, we find only slight variations with regard to the importance of
success factors across the phases in the business model life cycle, see
Fig. 7.3. The only significant difference is Clearly Defined Target Group.
While this is the second most important factor in the Technology/R&D
phase, it becomes one of the least important factors in the Market phase.
Apparently, it is the most relevant in the early stages, becoming less
important once the target group has been established. It is also possible
that finding niche markets is more important for newly developed services,
compared to mature services that expand over time from niche to mass
market services, making targeting less of an issue. There are slight vari-
ations across the phases as far as the other success factors are concerned.
The top-3 success factors per phase is given below. This list illustrates
the finding that the importance of success factors hardly depends on the
phase in the business model life cycle.

Technology/ Implementation/ Market/

R&D phase Roll-out phase Commercial phase
1 Compelling Value Compelling Value Compelling Value
Proposition Proposition Proposition
2 Clearly Defined Target Clearly Defined Target Acceptable
Group Group Profitability and Risks
3 Acceptable Division of Acceptable Division of Dominant Position by
Roles Roles Taking Risks
164 M. De Reuver and H. Bouwman

Market phase (N=32)

Technology Roll
/ R&D phase out phaseRoll-out
(N=21) (N=34) phase
Technology
(N=34) / R&D phase
Market (N=21)
phase (N=32)

AcceptableAcceptable
profitability
& risks & risks
profitability

Acceptable
Acceptabledivision
divisionof
roles of roles

Unobtrusive customer
Unobtrusive
retention
customer retention

Acceptable
Acceptablequality
qualityof
service
of servics

Clearly
Clearly defined
defined target
target
group*group*

Compelling
Compellingvalue
value
proposition
proposition

0 1 2 3 4 5 6 7

Fig. 7.3. Importance of success factors related to life cycle phase (Kruskal–
Wallis-test, * p < 0.05)

7.3 Conclusions

Generally speaking, we find that all generic design issues and success
factors are considered important by the respondents, although some are
considered more important than others. Overall, service and technology-
related design issues are perceived as being more important than
organization and finance-related issues. As far as several design issues are
concerned, there are differences in opinion between the various actors
in the value network (i.e., Branding, Versioning, System Integration,
Security, and Outsourcing). We also find that some of the design issues
become more relevant as a service moves through the various phases of the
business model life cycle (i.e. Branding), while others become less
important over time (i.e. Personalization). According to the survey results,
the top-10 most important design issues are: Quality of Service,
Accessibility for Consumers, Clearly Defined Target Group, Trust,
Branding, Scalability, Personalization, System Integration, Unobtrusive
Customer Retention, and Use of Accepted Standards.
Success factors relating to value creation for customers are slightly more
important than those related to capturing value for service providers. There
Chapter 7 A Practitioner View on Generic Design Issues and Success Factors 165

is little difference in opinion between the types of organizations in the

value network, although Acceptable Quality of Service is more important
to operators than it is other players. The importance of the success factors
does not appear to change significantly during the business model life
cycle, with the exception of Clearly Defined Target Group, which
becomes less important over time. The top-3 critical success factors are
Compelling value proposition, Clearly Defined Target Group, and
Acceptable division of roles.
Chapter 8 The Dynamic STOF Model in Practice

M. De Reuver and H. Bouwman

What triggers companies to revise their original design choices in the

business model? And what can be learnt from that to make new business
models more robust towards a changing environment? As business models
are dynamic rather than static, it is important to understand how they
evolve over time. Such understanding helps to explain why certain
companies are better able to adapt than others, and to make new business
models more robust. In this chapter, we show how the dynamic STOF
model from Chap. 2 can help in such analyses.
Often, business models are studied through rich and extensive
narratives, making it hard to analyze their core elements while taking into
account the dimension of time. A structured, repeatable approach would
help to understand how a specific business model has evolved over time.
Similarly, when comparing the dynamics within different business models,
such an approach is beneficial in order to find generic patterns in their
evolutionary cycles.
In Chap. 2, we introduced the STOF model that links external technology,
market and regulation forces in the environment to internal business model
components of service, technology, organization, and finance. Moreover, the
model divides the life cycle of business models into three subsequent phases,
i.e. Technology/R&D, Implementation/Rollout, and Commercial/Market. In
this chapter, we show how the STOF model can be applied in analyzing the
dynamics within a single business model (within-case analysis) and in
comparing the dynamics of different business models (cross-case analysis).
We show both qualitative and quantitative approaches to do so.
We illustrate the use of the STOF model for three specific purposes.
First, the use of the model in studying the dynamics of a single business
model in-depth is shown. This is helpful from research perspective as the
causalities underlying changes can be understood, but also from practitioner
point of view to gain more understanding of how their company is shaped
by its environment. Second, we illustrate the application of the model in a
qualitative analysis of a small set of business models. In this study, both
within-case analysis is done to understand the dynamics of each individual
168 M. De Reuver and H. Bouwman

business model, and cross-case analysis is applied to compare the business

models while taking into account the time dimension. Third, it is shown
how the STOF model can be used in quantitative studies on larger sets of
business models, in order to perform statistical analysis on the patterns
found in cases. The latter approach is applicable for example for testing a
theory on what external forces drive the changes in certain design choices.
The approaches in this chapter can be used for academic as well as
practitioner purposes. From academic perspective, it can help to structure
the findings of case studies on business models while taking into account
the time dimension. Once it is recognized that business models are not
static but change over time, such time dimension cannot be ignored but
should be taken into account in the analytical framework used. In the
studies described in this chapter, the so-called case survey method is used
as proposed by Larsson (1993) and Yin and Heald (1975). In this approach,
existing, rich descriptions of business models are analyzed in a structured
protocol. Then, qualitative and quantitative analysis is performed on these
findings. However, the approach and the framework are also usable when
first-hand case study material is being analyzed.
For practitioners, the approaches are relevant in order to understand how
their business models have evolved over time, and how they can make them
more robust. It also allows them to compare their business models with other
business models, while taking into account situational differences in terms
of external drivers and the maturity of the business model.
The studies described in this chapter have been used to validate the
dynamic STOF model, and have been part of a three-stage research
strategy, starting from one illustrative case to the qualitative and
quantitative study of multiple cases (Bouwman & MacInnes, 2006;
Bouwman, MacInnes, & De Reuver, 2006; De Reuver, Bouwman, &
MacInnes, 2007; De Reuver, Haaker, & Bouwman, 2007).

8.1 Study 1 Qualitative, Single-Case Analysis

Often, researchers and practitioners want to understand how and why a

specific business model has evolved over time. What triggers the
companies to revise their original design choices in the business model?
And what can be learnt from that to make new business models more
robust towards a changing environment? We illustrate here how the
dynamic STOF model can help in answering these types of questions for a
specific business model through an in-depth, qualitative analysis, making
use of a structured coding protocol.
 Chapter 8 The Dynamic STOF Model in Practice 169

The business model studied here is the well-known case of i-mode from
NTT DoCoMo which is a mobile Internet portal service offered in the
Japanese market. In studying this case, information on external drivers and
internal business model components was structured according to the model
while taking into account the various phases. Then, it was analyzed what
external drivers were most important for this case, and how they triggered
changes in the business model design choices.

8.1.1 Illustrative Results

An overview of the structured findings is given in Table 8.1. In the first

phase, an important driver was found to be regulation, i.e. liberalization of
the telecommunication market that ended the government-owned monopoly
of incumbent operator NTT, as well as the decision in 1994 by the Ministry
of Post and Telecommunications to allow users to own handsets instead of
leasing them. This minor change in regulation opened market expansion as
well as technological opportunities. In addition, there were technological
developments related to security, reliability, and emergency location. This
offered NTT DoCoMo the opportunity to experiment, first by using
a dedicated private network and subsequently with a less ambitious
exploratory project that took advantage of packet based transmissions to
deliver data and allowed users to have an ‘always on’ connection. In this
early stage the company was looking for and experimenting with alternatives
that could potentially succeed in the market.
The liberalization of the telecommunications sector allowed companies
to expand their markets and many carriers all around the world were
looking for business opportunities. This was a time when wireless adoption
had accelerated and appeared to have endless possibilities. In Japan
specifically the conditions were optimal for a technological breakthrough
in mobile connectivity. As such, there is a link between the market and
technology environment and DoCoMo’s business model.
NTT DoCoMo had identified a promising market segment. It focused its
attention on young urban adults with high disposable incomes and a
propensity to try new gadgets. In addition there were individuals that spent
much time commuting and given their limited living spaces spent much of
their time outside in the streets, in restaurants and other public areas.
Another factor that contributed to the success of the mobile Internet in Japan
was the high price of broadband access at home. A wireless Internet
connection was thus a significantly cheaper alternative. This indicates that
there is a link between the market developments and the service component
of the business model, more specifically the decision on targeting.
170 M. De Reuver and H. Bouwman

Table 8.1. Findings of DoCoMo i-mode case in phase I, structured according to

the dynamic STOF model
Technology/R&D phase (1997–1998)
Driver Technology – Development of mobile data services
Market – Competition in wireless voice market: market share
declining from 80 to 60%
– Young urban adults have high disposable incomes,
propensity to try new gadgets, and they commute
– High price of broadband Internet
Regulation – Deregulation of voice market
Compo- Service – Target group: young females
nent Technology – CPE small device, big screen
Organization – Task force for data communication opportunities
(Keiichi Enoki: business experience; Takeshi
Natsunoe: Internet start up; Mari Matsunaga:
publishing)
– Content Providers: acquire content, generate
internally
– DoCoMo focus on network
– Creation of Gateway Business Department as
gateway, market maker
Finance – Content reselling to customer on basis of
subscription

Implementation/Roll-out phase (February 1998–November 1998)

Driver Technology
Market – Initially no public attention: focus on aggressive
marketing campaign
– 6 months after introduction 2 million subscribers
Regulation
Compo- Service – Marketing: role model(s)
nent – Branding: alliance with Sumitomoto Bank
– Broadening services: critical mass of services
– Official i-mode sites by 800 content providers, and
40,000 voluntary sites, i-mode compatible in 2001
Technology – Virtual private portal for consumer access
always on
– cHTML for access of content, in combination with
HTTP and SSL
– Java J2ME as script language
– Choice for JAVA middleware above MPEG-4;
BREW platform
– Wireless phone system: established payment
mechanism
 Chapter 8 The Dynamic STOF Model in Practice 171

Organization – Walled garden approach: DoCoMo center of gravity

– Balance value web, incorporating component
manufacturers, handset manufacturers (specifications
defined by DoCoMo), equipment manufacturers (W-
CDMA technology), Service Providers (JAVA-based),
Content Aggregators; Enterprise Solutions Providers
and Content Providers
Finance – Cross subsidization by DoCoMo of handset (between
¥ 20,000 and ¥30,00)
– Fixed fee (¥ 300), charge for data packages (¥ 0.3
per packet). Lower than price for ISP (¥ 2,000)
– Official i-mode sites: fee from subscribers via
telephone bill
– Voluntary sites: collect fee themselves
– 9% of official content providers revenues for
DoCoMo
– Advertisement revenues
– 30% of i-mode sites (premium) charge subscribers
– Risk reduction by DoCoMo if subscriber defaults on
payment

Market phase (2001 – present)

Driver Technology – Development of mobile data services
Market
Regulation – 30 million users in 2001; 38 million in 2003
– FOMA services 330,000 (April 2003)
– i-mode users: higher retention rates
– Easy switch between content providers enabled by
DoCoMo
Compo- Service – Broad acceptance: market share of 56% in 2001
nent – Voice data board accepted
Technology – Data-rate 28.8 kbps
– Shift to 3G (from 9.6 kbps to 64 kbps, moving up to
384 kbps), Vertical applications i.e. M2M applications,
LBS, Camera, Streaming video. Freedom to
Multimedia Access concept (W-CDMA)
– Network problems; congestion due to traffic demand,
3G as alternative solution. Trials show problems with
handset and poor connection rates
Organization – Relationships with content providers redefined: not
only the walled garden approach, but also a more open
format for content providers was defined
Finance
172 M. De Reuver and H. Bouwman

As indicated by the DoCoMo case, the STOF model can be used to

structure the information on business model dynamics. Structuring the
findings across phases allows seeing how the business model has
developed over time, and what changes have been made in it. While doing
so, it provides more insight in the dynamics of a business model than using
static descriptions of business model components that tend to focus on the
mature stages of successful business models solely. In addition, as external
forces are included in the analysis, interpretations can be made on which
external drivers are likely to have caused which internal changes in the
business model components. As such, the approach provides a far more
structured approach in studying the dynamics of a single business model
than plain narratives.

8.2 Study 2 Qualitative, Multiple Case Analysis

While the in-depth study of a single business model can provide valuable
insights, broader insights can be gained by contrasting different business
models. In a second study, six business models were studied, including
i-mode. By contrasting the findings, the importance of the drivers across
cases was studied. In addition, links were studied between external drivers
and the organizational arrangements in the business models. As such, the
study entailed both cross-case and within-case analysis.
To ensure maximum insight from a limited number of business models,
one can select those that differ regarding important dimensions. In this
study, the disruptiveness of the innovation and the type of industry were
used as differentiators. Table 8.2 provides an overview of the cases studied.

Table 8.2. Cases for qualitative analysis

Industry type
Mobile business Other sectors
Innovation type Disruptive NTT DoCoMO’s MySQL
i-mode Skype
Sustaining Telmore C-Commerce
Kodak

The cases were coded by three observers. After training them and
comparing the results of a first case in order to see if any problems
occurred, they analyzed the cases independently. While coding the cases,
they used a coding protocol similar to that in the first study. However, this
 Chapter 8 The Dynamic STOF Model in Practice 173

protocol also provided checklists of the types of aspects they could find in
the cases regarding the drivers, components and performance issues.
One of the cases, i.e. Kodak was eliminated because multiple services
and products were introduced, while none succeeded to enter the second
phase.

8.2.1 Illustrative Results

The findings of the qualitative schemes were summarized and structured

according to our concepts, see Table 8.3 for a fragment of the resulting
table. For example, it was found that in the Telmore case important drivers
in the first phase were mainly related to market (i.e. a highly competitive
market; the vertical integration of mobile network operators) and
regulation (i.e. the regulator forced the incumbent operator to open its
market to virtual network operators; handset subsidization). These drivers
led to the choices in the Telmore business model which focused on being a
mobile virtual network operator with far lower costs than incumbent
operators in order to survive in the highly competitive market.
Then, these qualitative findings were coded into ordinal scores. The
importance of the drivers was coded and it was assigned whether the
business model component had changed compared to the previous phase.
It appeared that at least in these cases, the assumptions of the model
regarding the importance of drivers were not completely correct, as all
drivers were important in the first phase; in the second phases there are
almost no external drivers at all; and in the third phase, the few drivers that
were found are of moderate importance.
The STOF model was also used to analyze the organizational changes in
more detail. And then, an interpretation was made which types of drivers
would have led to these changes. For example, in the i-mode case it was
found that the walled garden strategy of the company was loosened in the
third phase and that DoCoMo had to allow other portals on their network,
basically as a result of regulatory obligations. Another interorganizational
governance related change was the partnering of i-mode with handset
makers in the first phase, which was probably due to deregulation that
allowed users to own their handsets instead of leasing them. And in the
third phase, it was found that i-mode partnered with international
companies, probably as a result of market saturation and the rise of two
strong competitors on the home market. Similar analyses were made for
the other cases, leading to in-depth understanding of how organizational
arrangements were forced to change by external drivers.
174 M. De Reuver and H. Bouwman

Table 8.3. Findings in qualitative study of five cases (fragment)

MySQL – phase I Telmore – phase I i-mode – phase I
Drivers
Market – Growing open source Highly competitive Fierce competition
competition phenomenon environment in Decreasing market share
Only large vendors Denmark Preparation of DoCoMo
offer Database Mobile operators are for the future
management software vertically integrated
(high costs)
Market – Increasing Internet
customer adoption
PC adoption lagging
behind
Rapid cellular phone
adoption
Technology Internet used as a PHS phones with 64
business tool kbps transmission
Internet expansion capability
leading to
heterogeneous
components and
hindering consolidation
Regulation Evolving diversity Danish regulator Market being opened for
license agreements for mandating TDC foreign players leading
open source software, (Danish incumbent) to competition
enabling various to sell wholesale Liberalization of mobile
strategies network access market
Handset subsidization Deregulation allowing
customers to own
handsets
Limited spectrum
allocated leading to
innovation
Business model concepts
Service New value proposition: New value proposition: New value proposition
Simple and easy to Basic voice and SMS New market segment
install DBMS service offered through New market strategy
New market segment: simple Internet based New pricing strategy
unsophisticated users model
New targeted user New differentiation:
experience low pricing
Technology Application: Network: TDC Network: Old network
Incremental, LAMP infrastructure Application: New
development (Linux, Application: cHTML protocol, GIF,
Apache, MySQL, PHP) SMS/Internet Midi, email, emoticons
as building blocks Device: SIM Device: New handsets
 Chapter 8 The Dynamic STOF Model in Practice 175

The application of the STOF model in the qualitative analysis indicates

its usefulness when analyzing multiple cases. Not only is it shown that the
model can be used to structure the findings in other cases than the i-mode
case, it also shows that both within-case and cross-case analyses can be
facilitated by coding findings according to the model. It is both possible
to compare the importance of drivers or business model components
throughout phases, as well as to interpret how components have been
impacted by drivers.
When analyzing qualitative case study findings, richness of material is
always an issue, whether the material has been collected first-hand or has
been sourced elsewhere. The approach shown here of summarizing
qualitative statements in the material with the structured framework, and
then analyzing them on predefined metrics, proves useful in making sense
of large amounts of rich descriptions. Therefore, qualitative studies on
business model dynamics with other research questions can benefit from
adopting the approach presented.

8.3 Study 3: Quantitative Analysis

In contrast to the two qualitative approaches described so far, the STOF

model can also be used to make a quantitative analysis of a large number
of cases. This is particularly useful when a theory on the relations between
external drivers and business model design choices already exists, and one
is interested in testing the robustness of this theory across a large set of
cases.
In the study described here, the question answered was what external
drivers would be most important relatively to the three phases in the model
in a large set of e-business models. To do so, 45 business models were
analyzed using the STOF model, ultimately aiming to establish statistical
generalizable cross-case comparisons. First, a very detailed case study
protocol was developed, based on the findings of the two previously
described studies. This protocol detailed variables that could be coded
for external drivers, business model components, and business model
performance.
Regarding external drivers, the protocol asked coders to indicate whether
a specific driver had been of any importance for the business model in
the phase. For example, technology driver variables included general
technology trends, i.e. digitization, processing power, miniaturization,
176 M. De Reuver and H. Bouwman

mobile technology, technical integration, positioning technology, intelligent

systems, interoperability, security, and natural interfaces (Bouwman, Van
den Hooff, Van de Wijngaert, & Van Dijk, 2005), as well as Internet
technology, standardization bodies, incremental nature of technology, and
degree of technical sophistication. For the business model components, the
protocol specified specific choices on aspects of the component wherever
possible. For a significant part of the component variables no categories
could be derived, so free-format coding was allowed followed by content
analysis on the coding descriptions.
Analyzing the contents of cases by coders involves certain subjectivity,
which was accounted for by having two independent observers. After
coding all cases, intercoder reliability statistics where computed using the
percent agreement and Cohen’s Kappa. Especially for some of the internal
business model component variables regarding the organizational archi-
tecture, intercoder reliability was too low to allow further analysis.
Presumably, this was partially due to loose operationalization and lack
of richness in the case descriptions.

8.3.1 Illustrative Results

The research question addressed in this study was which external drivers
would be most important in which phases, thus validating the propositions
in the STOF model. To answer this question, aggregate measures of the
driver variables were computed. These were a ratio-scale measure that
simply counted the number of lower-level driver variables of the relevant
type that were deemed relevant by the coder, and a binary-scale measure
that indicated whether or not any of the lower-level driver variables were
ticked in the coding of the case.
In regression analysis, the aggregate measures for the driver variables
were used as dependent variable, and the phase of the business model as an
independent variable. In doing so, both linear regression (using the ratio-
scale measures) and logistic regression (using the binary-scale measures)
could be conducted.
An example of resulting output is given in Tables 8.4 and 8.5, which
relates the importance of technology drivers to the phase of the business
model. These results indicate that technology drivers were far more often
found in the first phase of cases, and less in the second and third phase.
 Chapter 8 The Dynamic STOF Model in Practice 177

Table 8.4. Linear regression for ratio-scale technology driver

B SE B Β
Constant 1.222 0.183
Phase II (dummy) −0.801 0.255 −0.37**
Phase III (dummy) −1.005 0.293 −0.38***
Note: F = 7.4795; df = 94, 2; p ≤ 0.001. R2 = 0.14; **p < 0.01; ***p < 0.001

Table 8.5. Logistic regression for binary-scale technology driver

95% CI for exp b
B (SE) Lower exp b Upper
Constant 0.223 (0.335) 1.25
Phase II −1.39** 0.092 0.248 0.672
(dummy) (0.508)
Phase III −2.575** 0.015 0.076 0.375
(dummy) (0.812)
Note: Hosmer and Lemeshow p-value = 1; R2 = 0.16 (Cox and Snell), 0.22
(Nagelkerke). **p < 0.01

To account for case study findings that might be biased to background

variables, similar regression analysis was carried out splitting the data set
in different types of cases, e.g. differentiating according to industry sector
or size of the company developing the service. Illustrative results of such
an analysis are shown in Tables 8.6 and 8.7. The results indicated that the
importance of technology drivers only depends on the phase for startup
companies, and that this relation is not found for business models of
established companies.

Table 8.6. Logistic regression for binary-scale technology driver, startups

95% CI for exp b
B (SE) Lower exp b Upper
Constant 0.095 (0.437) 1.100
Phase II −1.992** 0.136 0.031 0.602
(dummy) (0.758)
Phase III −21.298 0.000 0.000 0.000
(dummy) (10,377.78)
Note: Hosmer and Lemeshow p-value = 1; R2 = 0.26 (Cox and Snell), 0.39
(Nagelkerke). **p < 0.01
178 M. De Reuver and H. Bouwman

Table 8.7. Logistic regression for binary-scale technology driver, established

companies
95% CI for exp b
B (SE) Lower exp b Upper
Constant 0.405 (0.527) 1.500
Phase II (dummy) −0.811 (0.745) 0.103 0.444 1.915
Phase III (dummy) −1.504 (0.972) 0.033 0.222 1.493
Note: Hosmer and Lemeshow p-value = 1; R2 = 0 .073 (Cox and Snell), 0.098
(Nagelkerke). p < 0.05

The study discussed here illustrates how the STOF model may be used
in analyzing large sets of case descriptions in a quantitative approach.
Research questions answered in this approach can be various, for example
on the impact of technology changes on the likelihood of forming alliances
in the organizational component of the business model, or on even more
complex questions linking drivers, components and performance metrics.
By including background variables, one can contrast analyses of different
types of cases, thus allowing more specific cross-case analyses.
An advantage of the quantitative approach is of course that larger
numbers of cases can be studied, allowing for statistical generalization.
However, it is still advisable to approach the research question first in a
pilot study, using a smaller set of cases in a qualitative approach, and then
use the lessons learned to develop a more stringent quantitative protocol. It
is highly important to have rich information in the case description and to
operationalize the core concepts to be measured in a strict approach.
Failing on these criteria may lead to inconsistencies in the coding of
independent coders, and hence unusable results.

8.4 Conclusions

This chapter showed how the STOF model from Chap. 2 can help in
analyzing the dynamics of business models in a structured approach. By
structuring information about external drivers and internal business model
components along the phases of a business model life cycle, the STOF
model helps to understand the dynamics within a specific business model.
We also showed how the model can be used to compare a limited set of
business models in a qualitative approach. Finally, we discussed a
quantitative study of a large set of cases, in order to do statistical analysis of
the patterns in dynamics of a larger set of business models. In general, we
advise combining qualitative and quantitative approaches in these studies.
Chapter 9 A We-Centric Service: The
PolicePointer

M. De Reuver and M. Steen

In this chapter, we discuss the design of a service concept and its

underlying business model for a context-aware, we-centric service for
Dutch police officers. We-centric services are meant to support people in
their communication and collaboration in dynamic groups that may change
or emerge over time. Typically, these kinds of services add value by
locating colleagues, finding out who has relevant information on the user’s
current situation and/or discovering which group members are available
for direct communication. Designing business models for we-centric
services is a novel area. As end-users can both consume and provide value
for the service offering, unique business model issues emerge especially in
the service domain.
In this case, the we-centric service called PolicePointer aims at facilitating
the exchange of communication and knowledge between community police
officers and emergency police officers. Service innovation within the Dutch
police organization is a challenging affair. According to one stakeholder, it
typically takes as much as 8 years to develop and implement a new service,
largely due to the organizational complexity of the police force. Historically,
the Dutch police was highly decentralized. Before 1993, each municipality
had its own police force. The 200 forces were merged into 25 regional forces
and one special, national force. The 26 ‘police regions’ operate relatively
autonomously, without direct guidance from the national government. Over
the years, each police region developed its own ICT systems. This led to
problems concerning interoperability, as it was often difficult to exchange
information between police regions. Because this situation was considered
undesirable, in the late 1990s, a central ICT service organization was
established, which now owns and manages the existing ICT systems,
controls the access to police databases, and provides the mobile com-
munication network C2000.
We begin with a brief description of the process involved in designing
the service concept and business model of the PolicePointer. Next, we
180 M. De Reuver and M. Steen

apply the STOF model to the service concept and discuss the critical
design issues in the business model underlying the PolicePointer.

9.1 Designing The Service and Business Model

The PolicePointer was developed in collaboration with the central ICT

service organization, in a partly government-funded research and
development project. Over a total period of 3 years, the service concept
was developed, refined, prototyped and tested, in a user-centered design
approach, i.e. the project team members sought interaction with future and
potential end-users during the innovation project. As a result, many of the
design choices are based on interaction with end-users.
Various steps were taken in the service concept design process,
spanning from 2004 to 2006. First of all, a workshop was organized that
involved police officers, from which lessons were drawn regarding area-
bound work and existing communication, information and cooperation
processes in which police officers are involved. Next, problems and
opportunities were identified that may be solved through innovative
mobile services. From the four opportunities which were articulated in this
workshop, one was selected that was deemed to fit the we-centric concept
best: the need for community police officers to communicate with other
police officers, firemen or ambulance personnel, and with network
partners, such as the municipality, social welfare workers or school
headmasters. This meant that the design choice that was made at this stage
was that the service should support community police officers in
communicating and cooperating with network partners, i.e. others outside
the police force.
Secondly, a so-called rapid ethnographic study (Millen, 2000) was
conducted to observe and understand the daily work of police officers
through their personal experience. During these observations, special
attention was paid to how police officers communicate and cooperate with
others, in different contexts and for different tasks. The observations were
written down, and relevant and frequent events were then summarized into
personas and storylines, describing a typical working day in the life of
typical end-users. In a workshop, these observations were validated by
community police officers. Based on the observations and the workshop,
the scope of the service concept was narrowed by focusing on supporting
community police officers to share their knowledge with emergency police
officers specifically.
 Chapter 9 A We-Centric Service: The PolicePointer 181

Thirdly, the resulting service concept was evaluated in two additional

workshops involving police officers. In the first workshop, the objective
was to validate the problem and the proposed solution as being relevant
and valuable to police officers. The design choice that was made after this
workshop was to stimulate emergency police officers to access and use the
knowledge of community police officers. In the second workshop,
emergency response officers participated as well. The insights from this
workshop validated the choice of stimulating community policy officers
and emergency police officers to share knowledge with each other: a
suggestion to contact B is sent to A, while at the same time a notification
is sent to B that A received this suggestion, after which they can begin
communicating.
Fourthly, the refined service concept was developed into a prototype.
The mock-up was then evaluated with police officers in a workshop, with
the aim of discussing the functionality, followed by a small-scale test in
which police officers used the mock-up on the street during their work.
It may be noted that various design choices were made during the four
stages that led to a gradual shift in the objective and focus of the project.
So far, the final step in the design of the service is the validation of the
added value of the PolicePointer service. In a quantitative approach, an
analysis was carried out of the amount of past incidents in which the
service could have been useful. In a qualitative approach, workshops were
conducted in which storylines involving the use of the service were rated
by practitioners.
In terms of the dynamic STOF model that was presented in Chap. 2, the
service developed from a vague concept to a service that might be
implemented and rolled out. Up to that point, the design choices in the
service component had been made in relative isolation from choices in the
technology, organization and finance domains, i.e. there was no explicit
balancing of choices in the four STOF domains. As a result, it was still
uncertain whether the service concept could actually be implemented
within the police organization.
The next step was, therefore, to design the business model. First of all,
the organizational context of the police organization was analyzed
extensively, by interviewing relevant stakeholders and studying existing
research into service innovation at the police force. On the basis of this, the
Critical Design Issues (CDIs) were addressed. Decisions that were already
implicitly present in the service concept were made explicit. With regard
to the remaining issues, specific options were recommended. Whenever
there was uncertainty about what choice to make, the trade-off was
182 M. De Reuver and M. Steen

explicated and further consideration by relevant stakeholders was

recommended. In the remainder of the paper, we discuss these CDIs for
the four domains.

9.2 Service Domain

The assumption underlying the PolicePointer service is that police officers

often require specific information to do their job well. While a large part of
this information is stored in information systems and while there are
formalized procedures for sharing knowledge, officers possess a lot of
additional, implicit knowledge. Unlike explicit information, which is
stored in databases and can be retrieved through a mobile device, it is
difficult to make implicit knowledge available and share it. How can a
person know which colleague has what implicit knowledge? And which
colleague needs that specific knowledge at a given moment? The
PolicePointer is based on the idea that people can share implicit knowledge
once they know who needs and who possesses certain knowledge.
An example of the use of the PolicePointer: Police officer Paul is being
called for emergency assistance, as he has to attend a domestic violence
incident. Community officer John has been at the same address last week
for a similar incident. He made several observations, e.g. the next door
neighbor can be helpful in solving the conflict. He also made specific
arrangements with the residents. Some of these observations and arrange-
ments have been stored in the information system, but some details have
not been explicitly included. While he receives the emergency alert, the
PolicePointer-enabled handheld device suggests Paul to call community
officer John, including a short explanation as to why John may be relevant.
In addition, John receives a notification that Paul may call him. Paul can
then decide to call John for advice or John can call Paul to give him advice
proactively.
The service uses an alert to query the information system for
comparable incidents, e.g. incidents on the same address, involving the
same person(s) or with similar key words. In this way the service can find
relevant persons, i.e. police officers or social workers, who have been
involved in earlier incidents and are likely to have additional information.
On the PDA screen, a list of relevant persons is presented, including their
whereabouts, a short note explaining why they could be relevant, and a
phone number for direct contact. Figure 9.1 shows the design of the
PolicePointer user interface.
 Chapter 9 A We-Centric Service: The PolicePointer 183

Fig 9.1. Design of PolicePointer user interface

The we-centric element of the PolicePointer service concept raises

several issues in the service domain with regard to Creating Value
Elements. We-centric services are aimed at a group of users rather than
individuals. The underlying assumption is that people are generally willing
to help each other by sharing information. On some occasions one
provides information to others, and on other occasions one receives
information from a colleague. In the end, this benefits the group as a
whole. In the case of the police force, this means that society is being
served better as the quality of the work produced by the officers increases.
While the we-centric concept and the underlying notion of tit-for-tat
may sound familiar to knowledge workers, it conflicts with the way of
working within police organization. First of all, the division of labor within
police departments is typically part of a hierarchical, top-down line of
command. By contrast, the aim of the PolicePointer is to stimulate police
officers on the street to take control into their hands and decide for
themselves when and how to share information with others. As such, the
service concept is at odds for the hierarchical steering mechanisms within
police departments. This is an example of how user-centered design – or
rather: participatory design (Schuler & Namioka, 1993) – begins at the
work floor or on the frontline, and is designed to emancipate them, which
may sometimes cause friction with existing (top-down) power structures.
184 M. De Reuver and M. Steen

Furthermore, emergency response officers and community officers

typically work within different departments. In the Netherlands, police
departments increasingly receive individual, performance-based funding,
which is part of the new public management movement. However, as far
as the PolicePointer is concerned, officers from one department are
expected to help those from another department. To assure that the
department managers will adopt the service, they should feel that the
service does not jeopardize their performance objectives, i.e. there should
be a balance between the time and effort invested in helping other
departments and the benefits from being helped by those departments.
Directly related to this issue are the possible effects on performance in
general. Adopting the PolicePointer is unlikely to lead directly to cost
reductions, e.g. having fewer officers on the street. Because police forces
have limited budgets, the PolicePointer should show significant,
measurable quality improvements if the costs involved in adopting the
service are to be justified.
Finally, there is also a risk of strategic behavior at the level of the
individual user. While officers who provide assistance and information to
others invest time and effort, those receiving help derive an immediate
added value from the service. Obviously, officers should feel that these
kinds of situations are more or less balanced, or they may refrain from
helping other for strategic reasons.
Another issue in the service domain is Targeting. At some point in
the project, the designers of the service considered supporting the
collaboration between response officers, community officers and so-called
network partners, e.g. firemen, school directors, concierges, et cetera. This
could have increased the potential added value of the service, because
there were likely to be more events in which the PolicePointer could have
been used. However, it became clear that this would raise technology
and legal issues, with information having to be shared across various infor-
mation systems outside of the police domain. Also, the device should be
accessible to all the network partners. Moreover, it would raise
organizational issues, with a larger number of organizations becoming
involved in the decision-making process. There was a clear trade-off
between choosing a limited target group leading to reduced benefits from
the service for end-users on the one hand, and choosing a broader target
group leading to higher technological and organizational complexity.
Issues concerning Branding, Trust and Customer Retention are
considered less prominent. Promotion and viral marketing are expected to
be relevant in the adoption of the service by the officers. Especially when
the service does not deliver the expected value, negative word of mouth
may damage the image of the service, and damage user trust in the service.
 Chapter 9 A We-Centric Service: The PolicePointer 185

9.3 Technology Domain

During the design of the service concept, few decisions regarding

technology had been made. A highly important design issue within the
police domain is System Integration. As we discussed in the introduction
to this chapter, there is a wide variety of ICT systems being used within
the Dutch police force. In fact, the core task of the central ICT
organization is to standardize, unify and maintain the various applications.
This is done using an ICT reference architecture that each new service
should comply with before being implemented. As a result, it is important
to integrate the service with existing information systems, and to assure a
fit with the existing ICT architecture and standards.
System integration is also important from the end-user’s point of view.
Police officers have limited space on their belts, and they already carry
around one or more mobile devices. This meant that the PolicePointer
should run on existing mobile devices. In addition, end-users should not
have to enter information into the PolicePointer system by hand, because
that would require too much additional effort. Basically, the service should
be technically integrated with existing mobile information services such as
P-Info that provides secure mobile access to specific databases.
Security is a critical design issue for any service within the police
domain. Information retrieved by police officers should not fall into the
wrong hands for reasons of privacy, confidentiality of information and
police officer safety. For example, a general rule is that information may
not be stored on a handheld device, but may only be retrieved from an
external server. In addition, there are specific rules regarding the process
of criminal sanctioning that imply which type of police officer may and
may not access and share information. The we-centric element adds a
dimension of complexity to this last issue, because the service makes it
possible to share information among various police departments. As a
result, the risk of information being disclosed to an unauthorized police
officer is much greater than it is for other mobile services. Consequently,
when implementing the service, the rules for security levels relative to the
role of the police officer should receive special attention.

9.4 Organization Domain

Service innovation within the Dutch police force is a challenge specifically

when initiated by the central ICT organization. As we discussed in the
previous section, the main task of the central ICT organization has to do
186 M. De Reuver and M. Steen

with maintaining, standardizing and unifying existing applications. Some

of the police regions we interviewed criticized this internal focus, claiming
that it would constrain attention too much on maintaining existing systems
rather than developing innovative solutions. Moreover, as mobile services
are typically hard to maintain, police regions argued that this causes
resistance on the part of the ICT organization with regard to developing
such services. Another issue regarding service innovation is that
application developers at the central ICT organization are not working at
the same location as police officers, which complicates a user-centered
design approach.
While service innovation may not be the core strength of the ICT
organization, police regions have no choice but to involve them in the
innovation process. Police regions wanting to develop new services are
obliged to consult the central ICT organization first, because it is the
preferred supplier. The ICT organization is in charge of transforming
functional specifications into technical specifications, coordinating
application development and integrating the application with existing
systems. Moreover, all decisions regarding any new system have to be
formally approved by the ICT organization. At the same time, the central
ICT organization depends on the police regions, because the regions
ultimately decide whether or not to adopt the service. This is crucially
important because the central ICT organization becomes increasingly
dependent upon funding based on actual adoption of services by police
regions. In addition, testing new service concepts can only be done with
officers at the police regions, which means that police regions and ICT
organization have to work together in order to develop new services such
as the PolicePointer.
To organize the collective activities of the central ICT organization and
the police regions, Network Governance is a crucial issue. The ICT
organization increasingly formalizes coordination during service develop-
ment. All steps in the process are recorded in annual plans, requests for
change and project plans. The police regions comment that this means that
the central ICT organization focuses too much on procedures, instead of
hands-on problem solving. In addition, it is simply too costly to invest time
into these reports. It is also mentioned that, before developing an innovative
service, it is very hard to put everything on paper due to uncertainty about
what will happen during service development.
The formalized governance structure is enforced by a rigorous use of a
reference architecture by the central ICT organization. New services
should comply to this architecture before they can be developed. While the
strict use of a reference architecture is understandable for services in a
mature stage, it draws too much attention to technical details, rather than
 Chapter 9 A We-Centric Service: The PolicePointer 187

the intended user experience, when it comes to services that are still in a
proof of concept phase and that are being developed and evaluated. It also
limits the pragmatism required when developing an innovative concept
whose end result is not yet clear. A stakeholder outside the ICT
organization suggested that the reference architecture implies a major
decision at the start of a new service development cycle. On the one hand
when the central ICT organization is involved early on, this guarantees
compliance with the reference architecture. However, it would also mean
that the majority of the budget is being spent on complying with the
centrally enforced architecture, although the service concept may not even
be evaluated as worthwhile in the end. On the other hand, if the ICT
organization only becomes involved when the service concept has been
tested and prototypes and pilots have been developed, the costs may be
even higher, because the concept and systems may have to be adapted to
fit the architecture.
There is also the issue of trust, which is important in the service/concept
development phase, because unforeseen events are likely to occur which
cannot be accounted for in contracts. In addition, because changes in the
original design of the service are likely to be made in this phase, strict
contracts and project plans would have to be revised often. There is a
general lack of trust between police regions and the central ICT
organization, partly as a result of ongoing reorganizations that have led to
uncertainty. While trust between the organizations is growing, some police
regions comment that recent experiences in service innovation with the
central ICT organization have damaged their existing relationships.
With regard to the PolicePointer case, a recommendation was made to
complement contracts (i.e. service level agreements and project plans) with
trust-based, close collaboration to benefit the innovation and implementa-
tion process. As we discussed above, most cooperation with the ICT
organization is based on hierarchical structures and strict rules and
contracts. Developing trust and an entrepreneurial approach based on
partnership during the implementation and roll-out of the service was
deemed more advisable.
Another important design issue is Partner Selection. As we discussed
earlier, the central ICT organization cannot force the police regions to
adopt a service. Therefore, involving the regions at an early stage is
important to get feedback on the service concept and ensure commitment
to the innovation process. So far, few police regions were directly involved
in the development of the PolicePointer. Therefore, a crucial issue would
be how to involve the police regions.
Also related to partner selection is the choice towards the technology
providers. As the service concept and prototype were developed by the
188 M. De Reuver and M. Steen

central ICT organization in collaboration with two technology providers, a

choice had to be made whether to outsource the implementation of the
system to these or other providers, or to insource it.

9.5 Finance Domain

The decisions in the finance domain depend on the trajectory chosen for
the innovation process. In most cases a police region requests a new
service from the central ICT organization. Once all regions agree on the
need for the new service, the central ICT organization starts developing the
service. After testing the service concept, a pilot is conducted within a
specific region where the service actually runs on the infrastructure that
will be used. After that, the service is implemented, integrated into existing
systems, and rolled out on a nation-wide scale. An alternative, less
common trajectory, is one where the central ICT organization auto-
nomously decides to develop a new service, after developing a detailed
business case. In this trajectory, the account managers of the ICT
organization have to sell the service to the police regions after it has been
developed. Investments in this case are made by the central ICT
organization.
To implement the PolicePointer service concept in the police
organization, a trajectory, in which police regions request for a new
service, is not applicable, because the service concept has already been
developed and validated. The other trajectory would be that a business
case for the service is developed by the central ICT organization. A
detailed design of the finance component of the business model would then
be required to show the viability of the system in terms of costs and
revenues. After implementing and rolling out the system, police regions
could autonomously decide whether or not to adopt the service. This
trajectory requires Investments to be made by the central ICT organization,
and involves the Risk that police regions will not adopt the service. Pricing
is therefore an important issue here, as the added value of the service
would have to outweigh the costs involved in adopting the service by the
police regions.
An alternative, more feasible business case trajectory would be to frame
the service as part of a new release of existing mobile services such as P-
Info, in which case, the PolicePointer would be bundled with these existing
services. As payment would be included in the bundle tariff for the
existing mobile services, Pricing can be determined by the central ICT
organization. Although Investments are still made by the central ICT
 Chapter 9 A We-Centric Service: The PolicePointer 189

organization, there is less Risk because police regions would automatically

adopt the service as part of the bundle. Choosing this trajectory would
probably make the discussion on the business case for the service much
simpler.

9.6 Conclusions

In retrospect, the PolicePointer project has been highly ambitious. It not

only involves challenges relating to we-centric service elements, but also
the challenge of service innovation within the highly unfavorable Dutch
police organization. Overall, there are two design issues that appear to be
the most critical in this case.
As a result of the we-centric elements of the service, the design issue
Creating Value Elements is critical. The PolicePointer allows police officers
to make their own decisions on how to share information, which is at odds
with the hierarchical steering mechanisms within the police organization. In
addition, there are risks of strategic behavior, as there should be a balance
between the effort involved in helping others and the value received from
being helped. Moreover, Dutch police departments are increasingly funded
via individual, performance-based budgets, and the idea of helping other
departments without guarantee of a direct gain for one’s own department
conflicts with this trend.
Within the police context, Network Governance is a critical design
issue. The 26 autonomous police regions and the central ICT service
organization are interdependent during the service innovation process. The
typical governance mechanisms are highly formalized, as the central ICT
organization focuses on procedures and complying with standards and
reference architecture. Because there is little trust and close cooperation
between the police regions and the ICT organization, service innovation
is a lengthy and costly process. In case of the PolicePointer, a
recommendation was made to govern the collective action of ICT
organization and police regions based on a combination of contracts (i.e.
service level agreements and project plans) and trust-based, close
collaboration.
This chapter illustrates how the STOF model can help identify issues in
the business model after a service concept has been developed and tested,
and is ready to be implemented. We used the model as a ‘checklist’, i.e. to
make implicit design choices explicit; to make recommendations on
unresolved issues; and to identify which design choices still have to be
resolved by relevant stakeholders.
Chapter 10 Balancing Customer and Network
Value of Mobile Payment Services

E. Faber and H. Bouwman

The challenging aspect of business models is that they require managers to

connect and balance various design choices and business model com-
ponents. Mobile payment services are an interesting case because they
have two types of customers, buyers – the people who pay – and
merchants – the people who receive the payments. Mobile payment
services require service providers to find a balance between the interests of
buyers (or end-users), merchants, network providers and financial
institutions In this chapter we illustrate how three different mobile
payment service providers have tried to position themselves in an
emerging mobile payment market. We focus on the connection between
the design of the customer value and that of the value network.

10.1 Mobile Payment Services

Generally speaking, mobile devices are expected to play an important role

in commercial transactions, such as payment services (see e.g. Krueger,
2001). Mobile payment services are payment services in which at least
a part of the transaction (initiation, authorization execution, and/or
confirmation) is carried out with the use of a mobile device, such as a PDA
or mobile telephone, and of wireless or mobile network technologies like
Bluetooth, 3G networks or Near Field Communication (NFC). In an
international survey conducted among 5,600 mobile phone users, Kearny
found that 46% of the respondents would use mobile payment services if
they were to become widely available (Mobinet, 2002).
Given these high expectations, it is hardly surprising that over the past
few years there have been many mobile payment initiatives. Most mobile
payment services that were available in Europe in early 2002 have been
192 E. Faber and H. Bouwman

discontinued, for instance Paybox and Simpay (Dahlberg, Mallat, Ondrus,

& Zmijewska, 2007). However, the introduction of mobile payment
services proceeds at a slow pace, not least due to the difficulty of
developing feasible and viable business models. Any mobile payment
service provider has to come up with a proposition that is interesting to
both consumers and merchants. This dual focus, and the subsequent
‘critical-mass problem’ makes any market introduction more complicated
(Markus, 1990; Oliver, Marwell, & Texeira, 1985). Moreover, businesses
need to account for the business logic, not only of the financial services
sector, but of the retail and mobile telecommunication sector as well. This
creates a multi-party, cross-sector problem, the solution to which is
fundamental to the development of mobile payment services.
Important questions in designing business models for mobile payment
services are how to create sufficient customer value and who to involve
in the value network. For instance, how indispensable are financial
institutions or bank licenses issued by regulatory authorities in the banking
industry when offering mobile payment services? Based on a literature
survey (see Chap. 2), we focus on the connection between the customer
value of (mobile payment) services and the value network by which they
are offered. The customer value of service offerings and the value network
needed to realize customer value are closely related, as can be seen in Fig.
10.1. An important research question is how the design of a value network
influences the customer value of a service offering and vice versa.
We will explore this relationship by analyzing the business models of
three mobile payment services.

Service domain Organization domain

Value generate Value Actors

Elements Activities perform
S O O

create realize

Target offered to Customer Resources

Group Value Capabilities have
O
S S

Fig. 10.1. Connection between customer value and value network

Chapter 10 Balancing Customer and Network Value of Mobile Payment Services 193

10.2 Research Method

The findings we discuss in this chapter are based on an exploration of three

mobile payment services initiatives (Faber, Ballon, et al., 2003). Before
investigating the actual cases, we consulted industry reports, academic
literature and company web sites, which allowed us to arrive at an
overview of mobile payment initiatives and to limit the scope of the case
studies. The cases we selected are summarized in Table 10.1. They were
selected because they represented different market introduction strategies.
For every case, we consulted representatives from mobile payment
providers, retailers and financial institutions. We conducted semi-structured
interviews and talked informally with dozens of company representatives.
Given the exploratory nature of the subject the interviews were semi-
structured. The interviews were recorded and transcribed. The data from
the interviews were supplemented with information from company
websites, industry reports and academic literature. We made case
descriptions which we used to conduct cross-case analyses. To ensure
internal validity, all of the researchers involved used the same interview
and case description templates. In addition, they conducted the interviews
in various combinations and reviewed and discussed each others’ case
descriptions. The case descriptions were reviewed by the informants. The
cases were then stored in a database to which all the researchers had
access, for analytic purposes.

Table 10.1. Mobile payment cases

Case Characterization
Mobipay Bank-oriented: customer base of financial institutions is used to
introduce mobile payment
Moxmo Independent: customer base is built independently of financial
institutions, existing payment infrastructure is bypassed
Mobile2Pay Independent: customer base is build independently of financial
institutions. Financial institution plays a role as trusted third party

Since both consumers and merchants play an important role in the

distribution and acceptance of mobile payment products, the value
proposition has been analyzed from the perspective of both these actors.
Important value elements with regard to mobile payment are Security,
194 E. Faber and H. Bouwman

Trust, Ease of Use, Cost and reach, i.e. Access for consumers as well as
merchants (Ondrus & Pigneur, 2006) (see Table 10.2). Ondrus and Pigneur
also mention, for instance, flexibility – the degree to which a technology
can be adapted to various types of payments – and maturity of technology.

Table 10.2. Mobile payment value elements

Value element Definition
Security End-users and merchants: degree to which the
confidentiality and integrity of transaction information is
protected
Ease of use End-users and merchants: degree to which it is possible to
operate a payment solution without having to overcome a
steep learning curve
Cost End-users: the costs (e.g. transaction, registration and
communication costs) associated with using the mobile
payment solution
Merchants: the costs associated with supporting mobile
payments (e.g. investments in transaction systems)
Reach The number of points of sale at which customers can use the
mobile payment solution
The degree to which merchants can reach new customers

In the next sections, we describe the services, with a focus on the

service and organization domains.

10.2.1 Mobipay

Mobipay started in December, 2000, initiated by the leading Spanish

financial institutions Banco Bilbao Vizcaya Argentaria (BBVA) and
Santander Central Hispano (SCH), as well as all the Spanish mobile
telephone operators (Telefónica Móviles, Vodafone and Amena). The
objective was to develop and promote an international mobile payment
solution based on a co-operative model involving mobile operators and
financial institutions. Mobipay International is the holding company that
owns the local initiatives in various countries. Mobipay was terminated in
2004.
Chapter 10 Balancing Customer and Network Value of Mobile Payment Services 195

Mobipay’s value proposition was to provide mobile and single access to

the existing payment infrastructure. It provided a transaction platform that
was capable of supporting all kinds of payment methods. It allowed
consumers to pay through existing and trusted electronic payment
methods, using their private mobile phone as an authentication terminal.
Mobipay focused primarily on the financial institutions and telecom
operators. Although it provided banks and telecom operators with reasons
why mobile payments add value to end-users, it failed to offer a value
proposition directly to these end-users. In Spain, the main selling point
with regard to financial institutions was that Mobipay was expected to
increase intermediated payments.
Mobipay provided a mobile transaction platform to financial institutions
that could be used with existing payment methods. The mobile operators
were more or less part of the distributed platform through the integration
of their mobile access services into the platform. The mobile network
operator provided mobile communication services to Mobipay, which was
used to access the payers’ verification terminal. Mobipay offered financial
institutions single and mobile access to the existing payment infrastructure.
As far as Mobipay was concerned, ensuring the support of financial
institutions was important because of their relationship with customers and
retailers, who were the users and acceptors of mobile payment solutions.
Mobipay received a fee per transaction for its services. The financial
institutions handled the payment of the transactions, while Mobipay was
responsible for the authorization, authentication, electronic assembly and
delivery of payment transactions. Retailers were responsible for providing
payment methods to consumers, and in return they would be adequately
rewarded for the products and services. The payment services were
provided by the financial institutions (or third party payment providers)
and were paid for by the retailers. Table 10.3 summarizes the design
choices for the critical design issues.
The Mobipay project was also promoted internationally. Although the
website still exists, there have been no activities since 2004. Vodafone, a
company that was involved in MobiPay, was also involved in Simpay, a
competing mobile payment service that was also terminated in 2005, due
to the fact that one of the mobile telecom providers decided to launch its
own mobile payment system.
196 E. Faber and H. Bouwman

Table 10.3. Design choices for Mobipay’s mobile payment services

Target Value Offered customer Resources and Actors
group elements value capabilities
Consumers Security Secure payment Secure Mobipay
authentication and
authorization
Control over Transaction Financial
transactions management institutions
Trusted Third Institutional rules
Party of conduct
Ease of Mobile phone as System Mobipay
use access device to integration
existing payment
infrastructure
Cost Not different from Cost efficient Financial
normal transactions payment institutions
infrastructure
Reach Covers a wide Customer base Financial
variety of institutions and
transaction mobile operators
situations and is
supported widely
in Spain
Merchants Security Secure payment Secure Mobipay
authentication and
authorization
Trusted Third Party Institutional rules Financial
of conduct institutions
Ease of No changes needed System integration Mobipay
use in existing points
of sale
Cost Cheap electronic Cost-efficient Financial
point of sale payment institutions
(Spain) infrastructure
Reach Increased customer Access to customer Financial
reach base institutions and
mobile operators

10.2.2 Moxmo

Moxmo was a Dutch payment initiative providing mobile payment

solutions to merchants, primarily on the Internet and in non-POS
situations. The company was founded in 2001 and, together with Global
Chapter 10 Balancing Customer and Network Value of Mobile Payment Services 197

Payways, went bankrupt in 2004. Moxmo was an interesting mobile

payment initiative, being one of the few solutions that was set-up
independently of banks and (mobile) telecom operators. Table 10.4
summarizes the design choices for the critical design issues.
Moxmo was a mobile wallet service that allowed consumers to make
secure and direct payments to anyone who owned a mobile phone or who
accepted Moxmo as a payment method. Since Moxmo did not regard
mobile payments as product in itself, it worked closely together with
service providers in the development of new innovative service concepts
that could incorporate mobile payment. This was seen as an important
prerequisite for the further growth of mobile payments, and as such of
Moxmo in particular. Moxmo’s value proposition with regard to
consumers was that it offered convenient (any time any place) and secure
electronic payments. Moxmo focused on the micro-payment market
segment, in particular person-to-person payments, Internet payments,
topping-up of prepaid accounts and ticketing. At a later stage Moxmo
intended to extend these services to include parking, international
transfers, debit card payments, customer cards and, ultimately, payments in
stores.
Moxmo was a start-up company owned by Global Payways. Global
Payways played three roles in Moxmo, divided into distinct business units.
First of all, it was involved in developing service propositions in co-
operation with third parties. These propositions should have resulted in
high-end value services and products involving the services of Moxmo.
Secondly, Global Payways processed the transactions generated by
Moxmo. Thirdly, it wanted to control the deposits stored on the electronic
wallets of its customers. To do this, Moxmo needed to acquire a license as
an Electronic Money Institution (EMI). As far as we know, between 2001
and 2004, Moxmo was continually in the process of obtaining such a
license. Meanwhile, customer deposits were controlled by the Dutch bank
ABN-AMRO. Retailers were supposed to play a role as acceptors and
distributors of Moxmo. In their capacity as distributors, retailers were
expected to actively promote the Moxmo payment method to their
consumers. Moxmo offered revenue sharing for each payment, hoping that
that would win over consumers and merchants, which in turn would help
the company build its brand. The operational management of the
transaction platform and mobile wallet administrator was outsourced to an
Application Service Provider. Finally, mobile operators facilitated the
mobile access between the users’ mobile phone and the Moxmo
transaction platform.
198 E. Faber and H. Bouwman

Table 10.4. Design choices for Moxmo’s mobile payment services

Target group Value Offered Resources and Actors
elements customer value capabilities
Consumers Security Secure payment Secure Moxmo
authentication and
Control over authorization ABN-
transactions Transaction AMRO
management
Ease of Mobile phone as License for EMI Moxmo
use prepaid wallet
Cost Low cost Cost-efficient Moxmo
through independent
bypassing of payment
existing payment infrastructure
infrastructure
Reach Increasing Access to Moxmo
number of customer base and
retailers retailers
Merchants Security Secure payment Secure Moxmo
authentication and
Guaranteed authorization Moxmo
payment Risk
management?
Ease of – – –
use
Cost Low cost Cost-efficient Moxmo
through independent
bypassing of payment
existing payment infrastructure
infrastructure
Revenue sharing
Reach Increased Access to Moxmo
customer reach customer base and
Telecom
operators

10.2.3 Mobile2pay

Mobile2Pay is a mobile payment initiative that was launched by Smart

Concepts in October 2002. Its main objective was to create an interactive
mobile sales channel that would enable the payment and delivery of goods,
in particular impulse purchases. It would appear that the service ceased all
operations since Mid-2007.
Chapter 10 Balancing Customer and Network Value of Mobile Payment Services 199

Mobile2pay formulated its value proposition as ‘seeing is having’.

Consumers could respond directly to advertisements published in magazines
or broadcast on the radio, using their mobile phone as a transaction device.
The main advantages of Mobile2pay as far as consumers were concerned
were assumed to be speed of use (impulse buying and fast processing), ease
of use (small smart device) and benefits (discounts). Mobile2pay focused on
retailers, and its main objective was to set up a mobile sales channel, rather
than to provide a mobile payment system. Based on this idea, Mobile2Pay
defined a strategy for mobile commerce in general, and used mobile
payments as an enabling functionality. Mobile2pay focused on medium-
sized and macro-payments. Table 10.5 summarizes the design choices with
regard to the critical design issues.

Table 10.5. Design choices for Mobile2pay’s mobile payment services

Target Value Offered customer Resources and Actors
group elements value capabilities
Consumers Security Secure payment Secure authenti- Mobile2pay
cation and
authorization
Control over Transaction Mobile2pay
transactions management
Guaranteed Escrow service Fortis bank
delivery
Ease of use Mobile device as Automatic
debit card collection
Cost Price reductions Access to Retailers
when ordered with customer base
mobile phone
Reach Increasing number Access to Retailers
of retailers customer base
Merchants Security Secure payment Secure Mobile2pay
authentication and
Guaranteed authorization Fortis
payment Escrow service Mobile2pay
Dynamic spending
limit for users
Ease of use – – –
Cost Increased sales Anytime and Mobile2pay
through impulse anywhere
buying payment
Reach Increased customer Access to Mobile2pay
reach customer base and mobile
operators
200 E. Faber and H. Bouwman

Retailers were expected to provide payment methods to their customers

as an added service. Fortis bank acted as trusted third party with regard to
the payment transactions between consumers and retailers, receiving an
authorized and complete payment transaction from Mobile2Pay, and
returning a bank guarantee based on the consumers’ creditworthiness.
After receiving the guarantee the retailer could ship the goods. After a
retailer was informed that the goods had been received by the customer in
question, the bank transferred the money to the retailer’s account. By using
a dynamic spending limit, Mobile2pay filtered out defaulters. Customers
were rewarded for keeping their promises (faithful payment) by an
increased spending limit.
Mobile2Pay handled the consumer authentication and the authorization
of the payment process. Finally, mobile operators facilitated the mobile
access between the users’ mobile phone and Mobile2Pay transaction
platform.

10.2.4 Cross Case

The mobile payment providers we examined in this study used different

strategies to obtain critical mass, but apparently none of them succeeded.
Whereas Mobipay focused on bringing together financial institutions and
telecom operators, Moxmo and Mobile2pay directly tried to convince
merchants and customers of the added value of mobile payments.
However, customer groups had different needs and wishes.
Security. All the mobile payment providers discussed in this chapter
were aware that security and trust were of the utmost importance.
However, they used different mechanisms to generate security and trust. In
the case of Mobipay, consumers dealt with their trusted home banks.
Mobipay expected to benefit from the existing relationship between the
banks and their customers. Moxmo, on the other hand, had to prove its
trustworthiness to consumers by recurrent positive experiences. The
company promised guaranteed payment to merchants. Mobile2Pay, finally,
used an escrow service to eliminate the risks facing consumers and
merchants, and was thus able to guarantee product delivery to consumers
and payment to merchants. Moreover, by deploying a dynamic spending
limit, Mobile2pay filtered out defaulters.
Ease of Use. The payment initiatives discussed in this chapter varied
with regard to the entry barriers for consumers. In the case of Mobipay,
consumers did not need to register at all, provided that they had access to a
bank account, while in the case of Moxmo, users needed to register and
open a new bank account, and with Mobile2Pay, they needed to register
Chapter 10 Balancing Customer and Network Value of Mobile Payment Services 201

and authorize an automatic direct debit. As far as merchants were

concerned, integration with existing payment products was an important
issue. They were not all that eager to implement a new payment product in
addition to existing payment products like debit and credit card payments.
Only Mobipay presented a convincing case with respect to this value
element.
Cost. Mobipay focused primarily on financial institutions (banks and
payment brands), and to a lesser extent on telecom operators. It left the
promotion of mobile payment to the financial institutions and telecom
operators. Moxmo saw mobile payments not as a product in themselves,
and worked closely together with service providers to develop new
innovative service concepts in which mobile payments could play a role.
Moxmo offered revenue sharing and new service concepts to merchants.
Consumers were offered a convenient and secure payment service. These
value proposition elements could hardly be regarded as ‘deal clinchers’,
but rather as ‘dissatisfiers’ (their absence provides a negative experience).
Mobile2pay tried to persuade consumers to use its services by offering
price reductions on products that were paid for via Mobile2Pay. The
impulsive nature of purchases was emphasized (seeing is having) and
promoted as a valuable experience to consumers. Mobile2pay offered
merchants an interactive transaction channel, in addition to the Internet and
physical points of sale.
Reach. Mobile payment providers used different strategies to get
merchants and consumers on board. Mobipay relied on financial
institutions to convince merchants and consumers of the value of mobile
payments. Moxmo and Mobile2pay could not rely on the customer base of
financial institutions, and had to persuade customers themselves.
Merchants seemed to be willing to adopt mobile payments if they
resolved some of the problems associated with existing payment products.
Guaranteed payment in particular was valued highly. This could be
realized in different ways, as illustrated by the Moxmo and Mobile2Pay
cases.
Consumers did not seem to view mobile payments a service, but rather
as ‘a necessary evil’. Consequently, low transaction fees, ease of use and
guaranteed delivery were ‘dissatisfiers’ rather than ‘deal clinchers’. For
mobile payment providers this meant that it was important not to promote
mobile payments as a product in themselves, but as an enabler of new
value adding services. Although the two independent initiatives provided
interesting examples of this concept, ultimately they proved unsuccessful.
Although both Moxmo and Mobile2pay were marketed as independent
initiatives, our findings indicate that financial institutions did play an
important role in both initiatives. Because Moxmo did not have a banking
202 E. Faber and H. Bouwman

license, it had to rely on ABN-AMRO for the management of wallet

deposits. By using escrow services, Mobile2Pay was able to guarantee
payments to merchants as well as delivery to consumers. By including
financial institutions in the value network, the mobile payment providers
were able to reduce the risks facing merchants (guaranteed payment) as
well as consumers (guaranteed delivery). However, this inevitably led to
higher transaction costs. Moreover, with hindsight we suspect that the
reasons the banks participated were primarily strategic in nature.
An important decision involved the question whether or not to include
financial institutions in the value network. Required guarantees and
transaction costs are important influence factors. For micro payments,
which require fewer guarantees and low transaction costs, it would seem to
make little sense to include financial institutions. It makes more sense to
do so in the case of medium-sized and macro-payments. However, the
question whether mobile payments that are limited to micro-payments are
attractive enough for consumers is open to debate. The cases discussed in
this chapter reveal that certain value elements can be realized in different
ways and that, depending on the target group, it is possible to bypass
dominant actors, for instance financial institutions, in the value network.
Nevertheless, financial institutions have a strong position and by-passing
them is problematic, as is indicated by the bankruptcy of Moxmo, and by
the fact that the other two services did not manage to survive either.

10.3 Conclusion

Based on the three cases discussed in this chapter we can draw initial
conclusions with regard to customer value. First of all, it is important to
realize that services that are innovative in technological terms are not
necessarily perceived as very innovative by their intended customers.
Mobile payment services in themselves offer yet another way, in addition
to cash money, credit and debit cards, of taking care of payments. This
implies that positioning a mobile payment channel next to already existing
payments channels is problematic. Although such a service may be new to
the world from a technological point of new, that does not mean that
customers are guaranteed to see the added value for them. Furthermore,
merchants, who after all control the relationship between the mobile
payment services and the end user (the customer), are unlikely to adopt the
mobile payment channel if it does not solve some of their problems. This
means that, in the service offering, the issue of value has to be addressed
very carefully for both customers and merchants. A possible alternative is
Chapter 10 Balancing Customer and Network Value of Mobile Payment Services 203

to make mobile payments an integral part of other innovative mobile

services. The mobile payment service can be presented as an additional
feature of such a new service.
With regard to the value network, we see that by-passing financial
institutions is rather problematic. In light of their powerful position within
the value network, it is almost impossible to by-pass banks, especially in
the case of service that will not be limited to micro-payments.
As far as our conceptualization of the design of businesses models is
concerned, it is clear that looking at the value of a service from a customer
perspective is not enough, but that we also need to take the perspective of
the service provider into account. The cases discussed in this chapter show
that mobile payment providers had to position their services in a
relationship between financial institutions and their customers, were there
are many alternatives and where the dominant role of players in the
existing value networks leaves ample space for new entrants (see also
Zmijewska, 2007). In Chap. 13, we will see that in developing countries,
were banks have a less prominent position, the development of mobile
banking services is more feasible.
Chapter 11 Robustness of IPTV Business Models

H. Bouwman, M. Zhengjia, P. Van Der Duin, and S. Limonard

The final stage in the STOF method is an evaluation of the robustness of

the design, for which the method provides some guidelines. For many
innovative services, the future holds numerous uncertainties, which makes
evaluating the robustness of a business model a difficult task. In this
chapter, we apply scenario analysis to assess business model robustness,
using digital television services over IP (IPTV) as an example. Before
discussing the scenario analysis, we take a look at the discussion
surrounding the IP television.

11.1 IPTV: Multicast Digital Television Over IP

IPTV is a broadcast or on-demand video service that uses the Internet

Protocol (IP), which is streamed to a set-top box that can be connected to a
PC or a TV-set. Today, IPTV is technically and commercially applicable.
IPTV services are typically considered by telecom companies facing fierce
competition from cable companies that offer triple play bundling packages
(Alcatel, 2007) However, it is not yet clear whether or not new IPTV
business models will be viable. Although there are many analysts who
believe that the huge potential of the IPTV market will offer telecom
operators opportunities to develop this new market, there are other experts
who doubt the telecom operators’ ability to compete successfully with
cable companies, which in many countries possess significant market
power in the TV market. In the current context, in which cable companies
move toward data services and voice communication, a clear and
comprehensive business model for IPTV is critically important to telecom
operators. However, no template for a successful IPTV business model is
available. Different players in the market emphasize different elements.
Doherty et al. (2004), for example, focus on the right IPTV architecture
and quality of services, while Liu (2006) is more interested in the financial
206 H. Bouwman, M. Zhengjia, P. Van Der Duin, and S. Limonard

prospects of the new IPTV model. As yet, there is no common and shared
conception of business models.
In this chapter, we used the STOF method to develop business models
for IPTV. We draw a distinction between the exploration phase and the
exploitation phase. With regard to the exploration phase, we discuss design
issues based on the results of experiments and market explorations by
IPTV developers that are currently taking place. After discussing the trade-
offs between the various design choices in the IPTV domain, we use
scenario analysis to discuss issues that may be relevant in future exploration
phases: IPTV developers will focus on issues like service (bundles) and
more efficient marketing strategies. We use the scenario analysis to assess
the robustness of the business models, like those of IPTV, that are
characterized by high levels of uncertainty when they enter the
exploitation phase.

11.2 The IPTV Business Model

In this section, we discuss some of the business model design issues

regarding IPTV in the exploration phase, and the tradeoffs and relationships
between relevant design options. The design space is defined by
technological and market-related drivers.
Technological drivers for IPTV are (1) an increase in effective
distribution capacity, aimed specifically at ‘the last mile’; (2) an increased
ability to process user feedback via recently developed, innovative
technologies that increase the feasibility of interaction from the home
environment; (3) an increase in storage and processing capacity controlled
by viewers; and (4) a separation between applications from transport, to
ensure quicker innovations in the application layer, regardless of
transmission bottlenecks (Katz, 2002).
Market-related drivers and conditions include (1) market demand, e.g.
thus far, Western Europe has proven to be one of the world’s most vibrant
markets with regard to IPTV, for instance MalIgne TV in France,
FASTWEB in Italy and Telefonica’s Imagenio in Spain; and (2) a
convergence of information, telecommunication and TV industry that leads
to fiercer competition. Technological and market-related developments set
the conditions under which business models for IPTV have to be
developed. We will address the various design issues in greater detail in
our discussion of the four domains of our model.
 Chapter 11 Robustness of IPTV Business Models 207

11.2.1 Service Domain

Many telecom operators position IPTV as a service that directly competes

on the mass-market with cable and satellite companies. Telecom operators
expect they will be able to take advantage of their expertise and of
consumer loyalty in the telephone and broadband (DSL) market. They
have to leverage their resources (deep pockets) to increase the
competitiveness of IPTV. There are three ways in which they can do so:
(1) bundling video service with broadband and telephone service, (2)
offering more value-added services (e.g. interactive services, Video on
Demand (VoD), and Personal Video Recorder (PVR)), and (3) service
portfolio focusing on exclusivity or on a wide range of ‘long tail’ niche
channels.

11.2.2 Technology Domain

Within the technology domain, there are three layers of architecture when
it comes to IPTV. The transport layer design has to ensure that the
infrastructures meet transmission requirements. The design of the
middleware and content layers has to be given careful attention, because
the design requirements are vital to specific types of services (e.g. VoD,
PVR, or focused service portfolio’s) and to the interactivity of the services.
The conditional access components and middleware control the access
authorization, manage the Customer Relation Management (CRM) and
take care of the encryption of the video program. The set-top box is used to
decode programs on the end-user’s side. Different IPTV providers opt in
favor of different video application components, based on service design
demands and financial considerations.
In the technology domain, bandwidth limitations, quality of service and
level of middleware capability are the main issues. The telecom operators
can choose different design approaches, either by adding large capacity
immediately before launching IPTV or by doing so gradually. The former
approach usually leads to upgrades of large portions of the infrastructure
towards fiber optic cables, while the latter approach involves the plan to
begin by updating most of the distribution network towards ADSL2+
standard. The choice with which telecom operators are faced is between
the more advanced technology platforms and larger investment on the one
hand, and a more evolutionary approach on the other (Fijnvandraat &
Bouwman, 2006). Because video content is sensitive to signal quality,
service quality is the second issue at stake. Service quality can be
208 H. Bouwman, M. Zhengjia, P. Van Der Duin, and S. Limonard

improved by, among other things, better transmission infrastructure and

encoding/decoding equipment, all of which requires higher investment.
An alternative design choice is to offer different service levels to different
customers. Middleware capabilities, particularly for telecom operators
providing broadcasting, VoD and value-added services, are crucially
important with regard to integrating platforms that enable interactivity,
conditional access and customer relationship management.

11.2.3 Organization Domain

Actors in the value network of IPTV include telecom operators, content,

telecom equipment, and middleware providers, advertisers and consumers.
Telecom operators participate in and organize the entire value delivery
process. They produce or purchase the video content, and maintain the
physical network and the hardware and software components of video
application supported by equipment manufacturers. A content aggregator
intermediates between content providers and the telecom provider.
Advertisers can also be involved. Figure 11.1 presents an overview of the
actors, functions and services involved in IPTV.

Equipment
provider

Video
Content Middleware Carriage Consumption
distribution

Horizontal Content Content Telecom Video

Consumer
Consumer
integration aggregator provider provider programs

Broadband
Content
Advertiser
Consumer
creator Telephone

Bundling

Fig. 11.1. Value network of IPTV

Ownership of and control over successive stages of the value ‘chain’

plays a decisive role in the way the IPTV services are marketed, i.e.
bundled with other services (e.g. broadband and telephone) or separately.
Another relevant issue has to do with the extent to which the IPTV
provider (i.e. telecom operator) wants to be involved in the production of
content.
 Chapter 11 Robustness of IPTV Business Models 209

11.2.4 Finance Domain

Technical and service design choices determine the costs of IPTV projects.
For example, a high level of availability of services requires a large
investment in setting up redundant servers to make sure there are sufficient
video sources at peak times. Interactive services require financial
investments to upgrade network equipment and to solve technical
problems. The revenue models depend on revenue sources, for instance
advertisement or flat rate models, and the accompanying pricing models.
Revenue can then be calculated by the size of market and the expected
market share.
In the current IPTV market, most telecom operators use a flat rate
subscription model, and they are slowly adopting pay-per-view models as
well as advertising in the case of VoD services. However, if more
customized and personal services were to come available, a flexible
pricing model would be more desirable and feasible in the future. To
assess the robustness of the various designs we will use scenario analysis.

11.3 Scenario Analysis

Scenario analysis is an effective method of reducing uncertainties that

helps firms formulate flexible and sustainable strategies and policies. As a
tool for hedging future risk, scenario analysis is different from the more
quantitative prediction methods. Instead of offering predictions, scenario
analysis explores the future direction in a diverging perspective. Scenarios
produce various possible developments and display a keener awareness of
the uncertainty of trends (Bouwman & Van Der Duin, 2003). Scenario
analysis focuses on understanding, capturing and describing possible
future development rather than predicting the future based on a few
selected variables. In the case of IPTV business models, scenario analysis
will be used to identify the uncertainties that have a potentially major
impact on the viability and feasibility of the business models during the
exploitation phase (Limonard, 2006). Uncertainties often include elements
that are difficult to quantify and model (Fijnvandraat & Bouwman, 2006).
The scenario analysis helps IPTV operators develop a clearer idea with
regard to the sustainability and feasibility of their business model.
The scenario analysis uses four reference scenarios that focus on the
telecommunication industry and have a similar time horizon (2010), i.e.
Drop, Dijkhuis, Van Der Duin, and Stavleu (2000), European Commission
(2005), Foster Daymon and Tewungwa (2002), and Van Der Duin (2000).
Based on these scenarios, we identified consumer attitudes and regulation
210 H. Bouwman, M. Zhengjia, P. Van Der Duin, and S. Limonard

related to industry structure as the most important uncertainties, and we

will use them in the scenario analysis. We draw a distinction between
sophisticated and regular consumers. Sophisticated consumers are fully
aware of the advantage of new media products and services. They want to
pay a reasonable price for customized and personalized services. Regular
consumers are more conservative when it comes to new products. They are
satisfied with conventional TV, prefer easy configuration of services and
are price-sensitive. Bundling services at a discount is very popular among
this group of customers. The industry structure dimension, as regulated by
National Regulatory Authorities, on the one hand promotes a hands-off
approach on the part of the regulators and domination of the market by
telecom operators in the voice and broadband market. On the other hand,
regulators play the role of interventionist and curtail the actions of the
dominant market players. As a result, there are many players in the voice,
broadband and television market. These two dimensions result in four
scenarios, which are summarized in Fig. 11.2.

Hand on regulation

Back to basis Market deadlock

Strict anti-trust policy toward the big telecom Monopolies through large scale mergers. Anti-
operators. Television market is dominated by trust policies. Strict regulations for telecom and
several vertically integrated and global cable industries.
companies. Keywords: value-added service, balance
Keywords: QoS, leverage experiences and between service attractiveness and potential
expertise from broadband to television, synergy revenue loss, flexible pricing.
effect.

Simple consumers Sophistated consumers

Telcos Mammoth Head-to-head competition

Modest economic growth. Growing competition High economic growth. Less regulatory
between telecom operators, new entrants, cable constraints, more similarity in regulations for
and satellite companies. Light regulation cable and telecom industry.
regime. Keywords: content diversity, broad cooperation
Keywords: bundling, aggressive bundle between content providers, user generated
discount rates, horizontal organization content, full use of IP-based transmission.
integration, sufficient bandwidth.

Hand off regulation

Fig. 11.2. Scenario dimensions, scenarios and critical issues

We will discuss the four scenarios in greater detail and illustrate the
kind of design choices that become relevant in the exploitation phase of
IPTV business models.
 Chapter 11 Robustness of IPTV Business Models 211

11.3.1 Telcos Mammoth

Telecom operators are not restricted by tariff regulation and have the
freedom to form alliances with content providers. The younger generations
of consumers are quick to adopt the new services that are offered at an
affordable price. Most of them like easily configurable digital TV, telephone
and broadband services. Consumers show an interest in bundling. The most
popular packages are the discount offers from the multi-services providers.
Bundling complementary products is an attractive strategy, given the fact
that consumers will value bundled services more than the total added value
of the separate elements. Telecom operators are the only players capable of
providing quad-play. Although cable companies are triple-play veterans,
they have a hard time catching up with telecom operators. However, market
success is not simple in a market where several competitors (cable) are
capable of offering similar service bundles. Telecom operators should focus
on the preference ‘simple’ users have for easy and quick configuration and
entice more consumers by introducing bundled products. Telecom operators
are in a position where they can bundle the IPTV and broadband services. In
most cases, IPTV and broadband services are independent products and the
costs involved in providing them can only be reduced through bundling.
However, in some cases they become complementary, which means that
they add value for end-users.
Bundling has an effect on several business model aspects. In the
technical domain, bandwidth is closely related to service bundling.
Bundling broadband and video service requires high bandwidth capacity
(e.g. video service requires at least 2–3 Mbps and broadband requires
around 1 Mbps; the total is about 3–4 Mbps). Bandwidth will be the key
enabler of bundling services. This means that a network upgrade to fiber or
hybrid type is needed. In the organizational domain, horizontal integration
is necessary in order to offer service bundles. It is a challenge for telecom
operators to coordinate the activities of the newly established video
business unit and the traditional broadband and voice business units, to
provide seamless bundles and efficient billing systems. In the financial
domain, it is very important to choose the right pricing and discount rate.
Telecom operators have to balance the technical and financial design to
control costs and to be able to offer a modest monthly rate to most
consumers. This pricing strategy can be modified to predatory price levels
that are enabled by economies of scale and scope. This can create
competitive advantage and entice more consumers to the convenient triple
play configuration.
212 H. Bouwman, M. Zhengjia, P. Van Der Duin, and S. Limonard

11.3.2 Head-to-Head Competition

The regulatory framework leads to fair competition among equally strong

players creating an expanding digital TV market. Different players
compete at a national level and gain fair access to the content market.
Competition facilitates innovation and strengthens the balance sheet of the
digital TV industry as a whole. The market value of digital TV companies
keeps increasing. Consumers are aware of the benefits of digitalization and
experienced in selecting digital TV offers and programs. They prefer new
services at an affordable price and are less interested in selecting services
from a whole range of options. Consumers like to create and share content.
The best-performing digital TV provider is the one that caters to the
personal tastes of consumers and enables them to create, publish and share
personal stories.
Sophisticated consumers search for the programs they prefer. Because
of the personal preference among consumers, the content market becomes
fragmented. Even the most popular programs do not attract much attention,
so the result is an increase in narrowcasting: a large number of programs
with small audiences, emulating a ‘long tail’ approach for television
(Limonard & Tee, 2007).
Content diversity is of key importance. The success of a business model
depends on the question whether or not operators can cater to individual
preferences and capture the value located in the “long tail”. In order to do so,
operators have to look for extensive cooperation with various content
producers, including content generated by viewers, and aggregators, to
obtain as many and as diverse programs as possible, as well as to enhance
their own capabilities to produce exclusive content (organizational domain).
In the technical domain, IP-based distribution technology provides a
competitive advantage, because it meets the requirements inherent in the
‘long tail’ to become economically interesting (Brynjolffson, Yu, & Smith,
2006). Because the IP infrastructure enables interaction and makes it
possible to capture detailed information regarding user behavior, a powerful
asset is created, giving telecom operators the opportunity of becoming
an indispensable interface between customers, content producers and
advertisers. Therefore, telecom operators should make full use of the
advantages offered by IP-based transmission. Delivering customized service
requires additional investments in content production and distribution.
Although, according to Noam (2002), cable and Internet TV operators face
similar costs in content production, the distribution costs involved in
operating an IP platform are considerably higher. Individualization requires
significantly larger transmission resources, which implies higher levels of
investment.
 Chapter 11 Robustness of IPTV Business Models 213

11.3.3 Market Deadlock

Telecom operators have to go through numerous procedures to receive TV

franchise permits and are actually blocked from engaging in content
integration. Cable and satellite companies take advantage of this regulatory
environment. They consolidate their business, and become dominant and
vertically integrated national players. In this scenario, consumers already
have quite a lot of experience with digital TV. They are interested in new
services.
It is hard to generate profit for telecom operators due to a stagnating
market. The most important CDI involves providing new value-added
services. To achieve satisfactory penetration rates for IPTV service,
telecom operators need to create a competitive edge by differentiating their
services. These services are not exploiting the long tail for content, but
focus on value-added services, for instance by providing PVR (Personal
Video Recorder) and interactive services (TV email, TV internet and
games). Choosing this strategy inevitably leads to conflicts with content
providers. Content providers may decide to implement some form of IPR-
protection, to prevent use of PVR. However, according to Katz (2002)
history suggests that these measures will be overcome and consumers will
have the capabilities to copy content and edit programs. This threatens the
ability of content packagers to rely on the sale of advertising (Loebbecke
& Radtke, 2005).
Subscription fees and advertisements provide the key revenues for
television distributors. Value-added services, like PVR offered by telecom
operators lead to revenue loss for television distributors, which means they
are forced to take counter-measures. One option is to give extra rewards to
consumers who are willing to watch advertisements.
In an IP-based network, it is possible to monitor consumer behavior, and
telecom operators can use these data to grant monitory compensation or
conditional access to premier contents (Katz, 2002). Telecom operators
can also tolerate consumers copying contents and skipping advertisement
if the value-added services can attract enough new subscribers. Actually,
according to Mogg (2004) and Myers (2002), these two features are the
biggest selling points as far as PVR is concerned. Telecom operators
should make the decision based on the balance between customer value
and economic benefits.
214 H. Bouwman, M. Zhengjia, P. Van Der Duin, and S. Limonard

11.3.4 Back to Basis

Cable and satellite companies take advantage of the regulatory

environment and consolidate their business. Most consumers are satisfied
with existing television services provided by the cable and satellite
companies. They are extremely hesitant to adopt new services and there is
little demand for interactive services and Internet TV. Consumers decided
to use bundling services because they are more convenient and easier to
configure.
In this scenario, regulatory barriers and consumer indifference make it
hard for telecom operators to offer IPTV service. There are few new
opportunities for telecom operators to develop the kind of IPTV-services
defined in the exploration phase of a successful service. Although bundling
may still be an effective strategy, it will be difficult to convince consumers
to switch from cable companies towards telecom operators. Market
potential is limited. The content supply side is dominated by several
vertically integrated global companies. It is difficult for telecom operators
to enter the content market and compete with content providers.
The more realistic option available to telecom operators is to make
better use of the existing technologies, services and resources, to support
IPTV development. First of all, telecom operators can create a fresh image
as new entrants, providing a high level of Quality of Service and service
availability and excellent customer service. Better program quality and
customer service are compelling reasons for consumers to move away
from cable and satellite providers. Secondly, telecom operators should
leverage their customer base in the broadband and telephony market.
Thirdly, they can create complementary programs and content on the
television and broadband platforms. However, the back to basis scenario
does not include a dominant strategy for telecom operators.

11.4 Conclusion

Since the future of IPTV is uncertain, business models should be easily

adaptable to changing external factors and uncertainties. In this chapter,
we have used scenarios to assess the robustness of IPTV business model
design choices. The scenarios represent various possible futures, in terms
of the regulatory environment, industry structure and consumers’ attitude
towards IPTV service. By choosing the appropriate business model,
telecom operators can sustain market competition and deliver customer
value and economic benefits. Because the resources are limited, telecom
operators have to focus on the major design choices in each of the
 Chapter 11 Robustness of IPTV Business Models 215

scenarios when balancing the requirements of IPTV business model

design. Table 11.1 summarizes the design choices for the four scenarios.

Table 11.1. Summary of major design choices for each scenario

Scenarios
Telcos Head-to-head Market Back to
Domain Mammoth competition deadlock basis
Service Bundling IPTV Content diversity Value-added Bundling
with other service
services
Technology Sufficient Middleware Middleware QoS
bandwidth capability capability
Organization Horizontal Partial vertical Partnering/ Consolidate
integration integration to partial
enable cooperation integration with
with content service providers
producers
(professionals and
User Generated
Content)
Finance Aggressive Balance increased Balance content Consolidate,
discount rate costs with related loss in focus on
increased revenues and internal
revenues extra revenue synergy
from advertisers effect in
and price network
differentiation

The design issues we have identified as being of critical importance in

each scenario do not necessarily undermine the importance of other design
issues. In fact, telecom operators always have to balance design choices to
deliver both customer value and economic benefits. For example, the
content diversity design is closely related to the financial domain, because
the costs involved in producing tailored personal services are far from
trivial. It is important to find ways to control costs (e.g. broadcasting user
generated content is one way to reduce cost). Providing value-added
services means running the risk of losing subscribers and advertisement
revenues, which makes the business model vulnerable if telecom operators
fail to attract enough new customers. Telecom operators have to decide the
extent to which they want to offer the new services based on market
demand and costs.
In this chapter, we have illustrated how business model analysis based
on the STOF model can be complemented with scenario analysis. Scenario
216 H. Bouwman, M. Zhengjia, P. Van Der Duin, and S. Limonard

analysis helps identify various future possibilities and provides a platform

for analyzing decisions with regard to the design choices that are likely to
play a significant role in an uncertain future environment. The competing
views regarding future developments are helpful in that they make it
possible to reduce the future uncertainties with regard to the viability and
feasibility of IPTV business models.
Chapter 12 Mobile Service Bundles

T. Haaker

In this chapter we consider business models for mobile service bundles.

The focus of the STOF model and method is on mobile services. Service
bundling will be an important driver for the use of 3G+ services. Bundles
of services may provide a ‘bundle of benefits’ to users, potentially
increasing customer value. Bundling may also lead to cost efficiencies for
providers coming from economies of scale or scope. Any decision
regarding a bundled offering of services requires careful balancing of
customer and network value.
Notwithstanding the wide application of bundling strategies still little is
known about what constitutes a viable bundle, i.e. a bundle that creates
added value for users and/or providers. Clear guidelines neither for the
design of service bundles, nor for the underlying business models are
available. In this chapter we use the STOF model to discuss Critical Design
Issues (CDIs) for service bundling that influence customer value. The study
is based on a literature review and a number of case studies of existing
mobile service bundles. We use the results to extend the causal model for
creating customer value with additional CDIs related to service bundling.

12.1 Service Bundling

Bundling of products and services is a well-known practice in marketing

(Kottler, 1999). Bundling can be defined as ‘selling two or more products
in a package for a special price’. While the concept of bundling is in itself
straightforward, any question regarding what products or services should
be bundled, and under what circumstances, is generally hard to answer.
Companies use bundling to create price discrimination (Adams & Yellen,
1976), increase sales (Venkatesh & Kamakura, 2003), reduce costs
(Shapiro & Varian, 1999), or create entry barriers (Nalebuff, 2004).
In the telecommunication industry the bundling of services with
handheld devices is common practice. The aim of the mobile operators in
218 T. Haaker

providing an almost-for-free device is to attract customers. The actual

revenues should come from complementary service subscriptions and
usage fees. Bundling of telecommunication services is generally limited to
packages of communication services, e.g., combing voice and SMS, and
triple or quadruple play offerings.
Bundling of mobile services is, however, not very common. With
‘mobile services’ we refer to all kinds of services that combine techno-
logies and concepts from the domains of telecommunication, information
technology, and consumer electronics. Service bundles are expected to
play a central role in the success of next generation mobile services. Given
the lack of a single killer application for mobile services, and that the
mobile device and services should fulfil personal user needs in varying
circumstances, a bundle of services is more capable of providing the right
‘bundle of benefits’ (Kotler, 1999). With the advent of the open mobile
internet, as opposed to the operator dominated walled garden approaches,
there are more and more opportunities for mobile services and bundles.
We consider bundling as the sale of two or more separate products or
services in one package for a special price (Guiltinan, 1987). In the
specific case of mobile services, a bundle can be a packaged set of mobile
services, that may also include a complementary mobile device, a mobile
(data) subscription, or other types of services (e.g. internet services)
(Teerling, Haaker, & De Vos, 2007).
Notwithstanding the wide application of bundling strategies still little is
known about what constitutes a successful bundle. Much of the literature
on bundling is about applying analytical methods to determine when a pure
component strategy, a pure bundling strategy or a mixed bundling strategy
should be followed (Stremersch & Tellis, 2002). Research on service
bundling focused mainly on bundling of services with auxiliary or support
services (Simons & Bouwman, 2004), and not on complementary services
that are equal to the core service, i.e. voice communication services, mms-
services or other mobile data-services. Moreover there are no clear design
guidelines for the design of service bundles, neither for the underlying
business models (Ballon, 2004). This chapter therefore focuses on CDIs
for the development of (business models for) services bundles and analysis
of existing bundles in the mobile domain.
We specifically address CDIs for mobile service bundles, i.e. additional
design issues that directly relate to the bundling of mobile services. We
consider in particular CDIs that influence the customer value of mobile
service bundles’ business models. The focus is on the service and
technology domain, because design choices in these domains are closely
related and significantly impact the customer value of a service offering.
 Chapter 12 Mobile Service Bundles 219

12.1.1 Critical Design Issues for Mobile Service Bundles

The central issue in the service domain is ‘value’. Value is seen as the
perceived benefits and total costs (or sacrifice) of (obtaining) a product or
service for customers in target markets (cf. Chap. 2). Compared to
competitive offerings, a service must be considered better, and deliver the
desired satisfaction more effectively and efficiently. Important design issues
that influence the customer value of service bundles are discussed below.
First we consider new design issues in the service domain, i.e. Bundle
Focus, Bundle Composition and Bundle Strategy. This is followed by a
discussion of CDIs Pricing and Branding from a bundle perspective. Finally
we discuss bundle related CDIs in the technology domain, i.e. Service
Integration, which is a new issue, and Management of User Profiles. Both
issues may influence the customer value of a bundled offering.

• Bundle Focus. An important design issue is choosing a profitable target

group and associated with that determining the bundle focus and scope.
Should the service bundle have a clear focus (theme), or should it be
broad in scope? Research on bundling reveals that most bundles are
build up around one or more core services that carry the main
proposition of the bundle. Some bundles are narrow in scope and focus
on a niche market with very precise benefits. Other bundles focus on
mass-market segments with a broader scope of (related) benefits, e.g.
all-inclusive holiday packages.
• Bundling Strategy. Service providers can opt for three different bundling
strategies: pure component strategy (unbundled offer), pure bund-
ling strategy (components available only in bundled form) and mixed
bundling strategy (components available in bundled form as well as
separately) (Adams & Yellen, 1976). Bundle strategy has changed the
granularity of service offerings due to the internet. For example music can
be bought per song as downloads in online shops as well as per album,
which provides for an example of mixed bundling. Also holiday packages
are still available but users can more and more assemble their own
holiday from available services (e.g. flights, hotels, car-rental, insurance)
and service elements (e.g. priority boarding) that can be booked online.
For mobile services often a special form of mixed bundling occurs, i.e.
services are only available as add-ons to basic services or basic service
bundles. We will call this add-on bundling. For example mobile data
services are often add-on services to basic voice and messaging services.
Pure bundling is found with Microsoft Office, i.e. a bundled offering of a
word processor, spread sheet, database management and presentation tool.
The actual choice for a particular strategy depends on aspects related to
220 T. Haaker

the perceived customer value, e.g. degree of complementarily and

integration between services (Stremersch & Tellis, 2002).
• Bundle Composition. A bundle can be composed of related and
unrelated services. Services may be reinforcing (e.g. communication
and presence information), complementary (e.g. mobile phone and
subscription), unrelated (e.g. ring tone and weather information service)
or competing (e.g. ring tone service A and B). Harlam, Krishna,
Lehmann, and Mela (1995) suggest that bundles composed of
complements have higher purchase intent than bundles of similar or
unrelated products. Empirical research among users helps to get insight
into which service bundles may be favored by users. Bouwman, Haaker,
and De Vos (2007) have shown that add-on services can be subdivided
in enhanced services and supplementary services. Enhanced services
enhance the core experience of the bundle. For example a service that
provides real-time traffic information could enhance existing in-car
navigation by avoiding traffic congestion. Supplementary services
enhance the core experience in new directions. For example audio books
available via an in-car navigation system do not enhance navigation
itself but intend to make travelling by car more pleasant. Bouwman,
Haaker, et al. and Haaker and De Vos (2007) find that enhanced
services increase bundle value more than supplementary services.
• Pricing. Price discrimination refers to charging different prices to
different customers for the same goods or services (Shapiro & Varian,
1999). Shapiro and Varian distinguish between two forms of price
discrimination, i.e. personalized pricing and group pricing. Klein and
Loebbecke (2003) consider bundling as a mechanism for price dis-
crimination. Empirical data shows that differential pricing is already
widespread in industries that exhibit large fixed costs like airlines,
telecom or publishing (Varian, 1996). For example in the telecom
industry differential pricing may be based on customer characteristics,
e.g. preference for pre-paid or post-paid, group characteristics, e.g.
student discounts, product characteristics, e.g. tailored bundling of
specific services and features (e.g. device, voice and data services), and
volume (the more minutes you call the cheaper the price per minute). In
the airline industry business travelers are typically time-sensitive and
leisure travelers typically price-sensitive. To effectively differentiate
between business travelers and leisure travelers the airline industry
offers cheaper tickets only if a weekend is part of the trip (Klein &
Loebbecke). Stremersch and Tellis (2002) distinguish between price
bundling and product bundling. They speak of product bundling
whenever there is some degree of integration between the bundled
products or services. Price bundling refers to bundles with no
 Chapter 12 Mobile Service Bundles 221

integration between the services but only a price discount. Price

bundling can be a valuable strategy when economies of scope or scale
exists, for example in bundling information goods or services (Bakos &
Brynjolfsson, 1999).
• Branding. Branding is also found to have a profound effect on
consumers’ evaluation of product or service bundles. Although a
manufacturer may decide to introduce a new product on its own, he or
she also may opt to promote it through bundling with an existing
product which carriers either the same brand name or a different brand
name. Results of Grace and O’Cass (2005) indicate that brand evidence
along with advertising and promotions significantly influence consumer
satisfaction, attitude, and behavioral intentions towards service brands.
The findings of Simonin and Ruth (1995) suggest that a brand umbrella
(within brand) bundling strategy would enhance positive consumers’
evaluation of the bundle and of the new product. Moreover, consumers’
reservation prices for the new product can be artificially raised for a not
so-well-liked brand through a clever association with a well-liked tie in.
• Service Integration. The extent to which services in a bundle are
integrated influences the customer value of a bundle. Due to integration
the value of the bundle may be more than the sum of the value of the
individual elements. For instance, Microsoft Office is a product that
bundles a word processor, a spreadsheet, a database and a presentation
tool. Service integration allows users for instance to copy and paste
pictures made in Powerpoint into MSword and vice versa. In the mobile
domain integrated search and navigation services – involving interactive
maps, contact lists and yellow pages – provide for a value adding form
of service bundling (De Vos, Haaker, Kleijnen, & Teerling, 2008).
The question remains how specific services and bundles have to be
composed. In Chap. 6 a composition method was discussed that sup-
ports the process of bundling several services to each other, in order to
make the execution of a specific task, or the fulfillment of a need,
possible. Service integration can be included in the composition process
as additional functional requirements.
• Management of User Profiles. For personalization of a service, a user
profile that contains user context, preferences and behavior must be
created and maintained. For instance, for MSN Messenger the Instant
Messaging server keeps a profile for each user. A privacy statement is
issued to users about the protection of the provided data. The
management of this profile, i.e. creation, use, maintenance and access to
the profile, requires functionality that may be realized in different ways.
Balancing is needed between user involvement and automatic profile
222 T. Haaker

generation, and between privacy and access to users’ profiles. We

introduce three alternatives for profile management.

– Self-management would imply that users are the initiators when it

comes to manage specific issues, such as privacy, service bundling
preferences, etc. This control could be done either manually by
asking users to respond dynamically or through a number of
(domain and user specific) preferences and rules that can govern
self-management behavior.
– Group Management. When a group of users share a service or
service bundle, control issues become more complicated. A number
of factors influence this control such as the roles of the users in the
group, possible hierarchical relations, the type of information to be
controlled, and the context of users.
– Autonomous Management. Due to the huge amount of information
that need to be controlled, and due to the design requirements of
flexibility and ease of use, there will be an ongoing issue of
balancing between the amount of flexibility required and the
involvement of users. Therefore, a third way of controlling,
autonomous control can be applied as well. Autonomous control
basically implies that software will manage the applications based
on predefined preferences.

Our literature review in the previous section revealed the following

critical design issues for service bundling to be relevant: bundle
focus (mass, niche market), bundle strategy (unbundled, mixed, add-on,
pure bundled), bundle composition (core, complementary), pricing
(personalized pricing, group pricing and versioning), branding (brand
umbrella or not), service integration (fully, partly integrated, indepen-
dent), and user profile management (self, group, and autonomous).

12.2 Revised Causal Framework Explaining Customer Value

In Chap. 3 we presented a causal model for explaining the customer value

of mobile services’ business models (see Fig. 3.1). Based on the literature
review we extended this model to include service bundle issues, see
Fig. 12.1 (Bouwman, Faber, & Haaker, 2005). This revised model explains
the customer value of mobile service bundles’ business models.
Subsequently we look for evidence of these bundle issues in several cases
of mobile service bundles.
 Chapter 12 Mobile Service Bundles 223

Critical Design Issues Critical Success Factors

Clearly Defined
Bundle influences Targeting
Target Group
Focus results
S S S
Accessibility in
for Custo-
influences
mers T
Bundle Compelling
Value
Compo- Value
influences Elements enables
sition S S Proposition S

Bundle Pricing
Strategy co-determines
S F

Service Branding Customer Viability of

Integration co-determines Value business model
T S S
Security
T

Acceptable
Quality of enable
Quality of Ser-
Service
T vice Delivery T

System
Integration
T

User Profile supports Unobtrusive

Customer
Manage- Customer
Retention
ment T S Retention S

Fig. 12.1. Revised causal framework explaining the customer value of mobile
service bundles

12.3 Explorative Case Studies

We analyzed thirteen illustrative cases of existing mobile service bundles

(Bouwman, De Vos, et al., 2005). The cases studies were executed in
various projects. Additionally some new cases were obtained through an
internet search and subsequent desk research. Selection criteria for the
bundles were (1) that they should comprise of at least one mobile service
element, (2) that they provide illustrative examples of current service
bundles and (3) that they collectively give an overview of different
service bundle practices. In the cases we explicitly focused on illustrations
of the CDIs related to service bundles as presented in the previous section.
Mobile services are generally classified into four broad categories, i.e.,
information services, communication services, entertainment services and,
transaction services (cf. Chap. 4). The thirteen service bundle cases were
allocated to five categories, loosely following the proposed classification:
224 T. Haaker

• Operator Portals. Most mobile operators provide their customers with

a portal to access mobile services of third parties. The portals are
generally restricted to the operator’s own customers and provide access
to all kinds of services of third parties in a walled garden approach (cf.
Chap. 4). Portals usually do not provide pre-determined bundles but
rather provide bundled access to mobile services. The portals considered
in this study were KPN i-mode, Vodafone Live! and Orange World.
• Information Oriented Bundles. These bundles provide primarily
information services. The services provide for information (news,
weather) that is of general interest, or specific information structured
around a specific theme targeted at a specific segment. The following
information oriented bundles were considered:

– P-Info. P-info is a mobile information service for police officers in

the Netherlands. It enables police officers to query police databases
and national criminal investigation registers. It also provides mail
and calendar services.
– CNN Mobile News Services. CNN offers browsable news, breaking
news alerts via sms and mobile TV (via limited number of selected
service providers) as mobile versions of existing TV and internet
services.
– TimeSpots. TimeSpots is a location-based mobile tourist guide. The
bundle combines information and navigation services with com-
munication services, which run on a dedicated mobile device that
can be rented.

• Community Oriented Bundles. These bundles combine communication

services with information and/or entertainment services to support
communities, i.e. formation and preserving of communities. The
following community oriented bundles were considered:

– Botfighter. Botfighter is a location-based mobile game that lets

users play with their mobile phone via SMS. On a website, the
players can upgrade their robots, buy weapons, view high scores
and get information on their current mission. The mobile phone
acts as the player’s radar and weapon.
– Blah!. Blah! is a lifestyle oriented mobile community. It provides
its members with downloadable content (such as ringtones) and
with information channels. Members can browse through each
other’s profiles and interact with each other (play games, chat, etc).
– MSN Messenger. MSN Messenger started out as a text based real
time instant messaging and presence service based on a buddy list.
 Chapter 12 Mobile Service Bundles 225

Gradually the bundle expanded to include more advanced

communication and context sharing services, alert services, and
information and transaction services.

• Interaction Oriented Bundles. These bundles primarily provide services

that allow for interaction between the user and knowledgeable
professionals or systems. The following interaction oriented bundles
were considered:

– Onstar. OnStar is a mobile service offered by General Motors for

owners of selected GM automobiles. It provides information and
assistance services including emergency services, as well as voice
calling services. Onstar works with a dedicated car-mounted
device.
– Predoc. Predoc offers a disease based information and prevention
program to chronic patients. The program includes personalized
information, personal counseling on medication, discounts on
information sessions and medical checks, and medication alerts via
SMS.

• Transaction Oriented Bundles. These bundles are primarily provided for

transactional services, for example a payment service, online shopping
or bank information services. The transaction oriented bundles
considered were Postbank mobile information services and ABN AMRO
mobile services. Both provide a bundle of mobile banking services, i.e.
transfer of monetary value, and information services like account
checking and stock market SMS alert services.

12.3.1 Critical Design Issues in the Case Studies

In this section we look at how the CDIs occur in the explorative case
studies. For each of the different bundle types we discuss the design
choices for the bundle related CDIs.
Operator Portals. By nature the scope of the operator portals is very
broad. They target a mass-market. The portal branding is such that the
operator brand is always clear. However, often the content providers’
brands are used as well. Access to the portal is always bundled with a basic
voice subscription, or, in the case of pre-paid, separately billed. The third
party services available via the portal are offered and priced completely
independent, i.e. an unbundled strategy is followed by the portal and
226 T. Haaker

content providers. The content services are not price bundled nor product
bundled (Stremersch & Tellis, 2002), i.e., bundle discounts do not exist,
and content services in the portal are not integrated in any way. Customers
select their services on a monthly or per use basis. The critical design
choices are summarized in Table 12.1.

Table 12.1. Critical design choices for operator portals

Case i-mode, Live!, Orange World
Composition (core) Information, Entertainment, Transaction and
Communication services
Composition –
(complementary)
Focus Mass market
Strategy Unbundled
Pricing Data subscription and per service subscription
Branding Operator brand
Service Integration Independent services
Profile management Self management

Information Oriented Bundles. The core of the information oriented

bundles is obviously information services. In the case of P-info and
TimeSpots these are complemented by communication services and, or
entertainment services. Both P-info and TimeSpots have a niche focus,
which provide specific information services to police officers and tourists,
respectively. CNN Mobile has a mass market focus and provides generic
news services. P-info and TimeSpots are examples of bundling of services
with a dedicated device. Both P-info and TimeSpots follow a pure
bundling strategy, i.e. all services are part of a bundled offering. On the
other hand CNN Mobile has an unbundled strategy – the services are
offered completely independent with heterogeneous pricing schemes.
TimeSpots is offered as a daily rental, i.e. device plus services, for a flat
fee. P-info is a niche business service where part of the value is clearly
derived from integration between included services. Results of a search
can for example be used to start another query or to begin a voice
communication. For the TimeSpots bundle also integration between
services exist, e.g. guided city tours with real time navigation. Profile
management is not an issue for the studied information bundles. Users
mainly select the information they want when they need it. The critical
design choices are summarized in Table 12.2.
 Chapter 12 Mobile Service Bundles 227

Table 12.2. Critical design choices for information oriented bundles

Case P-info CNN Mobile TimeSpots
Composition Information Browsable news, Information
(core) services (mobile SMS breaking news services: city guide,
queries); alerts, mobile TV listings; Finder
navigation; task service; Navigation;
reporting Audio tours
Composition Office – E-mail; voice; chat
(complementary) applications with other users;
limited internet
access; gaming;
device with camera;
vouchers, discounts
Focus Niche: police Mass Niche: tourists
officers
Strategy Pure bundling Unbundled Pure bundling
Pricing – Heterogeneous and Flat fee for device
operator dependent and services
Branding Police branding Content provider New brand
branding
Service Integration Integration Independent Partly integrated
Profile Central manage- Self management Central
management ment: profile. management;
Autonomous Autonomous
management: management:
location location

Community Oriented Bundles. In the community oriented bundles the

communication services form the core. The communication services are
complemented with information and entertainment services, although for the
Botfighter case the entertainment services are prevalent. Botfighter basically
creates a gaming community with a narrow focus. The communication
services enhance the gaming experience, e.g. via clan formation. MSN
Messenger and Blah! are broader in scope. They support group formation
and communication within user’s social network via text messaging and
presence information. MSN Messenger works via buddy lists under the full
control of the user. The formation of buddy lists is a form of group
management, as this depends on joint and reciprocal agreements between
involved buddies. With Blah!, community formation or matchmaking is
based on user determined profiles. The profiles contain information on
personal preferences for music, going out, etc. Although some autonomous
management occurs in the selection of potential matches, the final decision
228 T. Haaker

regarding ‘matching’ lies with the users. In the Botfighter case the location
of game participants is determined automatically via cell-ID. Clearly profile
management is an important issue for community oriented bundles.
Integration between services clearly exists in the Botfighter and MSN
Messenger case. For example the robot profile in Botfighter is created on a
website and subsequently used in the mobile game. With Messenger most
services are integrated with the buddy list and can be evoked from the
buddy list environment. For the Blah! case integration is basically absent.
Blah! can be considered a ‘lifestyle’ portal which provides access to
multiple information channels. The matchmaking and communication
services between Blah!-members provide for the community aspects. For
Blah! and MSN Messenger the bundling strategy can be characterized as
add-on bundling. With Blah! the information channels are freely available
whereas the SMS communication service is offered as a premium add-on
service. Similarly, for MSN Messenger the core communication services,
as well several complementary services, are freely available to all
subscribers and the premium services are provide as add-ons to the core.
The bundle strategy in the Botfighter case is pure bundling, i.e. all services
in the bundle are available to users once registered. Pricing is not a big
issue in community oriented bundles as most services are for free, except
for some premium (SMS) services. The critical design choices are
summarized in Table 12.3.
Interaction Oriented Bundles. Interaction oriented bundles are more
targeted towards niche markets. Onstar’s core proposition is about safety,
whereas Predoc focuses on staying healthy. Both bundles have human
assisted services as core, i.e. Onstar operators assist during emergencies
via a direct voice link and pharmacies associated with Predoc provide
counseling on medication. Onstar started out with a clear focus on
emergency services, but extended its bundle beyond the safety theme with
supplementary services like voice calling. Predoc’s complementary
services basically enhance the core service.
Onstar sells single services as well as bundled service packages for a
special price, i.e. Onstar follows a mixed bundling strategy. Predoc on the
other hand provides a pure bundled offering. The subscription based
pricing model as used by Onstar is quite typical for interaction bundles, as
other revenue sources like advertising or data traffic are not relevant. A
subscription to Predoc is actually free for the customers of the pharmacy
chain providing the service. Both Onstar and Predoc are positioned as
separate brands although closely tied in with the provider’s brand.
 Chapter 12 Mobile Service Bundles 229

Table 12.3. Critical design choices for community oriented bundles

Case Botfighter Blah! MSN messenger
Composition Robot profile (via Text based mobile Text based
(core) internet), game (get communication communication and
mission, scan, fire) (sms), profile sharing presence info
via text messages matching
Composition Text based mobile Entertainment: Voice and video
(complementary) communication, games, quizzes, ring communication; SMS
internet chat, game tones, wallpapers; service; profile
information Information: music, matching; sharing
theatre, events info on music
listening; price
comparison; search
service; emoticon
trade; buying/selling
via buddies; music
download
Focus Niche: gaming Mass (youth): Mass
wireless community
Strategy Pure bundling Add-on bundling Add-on bundling
Pricing Premium SMS Core: Via SMS; Core: data traffic;
Complementary: Complementary: free
data traffic or pay per product
(emoticons)
Branding Tie in with New brand Microsoft
operator brand
Service Integrated Independent Integrated
integration services
User profile Self management: Self management: Self management:
management robot profile; profile; Group preferences and
Autonomous management: context; Group
management: matchmaking and management:buddy
location group formation lists

The Onstar services are integrated in the sense that they are offered via a
dedicated device and call centre. The bundle is also clearly integrated with
a GM car. Profile management is not a big issue here. For Predoc the
necessary medical information is already available at the pharmacy and
is basically fairly static. For Onstar the car’s location is determined
automatically. The critical design choices are summarized in Table 12.4.
Transaction Oriented Bundles. The transaction bundles considered here
focus on mobile banking. Mobile banking bundles typically combine
transaction services (money transfer) with information services (account
checking, alerts). Mobile banking is typically seen as an add-on to internet
banking. The information services and the transfer of money are usually
230 T. Haaker

Table 12.4. Critical design choices for interaction oriented bundles

Case OnStar Predoc
Composition (core) Emergency Services, Air Bag Semi personalized paper
Deployment Notification newsletter; personal
counseling (on
medication)
Composition Personal calling; Information market;
(complementary) Information/convenience; Stolen SMS news alerts on
Vehicle Tracking; Remote Door medication; health tests
Unlock; Driving Directions for reduced price
Focus Niche: safety Niche: health
Strategy Mixed bundling Pure bundling
Pricing Core: subscription; Complementary: Core: subscription;
subscription and per use Complementary: SMS
Branding Tie in with GM brand New brand
Service Integration Integrated Independent
User profile Self management: user preferences; Self management
management Autonomous management: collection
of context information

free of charge, except for the cost of airtime. Mobile banking has a broad
mass market focus with rather generic services. Bundling is basically pure
in these cases as the bank’s consumers have in principal access to all these
services. The services are offered via different mobile channels, e.g. via
SMS or regular calling, via a browser on the mobile device and/or via an
operator portal. Branding is basically that of the bank brand although also
a form of co-branding occurs in the operator’s portal. The mobile banking
services themselves are not integrated, but together they are an integrated
part of the internet banking environment. Users manage their own profile
via the bank. The critical design choices are summarized in Table 12.5.
Table 12.5. Bundle characteristics for the transaction oriented bundles
Case Postbank mobile banking ABN-Amro mobile banking
Composition (core) Mobile banking; SMS Mobile banking; SMS alerts
alerts and order status and order status
Composition Revalue pre-paid calling Financial news site
(complementary)
Focus Mass: banking Mass: banking
Strategy Unbundled Unbundled
Pricing Price per minute; premium Price per minute; premium
SMS SMS
Branding Bank brand and co-brand Bank brand
with operator
Service Integration Independent Independent
User profile management Self management Self management
 Chapter 12 Mobile Service Bundles 231

12.4 Cross Case Comparison

The operator portals and the mobile banking bundles have a mass market
focus. The information and community oriented bundles can be both mass
market and niche market oriented, whereas the interaction oriented bundles
have a niche focus. The bundles with a mass market focus seem to follow
two distinct approaches. The first approach is to provide generic services
that appeal to a large number of customers, e.g. bundles for mobile
banking, generic news services (CNN) and presence and instant messaging
services (MSN Messenger). The providers of these bundles follow an
unbundled or add-on bundling approach. The second approach, followed
by the operator portals, is offering a very large number of services
(sometimes literally hundreds), such that there are services for every taste.
The portal operators also follow an unbundled approach where pricing is
service specific.
Providers of bundles with a narrow focus, e.g. P-info, TimeSpots and
Predoc, aiming at niche markets with more specific services, follow mostly
a pure bundling strategy. Only Onstar is found to pursue a clear mixed
bundling strategy.
Integration between services is most often found for bundles with a
niche focus. Providers of these bundles use integration to create added
value, e.g. in the case of P-info, Botfighter, Onstar and TimeSpots.
Bundling with a dedicated device is found for niche bundles, i.e. P-info,
Onstar and TimeSpots. Bundles targeted at mass markets typically make
use of the user’s personal mobile device.
Management of user profiles is most important for community oriented
bundles, much less for information and interaction oriented bundles.
Control over user’s profiles is typically based on self management, while
relationships with group or community members are based on mutual
agreements, i.e. group management. For P-info, a business service, profiles
are maintained at a central location. Location information in services
usually automatically collected.

12.5 Conclusion

This chapter presents additions to the STOF CDIs with respect to service
bundling. Whereas the focus in Chap. 3 was on CDIs for mobile services’
business models, this chapter particularly addresses new CDIs that arise
when mobile service bundles are considered.
232 T. Haaker

We can conclude from our exploration of mobile service bundles that

bundles normally contain two main types of service elements: core
services and complementary services. What is core and complementary
depends on the intended bundle value and the scope of the bundle.
The bundle related design issues show that bundles vary in bundle
focus, strategy and composition. Some combinations of service elements
can be observed more often than others. Typically complementary
services, which strengthen each other, are bundled together, especially in
bundles with a niche focus. Pricing schemes (and therefore the implied
revenue models) differ from case to case. Another driver for bundling is
Branding. Brand names of vested players may make service bundles more
attractive for customers. Our technical design issues show that system
integration can be an important driver for bundling and creating value as
well. Finally, management of user profiles is managed in different ways
but user control is an important driver there.
Starting from the STOF model, in particular the CDI, we identified the
CDIs for the business models of mobile service bundles that relate to the
creation of customer value. The critical issues and causal relationships that
we found in Chap. 3 remain valid but we have identified a number of
additional bundle related issues that need to be taken into account when
mobile service bundles are considered, e.g. bundle composition. Also some
existing CDIs, i.e., Pricing and Branding, require a bundle view to
adequately deal with them in a bundle context.
Although not addressed in this chapter, naturally also additional bundle
related CDIs for creating network value may be identified, e.g. relating to
economies of scale and scope. The work in this chapter should be
considered as a starting point for further conceptualization of issues in the
area of service bundling and service compositioning (cf. Chap. 6), since
the knowledge base of 3G+ bundles is limited. Future effort may for
example focus on issues for advanced mobile offerings, e.g., personalized
context-aware mobile service bundles.
Chapter 13 Designing Mobile Remittance
Services in Developing Countries

H. Bouwman and J.-C. Sandy

In this chapter, we illustrate how the STOF model can be applied to analyze
business models, using an SMS-based service that is deployed in a
developing country, i.e. Smart Padala in the Philippines. In addition, we
use the STOF method to design a business model for the introduction of a
remittance service in Haiti. Remittances are understood as transfers of
money from one person to another, in practice most transfers are by
foreign workers to their home countries.

13.1 Mobile Services in Latin America

The exponential growth of mobile communication in developing countries

provides the potential for a wide range of services. Although some may
believe that mobile services remain the preserve of the relatively wealthy,
people living in developing countries, despite the fact that they have little
income, use mobile services mainly in the form of prepaid subscription
and through handset sharing. In developing countries, in contrast to
Western industrialized countries, wireless telephony and applications are
not used as complementary functionalities, but rather as a substitute for
traditional telephony.
To provide an indication of recent developments in the mobile market of
developing countries, in 1996 Latin America had six million mobile
subscribers, a number that increased to 118 million by 2003, and to 171
million by 2005 (GSMA/IFC). Eighty percent of mobile services are used
on a prepaid basis. The average revenue per user (ARPU) is less than
US$ 20 per month. Operators offer low-cost handsets with limited
functionalities to lower-income subscribers (Rojas, 2005), providing basic
mobile telephony, while more affluent customer segments have access to
data-enabled value-added services based on GPRS/EDGE.
234 H. Bouwman and J.-C. Sandy

Although Latin America appears to be the fastest growing region in the

world with regard to the Internet, there are several obstacles to its
development. Due to the relatively low income levels, many people have
no access to a telephone, and even fewer people can afford a computer.
Computer literacy is relatively low and Internet access is still comparatively
expensive. Most users access the Internet via public terminals or at work
(ECLAC, 2003). Compared to Western Industrialized societies, Internet
use lags behind by several years. As a consequence, the development of
e-commerce in developing countries has been slow, in part because of low
credit card penetration and a poor infrastructure.
It is expected that developing countries will bypass traditional
e-commerce models and that they are leading when it comes to the
adoption of mobile services. Obviously, there already are developing
countries that have successfully introduced mobile commerce, for example
in the form of mobile remittance. In this chapter, we focus on the design of
business models for mobile remittance services in developing countries.
Although the conditions discussed in Sandy and Bouwman (2006), which
include regulation, technological innovations and market-related issues,
are important to the success of mobile services, they lie beyond the scope
of this chapter. As a starting point for understanding the relevant issues of
developing countries, we analyze an example of a successful mobile
remittance service called Smart Padala, which has been deployed in the
Philippines since 2004.

13.2 Smart Padala

The aim of our analysis of the Smart Padala business model, which is
based on reports and Internet sources (GSMA/IFC, World Resources
Institute, Smart), is to identify the issues that are characteristic of mobile
services in developing countries.

13.2.1 Service Domain

Smart Padala is an SMS-service that has been provided since 2004 by

Smart Communications, the Philippines’ leading wireless services provider
providing a range of m-commerce services. Globe Telecom, the country’s
second largest mobile operator, offers a similar service known as G-Cash,
which was also launched in 2004.
Chapter 13 Designing Mobile Remittance Services in Developing Countries 235

Smart Padala is an international text-based cash remittance facility. It is

estimated that Filipinos working abroad send each year between $14
billion and $21 billion back home. The service enables recipients to be
informed immediately when, for example, someone in the United States
has wired up to a maximum of Pesos 10,000 to the recipient’s Smart
Money number that is linked to the recipient’s Smart cell phone number.
The recipient can then collect the money from one of the numerous
distribution cash-in-centers, including banks and ATMs, using their Smart
Money card. Once the cash has been transferred to the Smart Money
account, it can be used in shops and restaurants. The cash value may also
be used to load airtime, pay utility bills or transfer money from the Smart
Money card to another card. In addition, Smart Money has served as a
platform for other m-commerce services.
Smart Communications’ mobile financial services are used by 2.5
million people, many of whom use no other formal financial services. In
addition to Smart Padala, Smart offers its customers a set of other financial
services provided by its main product SMART Money, including (1) cash
deposits and withdrawals, (2) bill payment and direct deposits from
payroll, (3) Smart Load: credit recharging in small amounts, (4) Smart
PasaLoad: transfer of airtime credit from one user to another, and (5)
cashless purchasing at shops where retailers either have a Smart Money
account or are MasterCard-enabled.

13.2.2 Technology Domain

As is the case with other SMS-based value added services, the

infrastructure, hardware and software needed to deploy the remittances
services are add-ons to the network. For financial reasons, a light-weight
solution has been chosen. The most important aspect of the technology is
the implementation of a security scheme operating under the existing SMS
set-up and for which no additional hardware or software is needed, either
in the SMART network or on the part of the customer. The service is
compatible with GSM ‘Phase 2 Plus’ SIM standards and uses SIM-based
memory and menu capabilities. A simplified network architecture is
presented in Fig. 13.1.
236 H. Bouwman and J.-C. Sandy

Banco de Oro’s network SMART’s network

ATM
SMSC
network

BDO Transaction Cellular

application application network
platform platform

Fig. 13.1. SMART architecture

13.2.3 Organization Domain

The main providers of SMART Padala are Smart and its financial partner
Banco de Oro (BDO). The roles of the two main partners are delimited
very clearly: SMART serves as a transport system and hosts customers
who have no relationship with the bank, and it offers customers the
opportunity to send text messages to the bank’s systems. Banco de Oro is
the retail bank processing the mobile financial transactions. The service
operates entirely within the limits and the jurisdiction of the central Bank,
and as such Banco de Oro takes responsibility for auditing, fraud
management, account security, etcetera. The clearly defined roles of the
two major partners provide an enabling regulatory environment: the
telecommunication regulatory body has no interest in regulating this
service, since it does not involve unusual telecommunication aspects, and
as far as the financial regulatory body is concerned, the service facilitates
regular financial transactions. A third important group of partners is made
up of the associated retailers located overseas and in the Philippines.

13.2.4 Finance Domain

With minor exceptions, SMART receives its income entirely from the
SMS charge levied for each transaction: $0.05 per user-generated SMS
activity; $0.02 for retail purchases; $0.06 for ATM withdrawals though
Banco de Oro and $0.21 for non-Banco de Oro ATM withdrawals; 1% fee
for cash deposits and withdrawals in the retailer network. These charges
are attuned to the low transaction fees charged in the Filipino mobile
market, normally $0.02 for standard SMS text messaging and $0.60 for
mobile credit top-ups. One of the positive outcomes reported by Smart is
mobile wallet revenue growth of 46% in 2005, and the use of Smart’s
Chapter 13 Designing Mobile Remittance Services in Developing Countries 237

remittance service by one million overseas Filipino’s, sending $50 million

per month in international transfers. As a result, the Banco de Oro has a
cash float of $10 million, over which interest is generated. As far as the
telecom operator is concerned, one of the positive intangible outcomes is a
significant reduction in customer churn.

13.3 Designing the Haiti Case

Based on the insights provided by the successful Smart Padala service, in

this section we focus on the design of a similar service in another part of
the world, namely Haiti. To this end, we use a combination of the STOF
method’s quick scan and action research, which means that information
that is relevant to the design of the business model is exchanged with the
actual service designers.

13.3.1 The Haitian Context

Many Haitians live overseas and each year send up to $1.65 billion back
home, representing about a third of the country’s Gross National Product.
About 1.1 million adults in Haiti receive such remittances; typically 10
times a year and on average $150 per remittance. What is particularly
relevant here is the fact that 83% of the money is sent through remittance
companies, 6% through banks, 4% by mail and 4% through friends or
relatives traveling to Haiti (Boyd & Jacob, 2007). The social and economic
relevance may be clear, and the opportunities available to new players in
the remittance business and the introduction of new paradigms, such as
mobile remittances, is obvious.

13.3.2 Service Design

The service is similar to that of Smart Padala, i.e. SMS-based mobile

remittance. Because the potential customers of this service have low
incomes, prepaid solutions and low fees are a logical choice. There are two
key products: the ability to load prepaid airtime credits over the air, and
the transfer of cash and airtime credits between customers. The fees set by
the operator for such prepaid top-ups or credit transfers are low. Typical
top-ups of US $0.57 to US $47 were allowed by the networks, while
transfers between customers of both cash and airtime credits of as little as
US$ 0.04 were permitted. Because typical customers are familiar with
238 H. Bouwman and J.-C. Sandy

SMS, it is easy for subscribers to start using remittance services and other
mobile banking services.

13.3.3 Technology Architecture

The service depends on the use of security technology and on the basic
SMS or Unstructured Supplementary Service Data (USSD) technology.
The recipient of the remittance needs a 16 digits ‘Smart Money number’,
which can either be retrieved by sending an SMS or by utilizing a SIM
toolkit menu. This ‘Smart Money number’ is stored in the SIM and is
accompanied by a password the recipient has to enter with each
transaction. Before the system can be deployed, the security and
encryption features have to be developed. Moreover, the technology can
have an effect on the ease of use of the SMS service. Illiteracy rates in
Haiti are high, which means that a simple system has to be designed that
can be provided by menus developed through interactive USSD or,
preferably, SIM Toolkit menus.

13.3.4 Organizational Arrangements

The service is highly dependent on the involvement of key actors such as

distribution points and banks. As Faber and Bouwman (2003) point out,
their participation is crucially important to the success of any mobile
payment service. This means that it is of the utmost importance to include
a bank that has direct ties to the Mobile Telecom Operator offering the
service, to delineate revenue lines. Alternatively, operators can start
carrying out encashment activities themselves.
The following roles are distinguished in providing the remittance service:

• The sender, the person who sends the money, goes to a Foreign
Remittance Center (FRC) and provides the recipient’s phone number,
electronic money number and a valid ID.
• Foreign Remittance Partner or Center (FRC), collecting the money to be
transferred. The FRC sends an SMS to the Recipient’s phone number.
• The mobile network operator providing the software and hardware
required for the electronic transfer of the money. The sender should
receive the confirmation message via the cell phone from the remittance
center.
• The recipient receives an SMS message (Beneficiary receives cash) that
‘cash’ has been sent to his or her cell phone.
Chapter 13 Designing Mobile Remittance Services in Developing Countries 239

• The encashment partner responsible for transferring the electronic

money into cash. The recipient goes to an encashment center and cashes
the money.

13.3.5 Finance Domain

The revenues need to feed all the partners within the value web. To begin
with, the remittance center – the location where the money is deposited –
will most likely receive a percentage. Secondly, the mobile operator will
benefit from the increase in SMS traffic. The operator deploying this
service will reinforce the relationship with its customers, which will reduce
the churn rate. Customers are less willing to switch to other providers once
their telephone number has been linked to an ‘electronic money number’
or identifier. Marketing the service is a costly affair. Getting people used
to the service either implies launching promotions which are free, or
creating some sort of viral marketing, as well as educating the subscribers
with regard to the use of the service. Other investments are related to
technology, i.e. the deployment of SIM toolkit and the deployment SIMs
of at least 64K to run the mobile commerce applications. The bank’s
incentive is related to the opportunity of reaching people who do not
normally use its services. If enough money is captured from remittances,
the float and interest provide an additional benefit to the financial
institutions.

13.4 Conclusions

As far as the mobile remittance case is concerned, the STOF model and
method proved helpful in analyzing and discussing design issues in a
systematic way, and in addressing critical design issues that are relevant
during the service design phase. Based on the analysis, a more detailed
business case can be constructed on the basis of the holistic framework for
the design of mobile remittance services. The analysis of the SMART case
in the Philippines helped us identify the success factors and design issues
that would make it easier to deploy a similar service in Haiti. At a service
level, user-friendliness is essential for an illiterate target group, and the
services for low income users need to be characterized by low fee/high
volume. At an organizational level, involving a bank is crucially important.
It is clear that one of the key success factors is the presence of a
partnership with a bank similar to the one with Banco de Oro in the case of
Smart. At a technological level, low-tech alternatives – such as SMS,
240 H. Bouwman and J.-C. Sandy

USSD and SIM toolkit menus – are relevant. The widespread use of and
familiarity with SMS technology is another factor. Problems regarding
identification and user-friendliness can be overcome by introducing either
USSD or SIM toolkit type of menus. At a financial level, both tangible and
intangible benefits need to be taken into account. We expect that a dual
market will develop in many developing countries, in which high-end
technological services are adopted by wealthy urban professionals on the
one hand, and low tech alternatives are made available to the less affluent.
Based on the examples in the Philippines and South Africa, we conclude
that mobile remittances and other types of mobile commerce are more
likely to take off in developing countries. Moreover, due to the multiplier
effect, the role of mobile services in social development and the use of
mobile financial identities provide a value-added essence to Mobile
commerce. Mobile commerce services will provide the tools that are
currently not available to poor people, due to the costs of the technologies
involved as well as the limited availability of the Internet. Mobile services
will enable mobile commerce to outperform e-commerce.
Chapter 14 Assessing the Business Potential for
New Mobile Services from Mock-Up
Evaluation

T. Haaker and B. Kijl

Mock-ups are often developed in technology-oriented research projects to

visualize the potential functionality and value of the technology under
investigation. A mock-up typically visualizes a service’s interface and
outcome, which can be used for the purpose of demonstration. Mock-ups
can be used to extract user requirements for new services at an early stage.
In this chapter we illustrate how the STOF model and method can be used
to assess business potential of new services from mock-up evaluation. The
design of business models and assessment of business potential of mock-
ups may serve different purposes. First, the business potential can be used
in the selection of promising mock-ups and subsequent prototypes. It also
reveals which mock-ups should not be pursued. Second, critical design
issues for the business model may be identified and resulting business
requirements can be taken into consideration already at an early stage.
Finally, the mock-up and the initial business model can be used to interest
and involve potential stakeholders. Just as the mock-up can be used to
identify user requirements, the business model can be used to identify
business requirements, for instance with regard to the required business
roles and their interfaces. It is assumed that early identification of business
requirements leads to a higher possibility of a viable business model. The
STOF model and method are, therefore, instrumental in realizing a higher
chance of valorizing research mock-ups and prototypes.

14.1 MobiLife Application Mock-Ups

The aim of the MobiLife Integrated Project in IST-FP6 was “to bring
advances in mobile applications and services within the reach of users in
their everyday life by innovating and deploying new applications and
242 T. Haaker and B. Kijl

services based on the evolving capabilities of the 3G systems and beyond”

(Klemettinen, 2007, p. xi; MobiLife, 2008). The project recognizes that the
challenge of enabling large-scale ubiquitous services and applications
remains. The project’s primary focus was on developing technical enablers
for context- and, group-awareness, and multimodality in mobile services.
However, non-technical challenges regarding a user-centric approach and
business viability were also addressed within the project. To that end a
number of reference applications were developed by the technical work
packages, to highlight the possibilities of the innovative technologies
under consideration (Klemettinen, 2007). In particular, small-scale user
trials and business analysis of mock-up applications were part of the
project. In this context, a mock-up is a visualization of a service’s interface
that can be used for the purpose of demonstration, to test a design, et cetera
Mock-ups are only designed to look like the real system, and do not have
the functionalities that are found in prototypes.

14.2 Assessing Business Potential

In the MobiLife project the business potential of eleven mock-up

applications was assessed. The assessment guided the choice of
applications for which (partially) functioning prototypes would be built.
The main selection criteria from a business point of view were intended
customer value and market potential, in addition to more practical
implementation considerations. The viability of the mock-up applications
and the underlying technologies were assessed using the STOF model and
method. For each mock-up application, a business model design session
was organized using the approach outlined in Chap. 5. In the sessions,
special templates were used in which business model components were
filled in and issues that still needed to be resolved were collected. The
sessions focused on components within the business model domains that
were considered the most relevant in light of a session’s purpose and the –
limited – timeslot available.
In the next section we begin by focusing on the set-up of the business
model design sessions. We provide observations regarding the process of
the sessions and how it relates to the sessions’ results. As an illustration we
present the results for one of the mock-up applications that were obtained
in the session, and their further elaboration. Finally, we address the way
the results of the sessions influenced the choices in favor of particular
applications to be developed in later stages of the project. We end with
some conclusions regarding the use of the STOF model and method.
 Chapter 14 New Mobile Services from Mock-Up Evaluation 243

14.3 Mock-Up Evaluations Based on the STOF Method

In this section, we begin by describing the mock-up evaluation process, i.e.

the business model design sessions. Next, we look specifically at the
session’s results for one of the mock-ups, the ‘Context-Aware Inter-
personal Communicator’.

14.3.1 Set-Up of the Business Model Design Sessions

The business model task group in MobiLife prepared the set-up of the
business model design sessions. The sessions’ participants consisted of
MobiLife project members from various companies and organizations.
Although most of them had a technical background, there were also some
participants with a social science or business background. In each session,
around 15–20 people took part in a brainstorm and discussion about
several business model elements, focusing on potential user groups,
revenue sources and value network structures.
The sessions followed a pre-defined format that was prepared by the
task group. Task group members also acted as sessions’ facilitators.
Templates were prepared for the participants to write down their ideas
about the design of business model components.
After attending a brief introduction of the mock-up, the workshop
participants divided into groups of two, and were asked by the session
facilitator to think for about 5 min about potential Target Groups for the
mock-up introduced earlier. More specifically, they were asked to think
about potential customers (people who may pay for the service), potential
end-users (people who may actually use the service) and potential user
contexts. Although in some cases end-users and paying customers can be
the same people, this is not always the case. Each couple discussed
potential target groups and wrote their main ideas down on the template,
after which the main ideas where discussed in a plenary discussion of about
10 min. Every couple had the opportunity to present their ideas. The ideas
were directly processed and summarized by a second session facilitator –
using a laptop and a beamer. The results were directly visible to all session
participants, which stimulated discussion and helped generate ideas.
The participants were then asked to describe Value Drivers: potential
benefits of the service to end-users. They had to think about substitutes or
alternative solutions and were asked to think about how the mock-up could
be used to distinguish the product from these substitutes or alternative
244 T. Haaker and B. Kijl

solutions. To answer this somewhat more complex question, the session

participants (in groups of two) again had about 10 min, after which the
results were debated in a plenary discussion that lasted about 20 min.
Once more, all the ideas were directly summarized and made visible.
The final question was aimed at Value Networks by focusing on the
business roles that had to be filled in order to offer the mock-up as a
service in a commercial setting. The workshop participants were asked to
identify the various Business Roles and their added value. Secondly, they
had to identify potential Revenue Sources. Once more, they were given
about 10 min to come up with ideas, after which the results were discussed
in a plenary discussion of about 20 min. However, this time the couples
were combined into groups of about six people and asked to develop value
networks as graphical representations of business roles, and their
relationships.

Evaluation of the Session’s Process

The session’s set-up proved very useful for the both participants and
facilitators, as well as from a content point of view. By giving people the
opportunity to first develop and discuss their ideas in couples and
afterwards giving every couple the opportunity to communicate their
findings, all the participants had the chance to share their ideas, which
helped avoid a frequently occurring situation whereby only the most
extrovert people share their ideas, preventing those with a less sanguine
disposition from sharing their ideas, which in principle are equally
valuable. Also, the idea of using a second workshop facilitator to process
and share the workshop results – via a laptop and a beamer – seemed to
stimulate the idea generation process, i.e. by supporting participants to
build on each others ideas. The fact that people had to answer the final
question by drawing a Value Network in bigger groups of around six
people added an extra social element to the workshop. Although people
liked this way of working, it turned out most of them needed more time to
answer the question than was originally planned. This is partly due to an
increased need for communication, but it may also have to do with the
relative complexity of the question.
By alternating between small groups, bigger groups and plenary
discussions where every group felt a kind of social pressure to present
good ideas, everyone actively participated in the workshop. As a result, the
quality and quantity of the content yielded by the workshop was high –
especially when we take the limited time that was available for the
workshop into account.
 Chapter 14 New Mobile Services from Mock-Up Evaluation 245

14.3.2 Sketch of Sessions’ Results

In this section, we look at some of the results of the business model design
sessions by focusing on the outcome of one session involving a specific
mock-up application, called the ‘Context-Aware Interpersonal Communi-
cator’ (based on Killström et al., 2006). After providing a brief outline of
this mock-up, we take a look at the findings for each of the business model
elements mentioned before. We conclude with a short discussion about the
critical open questions that the workshop yielded with regard to the
viability of the business model for the mock-up.

Description of the ‘Context-Aware Interpersonal Communicator’

The Context-Aware Interpersonal Communicator (see Fig. 14.1 for a

screenshot) is designed to support light-hearted, effortless interpersonal
communication and helps people stay in touch and maintain peripheral
awareness of each other’s whereabouts and activities over extended
periods of time. More concretely stated, the Context-Aware Interpersonal
Communicator makes it easy for people to get information about e.g. the
mood (Alice is happy), activities (George is listening to Radio 1) or
location (Barbara is in Oulu, Finland) of the people in their friends’ list.
The service concept capitalizes on trends like being ‘always in touch
with your friends’ and ‘continuous communication between friends’, and

Fig. 14.1. Screenshot Context-Aware Interpersonal Communicator

246 T. Haaker and B. Kijl

technical trends like the emergence of presence-awareness technologies. In

addition, it shows the importance of asynchronous (IP-based) digital
communication, and the service may actually also trigger synchronous
communication traffic (where presence information like ‘Jeff is very
angry’ can be seen as a form of conversational content triggering e.g. a
voice call from a curious friend).

Results for the Service Domain

As we mentioned above, a distinction has been drawn between customers

(the people who pay for a service) and end-users (the people who actually
use the service). With this notion in mind, the participants identified the
following customers and end-users.
Target Group. First customers could be companies that would like to
use the service for marketing purposes (e.g., branding) by offering the
service for free to end-users. Next associations and communities, i.e.
organizations representing groups of people with common interests, could
be customers. Also operators and end-users as paying customers were
considered possible. Operators may offer the service to end-users for free,
because the service may, as a form of conversational content, lead to
increasing synchronous communication traffic. As end-users individual
people, especially youngsters, were considered. More in particular people
with common interests that are member of organizations that could act as
paying customer for the service. Also less formal groups could become
users, e.g. partners or families, or groups of friends and/or colleagues. The
participants concluded that on the basis of the current value proposition,
youngsters seem to be the most interesting target group. Having said that,
the service may also be valuable in a business context because it can make
communication more effective and/or efficient (with a more business-like
user interface and value proposition). The diversity in target groups shows
that group technology has value in different contexts and therefore
different business models are needed for services based on essentially the
same technology.
Value Drivers. A diverse set of value drivers has been identified for the
Context-Aware Interpersonal Communicator. Helping people getting in
touch with each other and having fun is an important driver. The service
also enables communication without disturbing people and makes it easier
to share one’s emotional status or feelings to (a group of) people. The
service could also be used to share other information/media or to plan
 Chapter 14 New Mobile Services from Mock-Up Evaluation 247

activities or social events. The feeling of belonging to a group and having

peripheral awareness of buddies were identified as specifically important
value drivers.
According to the participants, the service could be seen as an addition
to synchronous communication channels like instant messaging, SMS
or voice communication. Unlike these channels, the Context-Aware
Interpersonal Communicator should aim specifically at sharing one’s
emotional status and asynchronous communication.

Results for the Organization and Finance Domain

Value Network. The following business roles were identified by the

workshop participants as necessary for offering the service commercially,
see Table 14.1.

Table 14.1. Overview of identified business roles for Interpersonal Communicator

Business role Activity
End user Uses the service, creates content
Customer Buys or commissions the service
Service provider Delivers the service
Service developer/application Develops services and provides
provider applications
Device manufacturer Supplies devices, terminals, etc.
Context and content providers Provides required context information
or content
Connectivity provider Provides connectivity
Advertiser Provides advertorial content

Note that the end-user in this service may play an active role as
co-creator of content, or as prosumer, e.g. in developing new types of
emotional information icons. Based on this identification, several value
networks were designed, one of which is shown in Fig. 14.2. Depending
on the type of customer, this model may be a ‘b2b2c’ model, if the
customer is a business client, or a ‘b2c’ model, if the customer is also the
end-user. In this network, the connectivity provider is an operator who
may also contribute billing capabilities. Studying alternative value network
structures and business configurations is helpful in finding a focal actor
that may lead the development of the innovation into a viable offering and
business model.
248 T. Haaker and B. Kijl

content Device
Advertiser manufacturer

content device

Application application Service service service

Customer End user
provider provider

billing
context services

Context Telecom
provider operator connectivity

Fig. 14.2. A value network for the Interpersonal Communicator service

During the workshop, participants asked some interesting questions

about the sustainability of services like the Context-Aware Interpersonal
Communicator; e.g. ‘Do people really want to be connected anyplace and
anytime?’ or ‘Are people willing to share their private information via the
Context-Aware Interpersonal Communicator?’ According to subsequent
user research (Kurvinen, 2006) the answers to these questions depend on
the person with which the information is to be shared, on the reason for
sharing and on the degree of user control. With regard to revenue sources,
participants were skeptical about end-users willingness to pay for a service
like this.

14.3.3 Business Requirements and Critical Design Issues

The results of the business model design sessions were processed further
and harmonized by the business model task group in mock-up business
model reports, which in turn were used to detect general issues that could
have a critical impact on the acceptance and viability of service offerings
based on the technology underlying the mock-ups. The generic issues point
to potential bottlenecks in the future viability of the services and require
special attention, preferably in the R&D phase. Challenges with regard to
MobiLife type of context-aware services were further studied in a series of
expert interviews (Haaker, Galli, et al., 2006).
Logical Actor on the Market. If there are clearly identifiable actors on
the market, the business model is easier to realize; this usually means
evolution of existing services by using new technology. If such actors do
 Chapter 14 New Mobile Services from Mock-Up Evaluation 249

not exist or it is unclear who will take up new roles, it diminishes the
chance of defining a viable business model. Based on this finding, a
number of generic business models were defined and analyzed in which
the (new) roles, e.g., context or trust providers, were alternatively played
by different actors (Killstrom et al., 2007).
Revenue Sources. Research within and outside the MobiLife project
suggests that users are not willing to pay for these kind of mobile services
(Haaker, Galli, et al., 2006). This obviously decreases the possibility of
new business models, unless other new revenue sources can be found, e.g.,
advertisers. Most MobiLife-enabled services were found to be suitable for
this approach, especially since advertising could be personalized and
contextualized. Based on this outcome, advertising and subsidy-based
business models were analyzed further (Immonen et al., 2006).
Technology Specifics. We obtained specific business requirements about
the focal technological topics of Mobilife, i.e., personalization, group-
awareness and context-awareness. These requirements have an impact
on the further development of the technology and its applications. For
example, for personalization to be viable from a business point of view,
the technology has to be sufficiently generic, such that it can be used in
larger set of services (as opposed to being used only for a single service).
For group-awareness, the trust and privacy solutions in services increase
willingness of end-users to utilize the group-aware enabled services. Users
would, for example, require easy-to-use control regarding with whom,
when and for what purpose they share information about their location,
as well as other information. Subsequent mock-up evaluation by end-users
confirmed that users appreciate the potentially improved convenience, but
they do not wish to lose control of their own schedule and habits or
automating everything. Context-awareness business viability requires a
continuous flow of context-related information, which may be accompanied
by rising costs and organizational issues.

14.3.4 From Mock-Ups to Prototypes

The mock-up evaluations were used together with other project criteria to
determine which mock-ups should be further developed into a (partially)
functioning prototype. The business assessment followed a scoring
approach in which researchers and task group members rated each mock-
up on a number of items that link to Critical Success Factors (see Chap. 3),
i.e., Clearly Defined Target Group (end-users and customers), Compelling
Value Proposition, Acceptable Division of Roles and Acceptable
Profitability. Each item was scored on a five-point Likert scale. The final
250 T. Haaker and B. Kijl

mock-up rating was summarized in a rating for assumed customer value

and one for assumed network value.
Table 14.2 shows an overview of all considered mock-ups. Additionally,
for each mock-up the market potential in terms of market size
was addressed. Typically the more specialized applications target a smaller
or niche market segment. Services like FamilyMaps and Mobicar target
niche markets, whereas a service like the Context-Aware Interpersonal
Communicator is more generic in nature and targets a larger segment, i.e.
youth in general.

Table 14.2. Overview and description of initial MobiLife mock-ups

Number Name Description
1 FamilyMaps Provides location-sensitive support for families
with small children when on the move
2 Infotainer Displays news to the user in a context-aware and
multimodal way
3 Wellness aware Takes advantage of the personalization
gaming improvements to provide tailored training plans
4 Emergency Supports people taking care of relatives, friends,
preparedness and/or patients in the case of an emergency
5 Mobicar Provides a group- and context-aware service for
car-sharing allowing for profile based
matchmaking between drivers and passengers
6 MyLifeViewer Provides an all-embracing view of the different
aspects and activities of users’ life and context-
based reminder services and communication
support within groups
7 TimeGems Suggests to users potential activities within
related groups, taking into account the
availability and preferences of group members
8 Bus Stop Provides real-time personalized and context-
aware travel information and suggestions about
relevant services to people waiting for public
transport
9 Context Augmented Allows end-users, groups and organizations to
Scheduler and manage task reminders using context-aware
Reminder capabilities to improve task performance
10 Context-Aware Makes it easy for an end-user to automatically
Interpersonal record, store, use and share context information
Communicator
11 Tourist Info System Supports the end-user in going around and
enjoying at best a touristic visit
 Chapter 14 New Mobile Services from Mock-Up Evaluation 251

The main goal of the business potential assessment is not to come up

with absolute numbers for each mock-up, but rather with an assessment of
the relative potential of each mock-up in terms of clarity of assumed
customer value, assumed network value and market size. Figure 14.3
shows the relative position of all mock-ups in a single graph. On the
horizontal axis the clarity of the network value is shown and on the vertical
axis the clarity with regard to assumed customer value. The size of the
circle representing the mock-up symbolizes the assumed market size.

clear
Assumed customer

3
1 4
11 7
value

9
8
10 5
2 6
unclear
unclear clear
Assumed
network value

Fig. 14.3. Graphical view of business potential of initial MobiLife mock-ups

Eventually a number of eight mock-ups were pursued. As mentioned in

(Klemettinen, 2007, p. 229) “primarily the applications were included
neither to show breakthrough concept innovations nor user interfaces
polished to the level of commercial solutions, but to show implementations
that are actually following the architectural and technological frame-
works”. However, the reduction from eleven to eight mock-ups partly
followed a business reasoning based on the mock-up assessments. For
example the Bus Stop mock-up (no. 8) was stopped because it lacked a
sizable target group as well as a clear customer value and network value.
Instead the narrow context of use was broadened in a new application
labeled Proactive Service Portal, which provides contextual reasoning to
pro-actively offer services to the mobile user. The Tourist Info System
(11) was removed as it lacked innovativeness given that similar services
were already entering the market. The market for Emergency Preparedness
(4) was considered too small and the provider value was unclear,
especially regarding the division of roles, i.e. who should be the focal
actor. Some elements of mock-ups were combined with other mock-ups as
252 T. Haaker and B. Kijl

the separate mock-ups were not considered viable. For example parts of
MyLifeviewer (6) were integrated with the Context-Aware Interpersonal
Communicator (10) to form a new application called Context-Watcher
(Koolwaaij et al., 2006).

14.4 Conclusion

The STOF model divides business model reasoning into four easy-to-
comprehend domains. The STOF method helps to focus the design. Given
the limited amount of time available, many valuable results could be
obtained in a business model design session with project members. This
also proved a sound basis for further analysis.
The outcomes of the mock-up evaluations, together with other criteria,
were used to decide which mock-ups were continued or combined. Cross-
case analysis revealed revenue models and pricing as critical design issues,
which lead to research into advertising based models. The results of the
sessions with regard to critical issues also helped formulating the questions
to consider in the user evaluations.
In technology oriented projects, valorization is a general problem. It is
often hard to bring technical research to viable offerings, for various
reasons. First, the results are still far from the market, which makes it
difficult to bridge the gap from R&D to marketing (Chesbrough,
Vanhaverbeke, & West, 2006). This means that evaluating mock-ups from
the point of view of users and businesses is useful in identifying the
potential target groups and potential stakeholders at an early stage. The
STOF model and method make it easier to assess opportunities provided
by technological innovations in marketing terms, i.e., in terms of value
proposition, target groups, competitive edge, value network, revenue
model, et cetera. As such the STOF model provides a language for the
valorization of technology, with in the end a greater chance that
technology is turned into value creating offerings.
Chapter 15 A Standalone Digital Music Vending
Service

H. Bouwman, M. De Reuver, and H. Schipper

In this chapter, we apply the STOF model and method to a case that involves
a digital music vending service, called ‘MusicBox’, in a newly industrialized
country. The service uses store locations where users can obtain digital
music from digital music vending machines. The service enables users to
make use of mobile devices like MP3 players, telephones and the like to
listen to popular music. We used the STOF model as a prescriptive
framework. Accordingly, the present chapter addresses the following
question: Can the STOF model and method be used as a framework for
designing a digital music vending service and underlying business model?
The analysis is based on the first two phases of the dynamic business model,
i.e. the conceptualization of the first ideas, and the initial market trials.

15.1 MusicBox
As a result of numerous technological innovations, the global music industry
has changed considerably over the past decade. While the sales of music
based on physical media, i.e. CD and cassette, have fallen, the consumption
of digital music in the markets of developed countries has increased. The
key factors with regard to this increase include affordable broadband access
via Internet, an abundance of ripped digital music, a sufficiently high PC
penetration, and low prices of portable music players. However, in the
country under study – a newly industrialized country – the density of PCs is
low and the penetration of broadband facilities is almost zero.
In an attempt to overcome the absence of these two key factors, a specific
company is developing MusicBox, the main goal of which is to offer digital
music to consumers by setting up digital music vending units (kiosks),
bypassing traditional PCs and the need for broadband Internet access.
Consequently, MusicBox provides the ‘on-the-go’ experience in a newly
industrialized country. As a result, its value proposition is to enable end-
users to purchase and download high quality original digital content legally,
254 H. Bouwman, M. De Reuver, and H. Schipper

via a network of multimedia vending units, placed at convenient locations

throughout the country to enable the music to be played on portable devices.
In the next section we discuss the intricacies of the music industry in the
specific country under study. The subsequent section contains an overview
of existing external drivers, as well as preconditions characterizing the
indigenous market. After that, we elaborate on the manner of applying the
STOF method in the design process. We discuss the Critical Design Issues
(CDIs) involved in the MusicBox case. Next, we illustrate the various
interdependencies between the CDIs of the various domains. In the final
section, we present our conclusions and discuss the issues we addressed.

15.2 The Indigenous Music Industry

We begin by identifying the external technology, market, and regulatory

drivers that influence the business model. The introduction of digital music
and digital data-compressing techniques in general are important technical
drivers, because they have a significant impact on the global music industry,
in particular with regard to the distribution channels, as digital (non-
physical) formats become available. The distribution channels of music are
changing and new distribution channels evolve as the availability of
broadband Internet and third generation (3G) mobile services enable
licensed digital distribution services. Obviously, the same drivers have
enabled a large-scale unlicensed p2p exchange of digital content, which thus
far has proven much more important than its legitimate counterpart.
However, in the market under investigation, PCs and broadband Internet are
hardly available and adoption levels are low. In addition to a channel used
to obtain content, a device to play digital music is also required. The
development of such devices, at lower prices for devices with ever larger
storage capacity, is another technical driver. In addition, the development of
these devices is connected to the available digital audio formats.
Market drivers have to do with issues such as disposable income,
demographics, available leisure time, and demand for leisure (Vogel,
2004). The fact that consumers in newly industrialized countries have
relatively small disposable incomes implies that markets will tend to favor
low prices and high volumes. However, as the economy in the countries in
question is growing, so is the average disposable income of consumers.
The number of digital music playing devices, like MP3 players and mobile
phones with built in MP3 functionality, is growing. A more specific trend
involves the music sold by the indigenous music industry, which for the
greater part consists of local film music.
 Chapter 15 A Standalone Digital Music Vending Service 255

Piracy also affects the music industry. The absence of regulation

may be considered an external driver. Relevant legislation (‘Copyrights
Act’) is outdated and there is no suitable regulation to prevent piracy. In
addition, the government is hardly capable of enforcing anti-piracy laws.
Accordingly, lengthy legal and arbitration processes are not helpful in the
fight against piracy. These external drivers influence the requirements and
assumptions that have to be addressed with regard to the four core
domains, i.e. the service, technology, organization and finance domains, of
the business model.

15.3 Application of the STOF Method

The STOF model and method guide the stages of definition of requirements
and assumptions, as well as determining structural preferences. The design
method explicitly addresses questions regarding the four domains and takes
into account Critical Design Issues (CDIs) as well as Critical Success
Factors (CSFs) related to creating customer and network value (Chaps. 3 and
5). To provide answers, one can cluster the questions based on potential data
sources, such as consumers, the own organization or specific partners. Such
clustering is akin to defining the kind of requirements or assumptions with
which certain questions deal, i.e. functional, user-related or context-related.
After that, one needs to formulate specific tasks and indicate how the
necessary answers will be generated, e.g. through interviews, market
research or desk research. The answers are formulated in final deliverables
or business model elaborations, which eventually provide insight into
possible ways of formulating the business model as well as the critical
design issues. In addition, deliverables lead to structural specifications,
which cover earlier specified requirements and assumptions. Figure 15.1
contains an overview of the various steps in the design process that was used
in the case of the MusicBox service.
Although the figure presented above suggests that designing a business
model consists of consecutive phases, it is actually a continuous iterative
process. To obtain initial input for the MusicBox business model, we
began by conducting interviews and discussions with partners, which
resulted in a first sketch of the business model, comparable to the result of
the quick-scan described in Chap. 5. Considering this initial sketch, the use
of the STOF model made it possible to identify the business model’s ‘blind
spots’, i.e. the CDIs help identify the data needed to arrive at sensible
business model design choices. Market research, and the way to define
a correct marketing strategy, could be useful. Gathering information
256 H. Bouwman, M. De Reuver, and H. Schipper

Clusters Tasks Deliverables

Organisation

STOF Questions
model Consumers

Technology

Fig. 15.1. Schematic representation of the design process

regarding market structure, user needs, competitive offerings, technology

costs, etcetera, is important for assumptions and requirements regarding
targeting, pricing and other design choices, which are part of the service
and technology domain. The market research we performed consisted of
four phases, i.e. focus group discussions, user-testing sessions, product
labs, and in-store end-user interviews.
Focus Group Discussions. The first phase, i.e. focus group discussions,
helped us gather information regarding the behavior of end-users. Focus
group discussions consisted of discussions among 8–10 individuals with
roughly similar backgrounds as well as involvement in music. In addition, a
professional discussion leader chaired the discussions, which took place at a
secluded location. In general, the focus group discussions provided us with
an exploratory understanding of the customer, his or her entertainment space
and music habits. Moreover, the focus group discussions elicited some
preliminary reactions with regard to the MusicBox concept. As a result, the
focus group discussions lead to a first orientation on segmentation and
targeting. The STOF model provided guidelines in order to define the ‘what’
issues that had to be addressed.
User Testing Sessions. The second phase consisted of a user testing
session, the aim of which was to obtain consumer reactions to an
interactive mock up, in other words an incomplete form of a prototype
which is used to make discussions about the functional and the users’
requirements less abstract (Verschuren & Hartog, 2005). Accordingly, the
user testing sessions helped define the business model specifications. The
feedback led to a number of practical (technical) adjustments as well as
providing insight into the behavior of potential end-users. Because the
STOF method, in addition to guidelines, also contains possible design
choices, the feedback from the user testing sessions provides some initial
verification and validation with regard to STOF-related issues, such as
Targeting, Creating Value Elements, technical design choices and Pricing.
 Chapter 15 A Standalone Digital Music Vending Service 257

Product Lab. In the third phase, we used a product lab to obtain

spontaneous and realistic consumer reactions to the MusicBox in a
simulated environment. Compared to the User Testing Sessions, the
product lab involved a more functional prototype and implied a more
structured verification and validation of MusicBox. Because the product
lab sessions included 8–10 respondents with similar backgrounds,
allocation based on the backgrounds of groups is possible. However, the
product labs made it possible to validate CDIs as well as verify pricing
strategies. Moreover, they helped make it clear to what extent the
technological design manages to take on board user requirements and
specifications. In addition, the final round of the product lab consisted of a
survey. The survey research contains self-completion questionnaires aimed
at capturing spontaneous individual reactions, which are often lost in a
group scenario. With regard to the technical part of the prototype, the
STOF model focuses on the design of the technical architecture at a high
level. Consequently, in the product lab phase the STOF model is more
suitable to evaluate CDIs from the service domain and various pricing
strategies. Having said that, the evaluation of the CDIs from the service
domain typically influences the CDIs from the technology domain, as the
latter set of CDIs enable the first.
End-User Interviews. The fourth phase consisted of (in-store) end-user
interviews, the aim of which was more or less the same to that of the product
labs. As such, the end-user interviews also resulted in the validation and
verification of value elements and pricing. Although the end-user interviews
were part of the final market research phase, real ‘beta testing’ will take
place during the pilot.

15.4 Service Domain

Within the service domain, the Value Proposition is the central issue. The
value proposition of MusicBox defines its intended value. Any innovative
service such as MusicBox can only be successful when it addresses market
needs and manages to realize sufficiently high levels of adoption.
Therefore, the service domain of the business model specifically focuses
on end-user value aspects (CDIs), such as Targeting, Creating Value
Elements, Branding and Customer Retention. Needless to say, the specific
characteristics of the MusicBox have to be taken into account. One of the
issues has to do with the location of MusicBox, which will significantly
contribute to the value of the service. In addition, the issue of piracy is a
typical characteristic of the music industry in industrializing countries.
258 H. Bouwman, M. De Reuver, and H. Schipper

Table 15.1. CDIs with regard to the MusicBox service in the Service domain
Critical design Balancing Present in Notes
issue requirements MusicBox
Targeting Generic vs. niche ++ Based on disposable income,
service high-tech services mainly
consist of niche services
Location Widespread vs. ++ Because MusicBox requires a
selection dense deployment fixed location, the selection of
optimal locations is a CDI
related to the generic CDI
Accessibility for Customers
Creating value Technological ++ Based on disposable income,
elements possibilities vs. most services in this country
user needs and meet the needs and wishes of
wishes the end-user rather than
providing advanced techno-
logies, which is exactly the
case with MusicBox
Ease of use vs. A balancing requirement is
added value implied by ease of use vs.
added value. An increased
level of experience with
MusicBox could generate an
interest in additional features,
e.g. novice vs. experienced
user
Branding Distributor + Although the CDI of branding
(lifestyle or device is significantly different from
brand) vs. content that of mobile services,
brand branding is important for
creating value around the
service. However, because
branding ideally implies a
strong lifestyle brand, it has to
be a ‘core’ partner
Customer Customer ++ Because the NFC smartcard is
retention lock-in vs. a prepaid payment solution,
customer the card provides an initial
annoyance lock-in. However, balancing
was visible in the discussion
surrounding the marketing
strategy, and a choice was
made in favor of a loyalty
program to avoid customer
annoyance
 Chapter 15 A Standalone Digital Music Vending Service 259

End-user End-user ++ Although the issue of end-user

education instruction vs. education is not explicitly part
independent use of the STOF model, as far as
the success of MusicBox is
concerned it is a crucial issue
that is related to the generic
CDI Accessibility for
Customers. Therefore, in the
case of MusicBox, end-user
education is enclosed as a
CDI. It could be a
characteristic of markets in
newly industrialized countries

Generally speaking, the CDIs provided by the STOF model are

applicable in the case of MusicBox. However, to establish a better fit, the
CDIs needed to be somewhat adjusted with regard to the balancing of
requirements of Branding and Creating Value Elements, when compared
with the balancing of requirements as suggested in Chap. 3. Table 15.1
illustrates the various CDIs along with the preferred requirement, as well
as the degree to which the various issues are present in the MusicBox case
(++ = strongly present to −− = not present at all).
Besides the CDIs offered by the STOF model, two additional CDIs are
applicable: location selection and end-user education. Both are examples
of the generic CDI Accessibility for Customers. The location of the service
fairly literally determines its availability to customers. Users need to be
educated on the use of the service and be taught the required skills they
need to access the service. Furthermore, branding MusicBox implied some
different balancing requirements compared to what is usual for mobile
content services. In addition, the arguments in favor of the choices that
were made with respect to the balancing requirements of Targeting,
Creating Value Elements and end-user education could indicate factors
that are characteristic of markets in newly industrialized countries. Even
though the STOF model addresses the issue of targeting, a subdivision in
segmentation and targeting could lead to a more dynamic approach in the
sense that the target group may change during the service’s lifecycle.
Critical issues with regard to the commercial success of MusicBox
include Targeting, and Market Segmentation. However, the issue of
Targeting involves more than merely defining the MusicBox target group;
it also addresses the context in which we ought to see MusicBox. In
addition, Targeting implied identifying the individual needs, behavior,
wishes and interests, in other words, the user requirements, within end-user
groups, and defining the appropriate personal or social context. Another
260 H. Bouwman, M. De Reuver, and H. Schipper

issue that is of decisive importance in relation to Targeting is the

Accessibility for Customers with respect to MusicBox. Decisions regarding
these issues are important in determining the expected size of the target
group and predicting the percentage of end-users.

15.5 Technology Domain

The technology domain addresses the requirements generated by other

domains. Consequently, this domain creates a technical architecture based
on the requirements and technical CDIs, such as Security, Quality of
Service, System Integration, Accessibility for Customers and User Profile
Management. In general, the CDIs provided by the STOF model are roughly
applicable in the case of MusicBox. Even though the CDIs of standardi-
zation and scalability are not marked as ‘critical’ in the STOF model, they
are essential CDIs in the case of MusicBox, which is why they are added to
Table 15.2, which provides an overview of the various CDIs, together with
the preferred requirement and the degree to which these issues are present in
the MusicBox case (++ = strongly present to −− = not present at all).

Table 15.2. CDIs for the MusicBox service in the Technology domain
Critical design Balancing Present in Notes
issue requirements MusicBox
Security Ease of use vs. 0 An important security issue
preventing abuse and with regard to digital content is
piracy piracy. However, because
adoption levels of DRM are
low in these countries, ease of
use is applicable
Quality of Quality vs. costs ++ The QoS balancing
service requirement is constantly
applicable. Accordingly,
Company A prefers quality
above costs and asserts that
end-users are willing to pay for
quality
System Flexibility vs. costs ++ System integration is a
integration continuous factor during the
design of the technical
architecture. Since technology
advances rapidly, flexibility is
very important for a service
like MusicBox. Also, the
service needs to be market
 Chapter 15 A Standalone Digital Music Vending Service 261

proof for the next 5 years,

providing all kinds of digital
content
Accessibility or Open vs. closed system + In the case of MusicBox
compatibility accessibility is an issue
involving compatibility
(standards). Because Nokia is a
partner, the Sony Ericsson
phones are not compatible.
However, the service is
available to anyone with a
compatible device
Management User involvement vs. ++ The balancing requirement
of user profiles automatic generation leads to a discussion as to the
kind of basic information that
is required for the user ID. In
addition to nickname, age, and
gender, MusicBox will
automatically generate a
profile. The profile allows for
personal recommendations and
is also used to register end-user
behavior
Standardization Innovation speed vs. ++ Even though standardization is
similarities between not considered a CDI for
standards mobile services, in the case of
MusicBox it is essential for the
development of the service.
The issue describes how
accepted standards should be
used. In addition, Company A
prefers innovation speed,
because time to market is very
important for MusicBox
Scalability Costs and uncertainty ++ In light of the fact that
of careful planning vs. Company A plans to roll out
learning as going MusicBox in other countries as
along well, provided it is successful,
scalability is a very relevant
CDI.
The issue describes how and to
what extent the technology is
scalable. In view of the
scalability of the technical
architecture, a distinction
between scale-out and scale-up
should be made
262 H. Bouwman, M. De Reuver, and H. Schipper

Although security issues are applicable in the case of MusicBox, they

are not critical to the design, because there is no anti-piracy regulation. In
addition, because the number of players in the market that enable
protection of digital music is still low, security only plays a small role,
which means that it is a CDI, but not a prominent one. The opposite is true
for scalability, which is a CDI that is ‘strongly present’ in the MusicBox
case. Scalability can be defined as the ability to scale up (vertically) or
scale out (horizontally) in case the service needs to expand (Devlin, Grey,
Laing, & Spix, 1999). As far as MusicBox is concerned, technological,
economic, and geographical scalability are important. The technology
domain only addresses technological scalability, while in the STOF model
the other two kinds of scalability are addressed in the organization domain.
Technological scalability refers to the ability on the part of MusicBox to
increase the total number of digital content transfers when hardware is
added. Technical scalability is important when the number of end-users
increases or MusicBox starts offering different forms of digital content in
addition to high quality music.
When the number of end-users increases, there is a need to scale out
(horizontally), which implies adding more MusicBox units to the system,
for example by linking multiple MusicBox units to one broadband
connection, payment mechanism or service engineer, or by connecting
more than one unit to the same payment gateway, central server or music
database. If MusicBox starts offering other services or types of content, it
needs to scale up (vertically), which implies adding resources to a single
vending unit in the system, i.e. adding memory, interdependencies, and
applications. Scaling up MusicBox is necessary when Company A decides
to install multiple screens supported by a single unit, i.e. one computer,
connection and note collector. Other examples involve the connection and
support of more than one device at a time or providing different services,
i.e. different digital content, through MusicBox.

15.6 Organization Domain

Next, the organization domain of the business model focused specifically on

organizational network aspects, which includes CDIs like Partner Selection,
Network Openness, Network Governance and Network Complexity. These
aspects revolve around a value network of actors, which indicates that there
are specific partner roles and resources. Although Company A has some
experience with regard to Partner Selection, not all partnerships have been
successful. As a result, selecting partners was a meticulous process.
 Chapter 15 A Standalone Digital Music Vending Service 263

Moreover, because the synergy among the partners to a large extent

determines the potential success and quality of the service, Partner
Selection, partnership scalability and entry rules became important issues.
Even though the STOF model provides criteria on which the partner
selection can be based, size or scalability are additional criteria. Also, the
issue of trust, as well as earlier experiences from other partnerships,
influenced partner selection within the MusicBox network. Available
resources in the STOF model indicate the ‘kind’ of resource and not the
quantity, which is an important issue with regard to scalability. Table 15.3
illustrates the different CDIs in the organization domain, along with the
preferred requirements, as well as the degree to which these issues were
present in the MusicBox case (++ = strongly present to −− = not present
at all).
Table 15.3. CDIs for the MusicBox service in the Organization domain
Critical design Balancing Present in Notes
issue requirements MusicBox
Partner selection Limited number of ++ Even though this CDI is
partners vs. quality highly important, the
of service and balancing requirements are
strategic interests not necessarily a balance,
because a limited number of
partners can also result in a
higher quality of service and
be a result of strategic
interest. In the case of
MusicBox, both kinds of
balancing are applicable
Network Openness and ++ Network openness is an
openness customer reach vs. essential design issue, as the
control and arrangements regarding
exclusiveness network openness define the
boundaries of the service
Network Entry, compliance + Even though this issue is
governance and exit conditions: applicable, entry compliance
individual vs. and exit conditions are not
network interest clearly identified in the
initial phase of development
Network Need to reduce ++ For each part of the design
complexity complexity vs. need or value network one
of access to critical deploys either a single
resources and organization or multiple
capability’s organizations. Therefore, it
is a continuous issue
264 H. Bouwman, M. De Reuver, and H. Schipper

Even though the organizational CDIs in relation to MusicBox are

distinctly present, the CDI of Network Governance is less clear in the
initial phase. As a result of the relatively unclear initial agreements,
the conditions and balance to a large extent remained vague. Nevertheless,
the CDI became more clear and critical as the design process progressed.
The core of the MusicBox value network, basically a ‘walled garden’
network, consists of the end-user and the most important partners, i.e.
content providers and aggregators, middleware and service provider, and
distributor. Some factors did lead to the decision to work together with
specific partners. These factors included, among other things, the available
resources and competences as well as the existence of direct or indirect
relationships with a company. The latter aspects together created trust
among the partners in the value network, which is one of the main
requirements for a network to function. Besides, issues such as strategic fit
and shared objectives can be decisive in partner selection. Additionally,
the current market position and market role of a company or brand can
provide a reason for including it in the partner network. Key drivers with
regard to partner selection in the case of MusicBox were size and
scalability. Scalability to a large extent depends on the partners that are
assimilated into the partner network.
In addition, there is a strong link between the arrangements within the
partner network and the financial arrangements. Moreover, that link not
only influences the decisions in the other domain, it appears to be
practically integrated within certain decisions (e.g. Network Governance,
and Division of Investments and Valuation of Contributions and Benefits
between network actors). Referring to Chaps. 3 and 5, we see that the
organizational and financial arrangements together are instrumental in
balancing and arranging actors’ interests.

15.7 Finance Domain

As far as the development and exploitation of the service was concerned,

design decisions in the finance domain were closely related to decisions
regarding the organizational arrangements. Accordingly, the finance
domain addresses financial CDIs, such as Pricing and Division of
Investments, as well as the Valuation of Contributions and Benefits
between network actors. The price of the content will be crucially
important in terms of the adoption and success of the MusicBox. The core
partners in the value network share revenues on a royalty base. Pricing is
part of the service domain as well as the finance domain. Table 15.4
 Chapter 15 A Standalone Digital Music Vending Service 265

Table 15.4. CDIs for the MusicBox service in the finance domain
Critical design Balancing Present in Notes
issue requirements MusicBox
Pricing Maximizing profits ++ Pricing is a highly
vs. creating market important critical design
share issue for the service.
Ultimately, the price of
content strongly influences
whether or not end-users
are willing to start adopting
the service
Division of Operational financial ++ All the partners invest
investments interest (ROI) vs. based on different reasons,
intangible benefits and they participate with
(options) dissimilar interests
Division and Costs-benefits ++ Two different mechanisms
valuation of costs valuation on level of for the valuation and the
and revenues network vs. cost- division of costs and
between network benefits for individual revenues are used. On the
actors partners core network level (tier-1)
division is characterized by
royalty sharing. For
individual suppliers (tier-2
and -3) fixed revenues are
agreed upon

contains the CDIs for the finance domain along with the preferred
requirements, as well as the degree to which these issues were present in
the MusicBox case (++ = strongly present to −− = not present at all). The
two generic CDIs for Division of Costs and Revenues, and Valuation of
Contributions and Benefits, respectively, are taken together.
The CDIs for the finance domain are all ‘strongly present’ in the case of
MusicBox. However, the Division and Valuation of Costs and Revenues
between the network actors indicates different design choices on the
different network levels. At the level of the core partners (tier-1), revenue
sharing is the preferred choice. At the level of individual suppliers (tier-2
and -3), fixed revenues are agreed.
For a business model to be viable, the service needs to generate enough
revenues. For a stable business model, it is also important to ensure that
costs, risks, and investments are divided in such a way as to be acceptable
to all parties involved. Keeping the critical success factors in mind that
were discussed in Chap. 3, this means that the service should be profitable
266 H. Bouwman, M. De Reuver, and H. Schipper

to the network. Accordingly, the division of content-related revenues

among the tier-1 partners results in a royalty sharing agreement. As a
result, the risks involved were shared by the tier-1 partners, and as a result
the trust among the partners in the network increased. Apart from taking
into account the various levels of risk involved, the tier-1 partners pay
suppliers based on fixed prices.
The price of content will be crucially important to the adoption of the
MusicBox, i.e. whether the service generates sufficient customer value.
However, determining the optimal price based on market research remains
difficult, because there is no proper benchmark for the price of (legal)
digital music. Nevertheless, it will be easy to adjust the pricing system of
MusicBox during the initial market roll-out in order to determine the
optimal price for the service content.

15.8 Conclusion

The STOF model proved to be useful for designing the MusicBox service
and the underlying business model. The STOF model and method make it
possible to structure the complex set of issues that have to be dealt with
when designing a service. It proved to be a practical framework for
creating insight into the various issues and interdependencies. In this
chapter, we presented a typical way to apply the STOF model and method.
In the case of MusicBox, a digital service to be introduced in a newly
industrialized country, the STOF model and method provide clear
guidelines with regard to the first phase of business model design, i.e. the
phase that deals with the design on paper. As a result, the guidelines cover
most of the important generic issues, components and choices. In addition,
based on the guidelines it is possible to create an overview of the various
components of a service business model. Furthermore, the STOF model
helps gain insight into the interdependencies between the various
components, making it possible to understand the influence that a decision
involving one component has on other components or even domains.
Therefore, it becomes easier to see how the business model should be
adapted to accommodate changes in, for example, the target group, service
location or geographic region. In addition, the STOF model helps us
understand the scale dimension, and provides support when switching to a
different revenue model or new technology. Because the STOF model
addresses broad and generic issues, the approach is applicable to various
services.
 Chapter 15 A Standalone Digital Music Vending Service 267

In this case there was a need to interact with various layers within the
organization. The STOF method does not provide explicit guidelines for
such situations. Typically, the STOF method is applied to situations
involving people who operate at the same organizational level. Applying
the method at lower levels is too complex, in which case developing
detailed process models for a specific area is an obvious approach.
Targeting is one of the critical design issues with regard to the service
domain. As far as MusicBox was concerned, it was important to have a
subdivision in segmentation and targeting, which leads to a more dynamic
approach. Because defining the target group involves making a static
observation at a particular moment, market segmentation makes it possible
to plan the best way to roll out a service. In addition, including more
guidelines on customer (end-user) acquisition and typical interdependencies
within the various STOF domains could improve the prescriptive value of
the model. Other issues that turned out to be relevant to MusicBox and are
not included in the STOF model have to do with selection of locations and
end-user education.
Chapter 16 From Prototype to Exploitation:
Mobile Services for Patients with
Chronic Lower Back Pain

E. Fielt, R. Huis In’t Veld, and M. Vollenbroek-Hutten

Many research and development projects that are carried out by firms and
research institutes are technology-oriented. There is a large gap between
research results, for instance in the form of prototypes, and the actual
service offerings to customers. This becomes problematic when an
organization wants to bring the results from such a project to the market,
which will be particularly troublesome when the research results do not
readily fit traditional offerings, roles and capabilities in the industry, nor
the financial arrangements.
In this chapter, we discuss the design of a business model for a mobile
health service, starting with a research prototype that was developed for
patients with chronic lower back pain, using the STOF model and method.
In a number of design sessions, an initial business model was developed
that identifies critical design issues that play a role in moving from
prototype toward market deployment. The business model serves as a
starting-point to identify and commit relevant stakeholders, and to draw up
a business plan and case.
This chapter is structured as follows. We begin by discussing the need
for mobile health business models. Next, the research and development
project on mobile health and the prototype for chronic lower back pain
patients are introduced, after which the approach used to develop the
business model is described, followed by a discussion of the developed
mobile health business model for each of the STOF domains. We conclude
with a discussion regarding the lessons that were learned with respect to
the development of a business model on the basis of a prototype.
270 E. Fielt, R. Huis In’t Veld, and M. Vollenbroek-Hutten

16.1 The need for Mobile Health Business Models

From literature it is known that the majority of e-health services do not

make it to full deployment (Tanriverdi & Iacono, 1999). According to
Berg (1999) more than 75% of the e-health services should be considered
operating failures. One of the main reasons for this failure is the fact that it
is not known how to make these services financially viable as there is
insufficient knowledge about their business models. In this section we
discuss the need for mobile health business models.
The capacity of our current healthcare system is insufficient to continue
treatment of patients in the conventional way involving face-to-face (called
in vivo) treatments. This capacity problem is caused by the growing
number of elderly (i.e. aging) people, combined with a reduction in
number of healthcare professionals (VWS, 2004). As a consequence of the
aging of our population, the number of chronic diseases is growing as well,
which further increases the need for healthcare, in a setting where fewer
resources are available. This means that new, more effective and more
efficient ways of treatment need to be developed and deployed.
The advances in ICT capabilities and the availability of mobile devices
and high bandwidth public wireless networks create possibilities for new
mobile healthcare services, including remote monitoring and treatment for
chronic diseases. These services are expected to be more efficient, because
individual therapists can treat several subjects simultaneously anytime and
anywhere, making it possible to replace costly intramural care by less
costly extramural care. These services are also assumed to be more
effective because patients train in their own home or work environment,
and they are not limited to the availability of the therapist, but can train
much more intense. The level of compliance and practice is believed to be
a key factor in obtaining results in (physical) therapy.
As a result, research and development involving new e-health applications
is rapidly growing. However, as mentioned earlier, e-health initiatives often
fail after the funding phase. The difficulties with large scale deployment of
e-health technologies may, among other reasons, be explained by the variety
of factors that influence technological innovation in the health sector. The
factors that affect the deployment of new e-health applications can be
divided into five types: (1) behavioral (acceptance, diffusion and dissemi-
nation), (2) economical (policy and legislation, standardization, security),
(3) financial (provider, structure), (4) technical (support, training, usability,
quality of service), and (5) organizational (overlap with existing work
practices) (Broens et al., 2007; Tanriverdi & Iacono, 1998). To understand
actual deployment specific, problem-related knowledge on each of the five
areas is needed.
 Chapter 16 Mobile Services for Patients with Chronic Lower Back Pain 271

However, even when domain-specific expertise is available, it needs to be

bundled and integrated. Because there is a lack of ‘shared vision’ among all
the stakeholders involved (for example with regard to the division of roles,
costs, revenues, et cetera), implementation remains difficult. The situation is
particularly complex in the health domain, where the relevant tasks and
responsibilities are divided among different parties, including doctors,
hospitals and insurance firms. Moreover, e-health also involves techno-
logical stakeholders in the development and delivery of the health service.
Most new e-health initiatives focus on technical and clinical capabilities,
without taking the service production and consumption, relevant stake-
holders, financial arrangements and organizational issues into account.
Developing a business model helps create focus and addresses these issues
in a systematic way, facilitates communication amongst different stake-
holders, and results in a shared helicopter view of the initiative.

16.2 The Prototype for Chronic Lower Back Pain

In this section, we introduce the prototype application for chronic lower

back pain that has been developed within the Awareness project. The goal of
this project is to research and design a service and network infrastructure for
context-aware and pro-active mobile applications, and to validate these
through prototyping with mobile health applications. Context-related
information refers, for example, to the location and availability of people.
Within the Awareness project, Roessingh Research and Development
(RRD) initiated and leaded service development for patients with lower back
pain for which a prototype was developed (Van Weering, Jones, & Thiele,
2007). RRD is a research institute in the area of rehabilitation medicine, in
particular rehabilitation technology and pain rehabilitation.
The service concept of the prototype focuses on balancing daily activity
patterns of patients in order to reduce chronic lower back pain. The mobile
health service is aimed at the long-term monitoring of physical activity in
the patient’s own environment, and at providing feedback to the patient
about deviating activity levels in relation to healthy controls. There are
three types of feedback: standard (e.g. have a rest), personal (e.g. have a
cup of tea – for those who like tea), and personal with context (e.g. have a
cup of tea in the garden – when the weather is nice and the person is at
home). Figure 16.1 provides a schematic overview of the prototype. The
prototype will be described in greater detail when we discuss the
technology domain of the business model.
272 E. Fielt, R. Huis In’t Veld, and M. Vollenbroek-Hutten

Fig 16.1. Schematic presentation of the service concept for chronic lower back
pain patients (Van Weering et al., 2007)

16.3 Business Model Development

Based on the prototype, a business model was developed that was aimed at
mobile health services for chronic back pain patients (Huis In’t Veld, Fielt,
Faber, & Vollenbroek-Hutten, 2007). The business model should increase
our understanding and enhance the viability of the mobile health service. A
business model can help moving a service from the research phase toward
the implementation phase, and serve as a basis for a business plan and
business case as explained in Chap. 2. This is particularly relevant for
RRD because of their explicit objective to implement their knowledge in
rehabilitation practice and the development of rehabilitation products.
To develop the business model, the STOF model and method were used.
This chapter presents the development of the initial business model from
an internal project-oriented view. This initial model will be further
developed and improved with external stakeholders. To develop the initial
business model a sequence of six design workshops of about 2 h each was
organized between June and September 2007: two workshops for the
service domain, one for each of the other domains, and a wrap-up and
integration workshop to conclude the development.
The workshop participants were RRD members (both researchers and
staff), since RRD is the primary stakeholder for the business model
development, extended with researchers of the Awareness project. The
participants came from different backgrounds, including physiotherapy,
technology, finance and management. For financial knowledge a person
from a Dutch insurance company was invited. Each workshop started with
an update of the business model as it has been developed so far. Whenever
it was deemed necessary, open issues that arose during a workshop were
investigated in greater depth afterwards.
 Chapter 16 Mobile Services for Patients with Chronic Lower Back Pain 273

Below, we provide a description of the various workshops by exploring

the service, technology, organization and finance domains.

16.3.1 The Service Domain

The prototype for patients with lower back pain is a tele-health service. In
general, the advantages of tele-health services are that they decrease the
need for the patient and the professional to be at the same place at the same
time, a less direct interaction between patient and professional, depending
on the extent to which the services are automated.
The various possible (generic) tele-health services (Fig. 16.2) and their
value propositions were discussed in the workshops. The focus of the
prototype was addressed in relation to these tele-health services. Basically,
the prototype is a tele-monitoring service that makes it possible to gather
more health information (more detailed and over a longer period) and
information of a better quality (during normal activities in the user’s own
environment). This tele-monitoring service enables tele-treatment, i.e.
providing the patient with feedback either automatically via a device or
personally via a professional. In general, tele-monitoring and tele-
treatment can increase the quality and efficiency of health services. The
specific benefits depend on the extent to which tele-health services are
used to replace and/or complement traditional health services. Tele-
monitoring service also enables tele-alarm by using the gathered
information to detect unexpected patterns that trigger an automatic alarm
for patient and/or assistance. Tele-consultation and tele-community are
additional possibilities, with or without tele-monitoring. In addition, there
are (tele-)advice and support services for patient and professional.
For the chronic lower back pain application, a combination of tele-
monitoring and tele-treatment are the core services supplemented with tele-
consultation services and advice and support services. Tele-community is a
possible additional service, while tele-alarm is not relevant for chronic lower
back pain.

Tele-treatment Tele-alarm

Tele-consultation Tele-community

Tele-monitoring

Tele-health advice and support

Fig. 16.2. Tele-health services spectrum

274 E. Fielt, R. Huis In’t Veld, and M. Vollenbroek-Hutten

An obvious target group for the chronic lower back pain application
consists of patients with chronic lower back pain and the professionals
who treat them, such as physiotherapists. However, it makes sense to
identify other potential markets in order to increase the overall market size.
This creates opportunities to (partially) leverage the investment in the
application and infrastructure and to mitigate the risks when the
acceptance levels of the service or the cooperation of the stakeholders in
this market turn out to be disappointing. An additional target group
consists of employees with lower back problems and the occupational
health providers responsible for their treatment. Since the prototype
focuses on influencing activity patterns, a third target market was defined
that consists of consumers with obesity, hence focusing on the wellness
market as well. In this market, the activity pattern can also be an important
part of the treatment.
The three target groups were selected because of their similarities
concerning monitoring and treatment. However, there are also differences
as far as this particular service is concerned. For example, patients and
employees have a higher need for increasing the range of sensing (e.g.,
physical condition, hearth rate) and require more frequent and detailed
feedback. Together, these three markets cover the individual and business
segments of the healthcare market as well as the consumer market. These
markets differ with respect to the organizational settings and financial
arrangements, as we will see when we discuss the other domains.
Specific attention in the service domain description was paid to an
idealized, future context-of-use for mobile health services. This involved
covering a range of wellness and healthcare issues via ‘plug and play’
sensors and services with one central device and tailored to the person and
context-of-use. Preferably, the device is someone’s own mobile phone.
While the chronic lower back pain application is still far removed from
this ideal future, it is very important to take the ease-of-use for the patient
into account.

16.3.2 The Technology Domain

The prototype introduced earlier (see Fig. 16.1) serves as a starting-point

for the technology domain. Both the patient and the professional are users
of the prototype. The prototype consists of three main components:
(1) Body Area Network for patients, consisting of an activity sensor, an
actuator for feedback, a mobile interface and medical algorithms,
(2) Mobile communication infrastructure for data transmission between
body area network and back-end, and (3) Back-end for professionals,
 Chapter 16 Mobile Services for Patients with Chronic Lower Back Pain 275

including user management, storage/back-up facilities, medical algorithms,

medical display, tele-video consultation and context management.
The existing prototype can be conceived as a high-end solution.
Offering basic tele-monitoring and treatment may also be possible with a
simpler communication infrastructure (e.g. not mobile or not continuously)
and back-end, and with a lower level of (or no) personalization and
context-awareness.
In general, the technological solution may vary with respect to the
extent to which the computer can support activities, and based on the
question whether the device or the (mobile) network should be the core of
the solution. Figure 16.3 presents four possible solutions, focusing on the
role of the patient’s device. In the case of the ‘smart device’, the mobile
health service is a stand-alone service on a device (e.g. automated
feedback). When remote processing and storage are required, the
‘connected device’ is available. When human involvement is necessary
(e.g. professional feedback), the patient can take the device to the
professional (shared device) or the professional can access the device
remotely, anytime and anywhere (real-time device). The increasing
capabilities of the device (e.g. processing power, battery duration, and
storage capacity) enhance the possibilities of the smart device. However,
there are also developments that make the other solutions more attractive,
for instance a demand for small devices or cheaper mobile data
transmission.

human

The shared The real-time

device device

device Increasing device network

capabilities

The smart The connected

device device

computer

Fig. 16.3. Solution space for tele-health devices

276 E. Fielt, R. Huis In’t Veld, and M. Vollenbroek-Hutten

There are potential technological risks that have to be taken into

account. The prototype’s Body Area Network requires a certain number of
devices per person and some devices are quite expensive. Reducing the
number of devices would make the system cheaper and easier to use.
Power consumption is a problem when continuous real-time monitoring
over a long-period is required and processing and data transmission
requirements are high. When activity sensors become less exclusive, it
may be easier to introduce alternative solutions. In particular the obesity
version of the service may well function with a simpler and, therefore,
cheaper and widely-available sensor. Finally, there is a lack of standards
regarding (context-aware) tele-health services at a national and inter-
national level, which may have a negative impact on the level of
acceptance in the regular healthcare sector.

16.3.3 The Organization Domain

The tele-health network aims at offering tele-health services, where the

following roles can be identified: tele-health service provider, demand-side
roles, and supply-side roles (Fig. 16.4). The tele-health service provider is
the focal role responsible for implementing and delivering the tele-health
service, bridging the health sector on the demand-side and the technology
sector on the supply-side.

Tele-health Tele-health Tele-health

technology supplier service provider service user

Supply-side roles Focal role Demand-side roles

- Service delivery - Service/market combinations
- System integration - Distribution channels

Related to the technology Related to the service domain

domain

Fig. 16.4. Roles in the tele-health network

The tele-health service provider is responsible for implementing and

delivering the tele-health service to the users. This new provider takes the
initiative and is responsible for offering a complete solution to the user.
Activities (possibly) performed by the tele-health service-provider are
managing the tele-health initiative, developing the relations in the tele-
heath network, arranging the financing of the tele-health initiative,
handling legal issues for the tele-health service, marketing and sales of the
tele-health service, responsible for delivering the tele-health service, user
 Chapter 16 Mobile Services for Patients with Chronic Lower Back Pain 277

training and support (both end-user and health service provider), and
stimulating research and development for tele-health services.
The tele-health service-provider can perform fewer activities when the
activities are or become available as services in the market, for example
via partnering with an existing tele-health service-provider. The tele-health
service-provider can also perform more activities related to service
delivery and system integration, discussed in the supply-side roles. The
exact activities of the tele-health service provider will depend on the kind
of actor playing that role and the strategic choices of that actor, as later
discussed in the start-up scenarios.
The demand-side roles vary for each potential target market. The end-
users are the patients, employees and/or individuals suffering from obesity
(consumers). As far as chronic pain is concerned, a health provider
(a health professional or health organization) is involved, while in the case
of obesity agents (e.g. fitness centers) and direct service sales and delivery
offer alternatives. With regard to work-related health, an occupational
health provider is involved. The (occupational) health provider integrates
the tele-health service into the overall health service involving chronic or
work-related lower back pain. Moreover, a tele-health portal, acting as a
single source for different tele-health services, can be involved, offering,
for example, neck shoulder pain tele-health next to lower back pain. The
distribution choices will affect the activities of the tele-health service
provider, such as marketing and sales and training and support.
With regard to the supply-side roles, we separate the service delivery
from the system integration. The tele-health service provider has to arrange
the actual service delivery with a tele-health platform operator and with
data, communication, and context service providers. As far as the platform
and device are concerned, system integrators are needed, who use software
and hardware suppliers, and (medical) R&D organizations. With regard
to the roles of hardware and software supplier, it may be useful to
differentiate between those that provide hardware and software that is
specific to the tele-health service and those that provide hardware and
software that is more generic in nature, for instance mobile service
platforms or personal devices.
One of the major issues is the question as to who will be the central
actor playing the new role of tele-health service provider (and portal). We
present four possible start-up scenarios:

1. Demand-Side Scenario. Actors involved in the demand-side of the tele-

health network, such as health providers or health insurers, can take on
the role of tele-health service provider as part of their own organization
or invest in a separate organizational entity.
278 E. Fielt, R. Huis In’t Veld, and M. Vollenbroek-Hutten

2. Supply-Side Scenario. Actors involved in the supply-side of the tele-

health network, such as health solution providers (e.g. Philips) or
communication providers (e.g. KPN), can take on the role of tele-health
service provider as part of their own organization or invest in a separate
organizational entity.
3. Outside Investor Scenario. Actors who play no specific role in the tele-
health network, such as venture capitalist, can invest in the start-up of a
new organizational entity that is directed towards the role of tele-health
service provider.
4. Mixed Scenario. This scenario is a combination of the other there
scenarios. Different actors cooperate and together start-up a new
organizational entity that is directed towards the role of tele-health
service provider.

For each of the scenarios the central role is allocated to an actor willing
to invest in a new enterprise. These investment issues are discussed in the
finance domain).

16.3.4 The Finance Domain

With regard to the finance domain, we discuss three possible revenue

sources. The first identified revenue source involves health insurance, most
suited to chronic pain service, while there are also some possibilities for
obesity and work related pain. The second source is employer insurance,
which is targeted at employers, and this is most suited to the work-related
lower back service. With insurance as revenue source, the costs for using
the service are paid for by an insurance company. The third is commercial
sales (where users purchase a device or subscribe to the service), which is
most suited to the obesity service. Table 16.1 provides an overview of the
matching between the services and revenue models.

Table 16.1. Revenues sources for the tele-health services

Chronic pain Work-related Obesity
Health insurance ++ + +
Employer insurance ++
Commercial sales ++
‘++’, a very good fit; ‘+’, a good fit between revenue sources and target group

With regard to the insurance models, we start with a number of

assumptions about the future development of the healthcare sector, based
on existing trends within the Dutch healthcare system discussed during the
 Chapter 16 Mobile Services for Patients with Chronic Lower Back Pain 279

workshop. There is an incentive to adopt healthcare innovations due to the

need for productivity improvement because of the expected lack of
capacity. Moreover, it is expected that there will be a shift from more
budget-driven financing toward more market-driven financing. It is to be
expected that even the threat of introducing a market model in healthcare
may result in a change in the healthcare system. Market-driven financing
means insurers will pay for the outcome of the treatment, not for
the activities involved. Health professionals/organizations (for health
insurance) and occupational health providers (for employer insurance) will
compete for outcome contracts (fixed price) with health insurers.
The health professionals and occupational health providers have
incentives to improve their health services because of the outcome
contracts and because of mutual competition. As a result, they will start
using tele-health services when it offers benefits to their health services.
To use the tele-health services, the health professionals and occupational
health providers need a contract with the tele-health service provider. This
also means that the tele-health service provider is paid by the health
professional rather than the health insurant or insurer. The benefits that
tele-health services offer to the health services of health professionals and
occupational health providers offer possibilities for a higher quality of
service (more effective, more easily accessible, higher availability) against
lower costs. The expected benefits will depend on the extent to which the
tele-health service complements or replaces parts of the traditional health
service. Moreover, realizing the benefits depends on whether the necessary
social and organizational changes take place. For example, will patients
accept tele-health services and can health professionals integrate them into
their work processes? The benefits of tele-health services to health
professionals and occupational health providers can result in higher
margins and/or more competitive prices.
In the case of obesity, there is the possibility of selling commercially to
consumers on an individual or periodical (subscription) basis. When the
tele-health service provider deploys agents, these agents will expect to
receive a commission. The consumer price can be lowered by sponsoring
via health (or non-health) insurers, because it can prevent insurance claims
in the future and/or because being associated with a tele-health service can
provide insurers with an innovative image. Future insurance claims can be
related to psycho-social and medical (e.g. heart diseases and diabetes)
complaints related to obesity.
The tele-health service provider’s revenues and costs are based on
providing the service to the three target markets. The revenues come from
the contracts with health professionals/organizations and/or occupational
health providers and/or commercial sales to consumers, most likely in the
280 E. Fielt, R. Huis In’t Veld, and M. Vollenbroek-Hutten

form of a subscription fee that can be a combination of a fixed amount, an

amount per user/device and/or a usage-related charge (e.g. number of
hours, amount of data). The tele-health provider may differentiate in
price for a basic service and a top-up for more luxurious options
(personalization, context-awareness). Promotional and quantity discounts
can decrease the revenues.
The costs of the tele-health service provider have to do with delivering
the tele-health service and running a business in general (e.g. marketing,
housing, administration, et cetera). The kind and number of devices and
sensors will affect the costs of delivering the tele-health service. Re-use of
devices and sensors can reduce the costs, especially with regard to the
patient and employee market. The tele-health service provider may also
need to invest in hardware and software for the health professionals/
organizations and occupational health providers. Another important cost
factor is the extent to which the services for the three target markets are
able to make use of the same processes and systems. While this is the
intention, in the end it may not be feasible when the treatment and the
devices/sensors are too different. An important cost-related trade-off is that
between investing up front in ease-of-use and reliability, and having higher
training and support cost (in case of service break-downs).

16.4 Conclusion

In this chapter, we illustrated the use of the STOF model and method to
develop a mobile health business model starting from a prototype aimed at
patients with lower back pain. The STOF model and method helped
preparing and conducting the workshops, and organizing and presenting
the results (Huis In’t Veld et al., 2007). The presentation of the results in a
feedback session to the project members gave the impression that the
model and method address relevant issues in a systematic way. We
experienced that organizing separate workshops for each of the domains
provides more time for discussion, although it also makes it harder for the
participants to get an overall picture (due to the time that elapses between
workshops) and feel committed to the overall result (due to changing
participants per workshop). Therefore, it may be advisable to start with an
overall workshop, before moving on to separate workshops for the
individual domains.
The development of the business model resulted in a change from a
focus on the technology toward an overall picture that including the
service, organization and finance domains. Moreover, it resulted in a
 Chapter 16 Mobile Services for Patients with Chronic Lower Back Pain 281

rethinking of the technology choices that were made while developing the
prototype. The service domain opened up the discussion regarding a use of
application to serve other target groups and to take additional services into
account. It also became clear that there is a need for a more concrete and
elaborated description of the service, and that this requires more
interaction with and knowledge about the target markets. The organization
domain draws attention to the new role of the tele-health service provider
and the need for a new or existing actor to take up this role. In addition, the
organization domain makes it clear that the initiative requires a complex
organizational network that depends on the cooperation of multiple
stakeholders with different interests and capabilities. While in general
there is agreement that e-health services are needed to keep providing
healthcare to a growing population with the same number of fewer health
professionals, the finance domain showed that the revenues and costs are
not yet very clear. Moreover, the distribution of the revenues and costs
among the various actors remains an important issue that needs to be
resolved.
The development of the business model also resulted in rethinking the
technology choices that were made with regard to the prototype. The
existing prototype is a high-end solution that may not be suitable for
commercial exploitation, at least not with regard to the basic service or in
the near future. The amount and prices of the devices and sensors in the
Body Area Network have to be reconsidered, as has the need for mobile
communication and context-awareness. Moreover, whether or not
technology is a potential barrier for the introduction of mobile health
services (e.g. power consumption) also depends on the ambitious claims
that have been made about the possibilities for continuous and real-time
tele-monitoring.
Chapter 17 From Prototype to Exploitation:
Organizational Arrangements for
a Personalized Dementia Directory

H. De Vos, T. Haaker, and R.-M. Dröes

One of the typical aspects of applied scientific and technology-driven

research is that it focuses on the development of a specific technology that
aims at solving a specific problem of a specific target group. In terms of
the STOF model, this kind of research aims at specifying the technology
domain and parts of the service domain. Attention should also be paid to
other aspects, i.e. the organization and finance domains to make the
technology available to a broader public at a later stage.
In this chapter we sketch a procedure to broaden the scope of a
traditional technology push research project, using parts of the STOF
method. To encourage potential business model discussions, we designed
several organizational arrangements and discussed them with stakeholders
and potential partners. We combined a decision support method making
use of the Critical Success Factors to select a business model.

17.1 Introduction

Applied technology research often focuses on solving specific problems

that potential users may encounter. In the healthcare domain, this usually
involves people who suffer from a certain disease. A common practice in
human-centered design is to involve potential users or domain experts in
the exploration phase, to identify user requirements and to evaluate the
technology in a pilot study. The research is typically carried out in a
project with a specified budget for all the activities involved. The hardware
and software required are made available for free. Users and other parties
are not faced with additional costs and are often willing to cooperate in a
pilot. Typically, researchers want users to continue using the product after
the research project has finished. However, entering the exploitation phase
is not a foregone conclusion. In fact, a large number of prototypes with
284 H. De Vos, T. Haaker, and R.-M. Dröes

successful pilots never reach this stage. The step from prototype to market
introduction is a big one. Common reasons for projects not to reach the
market are that there is no (commercial) party to take the lead in the
exploitation phase. Often the aim of these projects is to solve a societal
problem, with a variety of providers involved and with users as well as
society as a whole benefiting. However, in those cases it is not clear what
the benefits are and what the benefits are for the specific provider(s) and
the provisioning network as a whole. Among the specific problems in
healthcare are how to comply to regulation and to the complex financial
structure. As far as the development of exploitation models is concerned,
this poses a challenge. A first step towards market introduction is to
involve providers and take the providers’ interests into account as early as
in the design phase. The STOF model and method provide the ingredients
needed to realize this, taking into account the interests of the users as well
as the providers.
In this chapter we use a Personalized Dementia Directory (PDD) as an
example. This PDD provide personalized information on services that
fulfill the specific needs of a dementia patient. In the following section, we
explain the PDD and specific aspects of business models in the healthcare
domain. After that, we outline the research approach and assess alternative
business models that refer to the value for providers. This chapter is based
on the work by De Vos, Haaker, and Moen (2007). Note that PDD is not a
service using mobile technology. However, we experienced that the STOF
model and method can also be applied to other types of (electronic)
services, especially when multiple parties are involved in the provisioning
network, such as the case for PDD.

17.2 About PDD

The Personalized Dementia Directory is an interactive digital service

specifically designed for people with dementia and their informal carers.
Although it is not a mobile service, it is available through the Internet. In
the future the Internet application will also be made available for mobile
devices. The purpose of the service is to provide personalized answers to
questions of people with dementia and informal carers concerning the care
and support they need in their daily lives. PDD helps users focus their
questions and subsequently provides answers that consist of relevant
services and service bundles that meet their specific needs and that are
available in the region where they live. Work on the design and
specification of user requirements was carried out by, among others,
Chapter 17 Organizational Arrangements for a Personalized Dementia Directory 285

Baida, Gordijn, Sale, Akkermans, and Morch (2005) and Dröes et al.
(2005). User studies showed that people with dementia and their carers
require specific support to help them cope with the consequences of the
disease, especially with memory problems and problems in their daily
activities. However, variation, fragmentation and continuous changes in
care and welfare services make it (more) difficult to access the services.
By offering an improved access to optimal care, PDD is expected to
improve service usage and with it the quality of life of people with
dementia and their carers. Although as yet no specific impact figures are
available, it is expected that PDD will reduce the costs per patient-carer
dyad. Enabling people with dementia and carers to access and benefit from
the services they need, will prolong the period that people with dementia
can continue to live in their own homes and delay institutionalization, and
it will prevent the carer from becoming overburdened. From a societal
point of view, the cost reduction involved is important in the long term,
because dementia is a relatively costly disease and the number of people
with dementia is expected to increase dramatically in decades to come
(Lamura, 2003; Qiu, De Ronchi, & Fratiglioni, 2007).
The core research of PDD focuses on the service and technology
domain. The domain descriptions are provided below. Next, some generic
issues will be addressed with regard to the organization and finance
domain.

17.2.1 Service Domain

The PDD service was developed by researchers in the healthcare domain

based on the results of a comprehensive literature study (Van der Roest,
Meiland, et al., 2007) and a large scale needs survey among Dutch
dementia patients and their carers (Van der Roest, Meiland, et al., 2007).
The survey aimed at exploring the various (met and unmet) needs and
wishes of the respondents (Dröes et al., 2005). PDD provides personalized
information on the disease and on cure, care, support and welfare services
that aim at solving specific user problems. It provides access to
information and services that otherwise would be hard to find. One of the
requirements of the PDD service was that the effort users had to make had
to be minimal. In the first iteration of the service domain design, pricing
was not an issue. The use of the service is illustrated in Fig. 17.1. Different
groups of users (people with dementia, informal carers and health care
professionals) can ask their questions (demands) and are given an answer
in the form of a single service or a combined set of services. The services
are provided by a network of suppliers.
286 H. De Vos, T. Haaker, and R.-M. Dröes

Demand Dynamic matching Supply

s3 s4 s1
respons s2
request
Informal carers
s3
Available Service
request Social chart
services provisioning
Matching needs s4
with services
s4 respons …
Healthcare
professionals
respons
request

s2 s5 s9
Elderly suffering
from dementia
Service Service Service
Users offering engine Services providers

Fig. 17.1. PDD request and response

17.2.2 Technology Domain

The technology domain was specified together with the service design,
starting with the main challenge: an engine – algorithm – that could
translate user needs into specific demands and match these demands with
the available (service) information packages (or bundles) (Baida et al.,
2005). A domain expert was involved to specify the information supply
and to define the range of needs that should be dealt with by PDD. Next,
a user interface was developed and small scale user tests were conducted
to adjust the prototype to the specific requirements of users. The global
technical PDD architecture is outlined in Fig. 17.2, with the user and
research roles and their activities at the top, e.g. informal carers that
determine user needs, receive service bundles and determine the context,
and several domain experts that classify needs, specify regulations and
consequences, and specify specific aspects of the services. Roles and
activities are linked to system functionality and information at the bottom
of the architecture. System functionalities are e.g. the engine that matches
supply and demand, and several administrative functions that support
the experts in their specification activities. For an explanation of the
Archimate notation, we refer to Lankhorst (2005).
Chapter 17 Organizational Arrangements for a Personalized Dementia Directory 287

Informal Needs Services Legislation

carer Domain expert domain expert expert

Determine Provide Determine Classify Model

Model Model service Model
user needs personalized context & service
needs resources dependencies regulations
service bundles facts elements

Context Needs Service

Context Needs Service
registration administration administration Resource
registration administration administration Resource Service
administration Service
administration dependency
dependency Regulation
DISC Engine administration Regulation
administration administration
administration

Context Needs
information classification Services
Resources
Service
dependencies Regulations

Fig. 17.2. PDD architecture

17.2.3 Issues in PDD’s Organization and Finance Domain

PDD’s most important output is to offer information on dementia-related

cures, care, support and welfare services. This information was specified
by domain experts (dementia care researchers advised by care
professionals and a board member of the regional Alzheimer Association).
Although it is assumed that, in later stages, input and updates are provided
directly by the (healthcare) service providers, these providers were not
involved in the research project, except for some individual professionals.
This presents a potential risk for future exploitation. Another issue is that,
during the research project, no organization or institute could be identified
that was explicitly interested in exploiting the PDD service. Although the
benefits for users are obvious, it is not clear what the benefits would be for
such an organization. Individual benefits may add up to a significant
societal benefit, since the care of dementia patients is improved, which
may in turn reduce the overall costs in caring for these patients. An
obvious partner would, therefore, be a government institution; however,
the commercial exploitation of these kinds of services is not a
governmental task. As a result, the main questions within the organization
and finance domains are:

• What are potential value networks for the commercial exploitation of

PDD?
• What are the benefits for network partners and how should the costs and
benefits be distributed among them?
288 H. De Vos, T. Haaker, and R.-M. Dröes

17.3 Business Model Design Process

Taking the service and technology domain development as a starting point,

further research was carried out with respect to designing the organization
and finance domains. In addition to exploring potential value networks,
one of the aims was to involve stakeholders and identify their specific
wishes with regard to the technology and service domain, which would
make it possible to produce a balanced business model.
The process that was followed to generate a complete business model is
visualized in Fig. 17.3. Via quick-scan sessions with the relevant stake-
holders and evaluation sessions concerning the organizational arrange-
ment, we could fine tune the service concept and technology design into a
business model.
As a starting point, five alternative business models were constructed,
with the aim of promoting discussion with potential stakeholders in the
PDD network that might be in a position to provide the service. The initial
business models were developed on the basis of a scan of existing business
models for online information systems in health-care, additional desk
research and discussions with domain experts.

Research prototype
Service Technology
domain domain

Quick scans Alternative Evaluation

with organisational with respect to
stakeholders arrangements CSFs

Business model
Service
domain

Technology Organisation
domain domain

Finance
domain

Fig. 17.3. Translation of a service model into business model

Chapter 17 Organizational Arrangements for a Personalized Dementia Directory 289

The business models were used as input for the discussions with
stakeholders, in rounds of interviews and workshops. Since the research
was relatively explorative in nature, a limited number of stakeholders were
involved.
Stakeholder Interviews. There are numerous stakeholders with regard to
PDD, ranging from care and welfare providers to government institutions,
insurance companies and interest group, such as informal care communities
aimed at supporting informal carers and patient organizations. In principle,
all the participants in the study could become part of the future PDD
providing network. In all, we interviewed 14 stakeholder representatives,
using a semi-structured interview protocol. The questions focused on options
for financial and organizational structures for PDD, and addressed issues
such as the pros and cons of alternative business models and potential
tangible and intangible benefits for the organizations involved.
The first series of interviews with twelve stakeholders provided insight
into PDD’s expected customer value, as well as into the preferred business
models and potential value for providers. An in-depth evaluation of the
perceived business model viability was performed in a second series
of two workshops and four additional interviews with stakeholder
representatives. In this second round, we used the Analytic Hierarchy
Process (AHP) introduced by Saaty (1980) to support evaluation of the
business model alternatives. As a result, the workshop participants were
able to select their optimal business model for PDD. In all, nine people
took part in the second round.
Choosing Between Alternative Business Models. After scanning relevant
existing literature, we found several approaches that can be used to select
business models. Weiss and Amyot (2005), for example, use a goal-
oriented requirement language to compare alternatives in terms of their
impact on profitability and risk. The authors apply this method to evolving
business models. Barabba et al. (2002) use a formal process for decision-
makers and supported decisions, combining various approaches from
management science, e.g. conjoint analysis, system dynamics models.
These approaches require a fairly detailed knowledge regarding several
aspects of the business models, which at the time the PDD case was being
developed we did not possess. We therefore used a light weight approach
by applying the AHP technique to compare alternative business models,
and used evaluation criteria derived from the business model success
factors of the STOF model.
The AHP technique for multi-criteria decision support was designed by
enables users to build a hierarchy with relevant criteria and sub-criteria.
Alternatives are evaluated with respect to the goal by pair-wise
comparisons. A final judgment is achieved by weighing the subsequent
290 H. De Vos, T. Haaker, and R.-M. Dröes

evaluations on the basis of the importance of the criteria, where

importance measures are achieved by pair-wise comparisons. In the case of
evaluation by multiple participants, average estimates are obtained by
arithmetical means. AHP allows users to be inconsistent in their pair-wise
comparisons, as indicated by an inconsistency ratio. For an explanation on
calculation methods, inconsistency measures and calculation of group
results, we refer to Hummel (2001) and Saaty (1980). The AHP method
was applied by using the Expert Choice application (Expert Choice, 2006).

17.4 Results

During the interviews, all the stakeholders confirmed the value of PDD for
people with dementia and their carers. Currently, it is very difficult for
these patients and their carers to find the services they need in time,
with all consequences, including problems in daily functioning, unsafe
situations, accidents, overburdened carers and premature admission into
nursing homes. PDD fits into a modern society where people are used to
make their own choices. The stakeholders furthermore stated that PDD
would be a valuable tool for professionals and healthcare consultants, since
they also lack a proper overview of available services. This implies
potential new target groups in the service domain. Since PDD helps people
find services, it should also be able to reflect which services are missing
and where market opportunities arise. However, focusing solely on
dementia did not fit with the strategies of the care providers, who offer
their services to customers with various diseases and disabilities.
Within the four business model domains, a variety of design issues was
addressed. For example, stakeholders stressed the importance of the
quality of information (service domain) and provided suggestions with
regard to implementation, like asking feedback from users, and striving for
a uniform way of presentation. Within the organization domain, issues like
maintaining an organization’s identity were important, which may conflict
with the requirement mentioned above. With regard to the financial aspects
of PDD, care providers were reluctant to invest in such a system. They
stressed the importance of finding a balance in contribution and returns.
Next to a general reflection regarding the opportunities and potential value
of PDD, several business models for exploitation were discussed with the
stakeholders.
Chapter 17 Organizational Arrangements for a Personalized Dementia Directory 291

17.4.1 Alternative Business Models and Stakeholders Assessment

A general role model or value network for PDD is visualized in Fig. 17.4.
The PDD provider, responsible for providing the PDD service to the users,
and for maintaining the service, occupies a central position in this model.
Providers of care and welfare services, ranging from taxi services and
housekeepers to medical care and cure, are responsible for providing
accurate, up-to-date information regarding their services. Information
providers are responsible for providing general information, like
information on dementia. Advertisers and sponsors may share revenues
with the PDD provider in exchange for advertising or marketing
opportunities. Finally, there is the user, in most cases the informal carer or
a person with dementia.

Advertiser Sponsor

Care or wellfare
service provider
DEM-DISC
User
service provider

Information
service provider

Fig. 17.4. Basic PDD role model

Five organizational arrangements can be derived from the role model,

by allocating the role of PDD provider to a specific actor. This allocation
affects, among other things, the value proposition and the user group. The
five models are:

• Commercial Model. PDD is provided to the general public by a

commercial party. All providers are allowed to provide information
about their services, provided they meet a certain quality standard.
Revenues from sponsors and advertisers could be used to cover
exploitation costs. Potential sources of income are subscription fees
from care providers.
• Community Model. A patient community takes on the central role of
PDD provider. Care providers that meet specific quality standards are
allowed to present their services. The patient community will be an
important provider of information on disease and specific care and
292 H. De Vos, T. Haaker, and R.-M. Dröes

support alternatives. Quality of information is an issue that requires

specific attention.
• Government Model. PDD is provided by a government institution. It is
unclear how the quality of information can be guaranteed. The primary
aim is to create transparency and a secondary goal could be to enhance
competition.
• Provider Model. A group of care providers cooperates to provide PDD
to the general public. Services to be included are likely those provided
by network partners and complementary ones.
• Insurer Model. PDD is provided by an insurance company to its own
customers. Services provided are likely to be biased and limited to
associated providers or providers that are preferred by the insurance
company.

Table 17.1 summarizes the (qualitative) opinions on the alternative

arrangements as expressed by stakeholders representatives in the two
rounds of interviews and workshops, including the main pros and cons.

Table 17.1. Perceived viability of the business models

Arrangement Pro Con Average
assessment
Commercial There is a direct interest in Commercial parties Not viable
model providing the best possible may also have other
service, since this will interests that conflict
generate revenues for the with that of PDD
company
Community Patient communities There are doubts on the Could be
model represent the interests of level of professionalism viable
patients and are among patients
independent communities
Government Governments have a general Governments have no Viable
model interest in the wellbeing of direct interests and focus
elderly people mainly on short-term
policies
Provider Providers have a direct Providers are not used Could be
model interest in informing to working together viable
customers about their with competitors
services
Insurer Insurers have the financial Insurers are dominant Could be
model means, power and relevant parties in the market and viable
relations to make it a pointing to preferred
success providers is undesirable
Chapter 17 Organizational Arrangements for a Personalized Dementia Directory 293

Most stakeholders preferred the community model. The government

model was also positively evaluated by most parties, except for the
government parties themselves. The insurer model and provider model are
not considered viable options. There were also serious doubts about the
commercial model. Interviewees stated that there is friction between being
commercial and providing objective information. The insurer model is not
considered a feasible option for PDD exploitation, since dementia care is
not covered in health insurance policies, although this might change in the
near future due to changes in healthcare regulations.

17.4.2 AHP Business Model Evaluation

To obtain greater insight into potential PDD partners, we conducted

interviews and workshops where stakeholders could reflect in detail on
each of the business model alternatives. We adopted a structured approach
using AHP. Criteria that were important for the viability of business
models were derived from the first series of interviews. There is a match
between the criteria and the Critical Success Factors (CSFs) as defined in
Chap. 3. These are quality of information, i.e. complete, accurate and up
to date; acceptable division of profits, i.e. sufficient benefits and an
acceptable distribution of costs, benefits and investments; acceptable
division of roles, i.e. all roles can be assumed by capable actors and
partners should be comfortable with the role division; and clear network
strategy, i.e. alignment of visions on the service. Other CSFs are not
relevant to this case.

0,6

0,4
Importance

0,2

0,0
Acceptable division Clear network Quality of Acceptable division
of profits strategy information of roles

Care providers Others All

Fig. 17.5. The importance of success factors in business model assessment

294 H. De Vos, T. Haaker, and R.-M. Dröes

Figure 17.5 summarizes the evaluation rates of the decision criteria. To

distinguish results between respondents, we divided them into two groups:
care providers and others (e.g. government, insurance companies and
patient organizations). On average, the care providers indicate that
profitability is an important element of a PDD business model. The other
participants disagree. According to the care providers, having a clear
network strategy is relatively unimportant, whereas it is highly valued by
the others. Quality of information is the most important element, even
more so to the care providers than to the others. An acceptable division of
roles is considered to be less important by all the participants, although
there is some variation. We emphasize that the results only give an
indication, keeping in mind that not all stakeholders were involved, the
small number of interviews and the substantial variation between the
individual ratings. Figure 17.6 shows the average evaluation rate with
regard to the care providers and the other stakeholders, including the range
of the rates. The other stakeholders consider the commercial model the
most attractive. The provider model is not preferred by this group. In this
regard, their preferences more or less mirrored the evaluation of the care
providers, who prefer a business model where the providers are the
initiators and are reluctant to join a commercial model. The differences
between care providers and others with regard to the community model
versus the government model are small.

Care providers Other participants

0,6 0,6
Importance
Importance

0,4 0,4

0,2 0,2

0,0 0,0
Commercial Community Government Provider Commercial Community Government Care provider
model model model model model model model model

Fig. 17.6. Business model assessments by AHP for care providers and others

17.5 Conclusion

In this chapter we illustrated the use of the STOF method to move from a
user-centered research prototype (i.e. mainly service and technology
domain) towards a design that involves the needs and requirements of the
potential providers. Ideally, the supply side would be included in a
Chapter 17 Organizational Arrangements for a Personalized Dementia Directory 295

research project. However, in practice this is not always easy. In our

research we asked potential stakeholders to assess PDD’s assumed value
for users and providers. Furthermore, potential providers reflected on and
evaluated five potential business models and their own role in these
models. Issues that they considered important were discussed in relation to
all the relevant business model domains. For example, the way quality of
information could be guaranteed and how a company’s identities could be
safeguarded. Such issues are not likely to be addressed in user-related
studies. By elaborating on business model alternatives, stakeholders were
able to distinguish the pros and cons of the business models.
Due to a large variation between stakeholders’ opinions, no specific
model emerged that was preferred by all. Some stakeholders strongly base
their opinion on return on investments, while others focus on business
models of which they assume that a high quality of information provision
can be achieved. Although one might argue that the model that on average
gained the highest level of popularity should be selected, that would mean
that most of the stakeholders would not be satisfied with the result, since
the outcome would not reflect their preferred model, and they would not be
likely to cooperate. The most feasible option would be to mix the models,
for instance the government model and the provider model, taking the
resulting combination as a starting point for the exploitation of PDD.
This study has shown that exploring stakeholder opinions is essential for
a viable exploitation of systems like PDD. It has yielded additional
requirements that would not have emerged in user studies and undisclosed
additional opportunities of PDD for providers. Talking about business
models turned out to be an excellent way to involve stakeholders, giving
them the opportunity to provide professional feedback and focus on the
link between PDD and their product range. Although the study has not
resulted in a definite business model, we feel that it has brought such a
business model, and the associated service, a small step towards market
introduction, which is why the discussion with potential stakeholders, such
as care providers, the municipality, the government, insurers, patient
organizations and commercial parties will be continued in the near future,
the ultimate aim being to create a viable business model for the
exploitation of PDD that ensures quality of information about care and
welfare services for a group of patients in urgent need.
Abbreviations

3G Third Generation Mobile Telecommunication

3GPP 3rd Generation Partnership Project
ADSL Asymmetric Digital Subscriber Line
AHP Analytical Hierarchy Process
ARPU Average Revenue Per User
ATM Automatic Teller Machine
B2C Business to Customer
BPM/BPMN Business Process Modeling Notation
BREW Binary Runtime Environment for Wireless
CAPEX Capital Expenditure
CD Compact Disc
CDI Critical Design Issue
CDMA-2000 Code Division Multiple Access-2000
cHTML Compact Hypertext Markup Language
CPE Customer Provided Equipment
CRM Customer Relation Management
CRUD Create, Read, Update and Delete
CSF Critical Success Factor
DECT Digital Enhanced (formerly European) Cordless
Telecommunications
DSL Digital Subscriber Line
ebXML eBusiness Extended Markup Language
EDGE Enhanced Data rates for GSM Evolution
FMEA Failure Mode and Effect Analysis
FOMA Freedom of Mobile Multimedia Access
FRC Foreign Remittance Center
GIF Graphics Interchange Format
GIS Geographic Information System
GPRS General Packet Radio Service/System
GPS Global Positioning System
GSM Global System for Mobile communications
HSDPA High-Speed Data Packet Access
HSPA High-Speed Packet Access
HSUPA High-Speed Uplink Packet Access
298 Abbreviations

HTML Hypertext Markup Language

HTTP Hypertext Transfer Protocol
ICT Information and Communication Technology
ID Identity
IDEF Integration Definition Function Modeling
IETF Internet Engineering Task Force
IMS IP Multimedia System
IP Internet Protocol
IPTV Internet Protocol Television
ISP(s) Internet Service Provider(s)
IT Information Technology
J2ME JAVA Micro Edition
JAVA computer software products and specifications
LAN Local Area Network
LBS Location Based Services
M2Mapplications Machine-to-Machine Applications
Mbps Megabit Per Second
MMS Multimedia Messaging Service
MPEG-4 Moving Picture Experts Group-4
MSN Microsoft Network
MVNO Mobile Virtual Network Operators
MWS Mobile Web Services
NFC Near Field Communication
OMA Open Mobile Alliance
OPEX Operational Expenditure
P2P Peer-to-Peer or Person-to-Person
PAN Personal Area Network
PC Personal Computer
PDA Personal Digital Assistant
PDD Personal Dementia Directory
PESTEL Political, Economic, Social, Technical, Environment
and Legislative
PIM Presence and Instant Messaging/Personal
Information Management
PLC Product Life Cycle
PVR Personal Video Recorder
QFD Quality Function Deployment
R&D Research and Development
RFID Radio Frequency Identification
SADT Structure Analysis and Design Technique
SCM Supply Chain Management
SIM Subscriber Information Module
 Abbreviations 299

SMS Short Message Service

SOA Service Oriented Architecture
SOAP Simple Object Access Protocol
SSL Secure Sockets Layer
STOF Service, Technology, Organization, Finance
TAM Technology Acceptance Model
TMC Travel Management Channel
UDDI Universal Description, Discovery and Integration
UML Unified Modeling Language
UMTS Universal Mobile Telecommunications System
USB Universal Serial Bus
USSD Unstructured Supplementary Service Data
UTAUT Unified Theory of Acceptance and Use of
Technology
UWB Ultra Wide Band
VoD Video on Demand
WAP Wireless Application Protocol
W-CDMA Wideband Code Division Multiple Access
WiFi A Wireless technology
WiMAX Worldwide Interoperability for Microwave Access
WML Wireless Mark-up Language
WSDL Web Services Description Language
WWRF Wireless World Research Forum
xHTML Extended Hypertext Markup Language
XML Extended Markup Language
References

Abel. (2007). Homepage of Abel. Retrieved January 7, 2008, from

Http://www.Uitmetabel.Nl/
Acquisti, A., & Grossklags, J. (2004). Privacy attitudes and privacy behaviors. In
L. Camp & S. Lewis (Eds.), Economics of information security (pp. 165–178).
Dordrecht: Kluwer
Adams, W., & Yellen, J. (1976). Commodity bundling and the burden of
monopoly. Quarterly Journal of Economics, 90(3), 475–498
Afuah, A., & Tucci, C. (2001). Internet business models and strategies. Boston:
McGraw-Hill
Ajit, K., & Van Heck, E. (2002). Making markets. Boston: Harvard Business
School Press
Ajzen, I. (1991). The theory of planned behavior. Organizational Behavior and
Human Decision Processes, 50(2), 179–211
Alcatel. (2007). Overview of worldwide IPTV activities. Retrieved March 17,
2007, from www.Alcatel.Com/Tripleplay/Graphics/19320_Iptvworld_600.Jpg
Ali Eldin, A. M. T. (2006). Towards private information sharing under
uncertainty: Dynamic consent decision-making mechanisms for context-aware
mobile services. Delft, The Netherlands: Delft University of Technology
Allee, V. (2000a). Reconfiguring the value network. Journal of Business Strategy,
21(4), 36–39
Allee, V. (2000b). The value evolution. Addressing larger implications of an
intellectual capital and intangibles perspective. Journal of Intellectual Capital,
1(1), 17–32
Alt, R., & Zimmerman, H. (2001). Introduction to special section – Business
models. Electronic Markets, 11(1), 3–9
Amit, R., & Zott, C. (2001). Value creation in e-business. Strategic Management
Journal, 22(6–7), 493–520
Anckar, B., & D’Incau, D. (2002). Value creation in mobile commerce: Findings
from a consumer survey. Journal of Information Technology and Application,
4(1), 43–64
Ansoff, H. I. (1987). Strategic management of technology. IEEE Engineering
Management Review, 15(3), 2–13
Appiah-Adu, K., Fyall, A., & Singh, S. (2001). Marketing effectiveness and
business performance in the financial services industry. Journal of Services
Marketing, 15, 18–34
Arnold, M. (2003). On the phenomenology of technology: The “Janus-Faces” of
mobile phones. Information and Organization, 13(4), 231–256
302 References

AT Kearney. (2003). Finding new answers to the pricing question: What is it

worth to the customer, Illinois, USA. Retrieved January 9, 2008, from
Http://www.Atkearney.Com/Shared_Res/Pdf/Value_Based_Pricing_S.Pdf
AtosOrigin. (2006). Meeting the billing challenge for the telecom industry.
Retrieved January 24, 2008, from Http://www.Atosorigin.Com/NR/Rdonlyres/
C5BDE4DF-13F6-4EB3-86A0-3519F46DC958/0/Wp_Telco_Billing.Pdf
Axelsson, B., & Easton, G. (Eds.). (1992). Industrial networks, a new view of
reality. London: Routledge
Baida, Z., Gordijn, J., Sale, H., Akkermans, H., & Morch, A. Z. (2005). An
ontological approach for eliciting and understanding needs in E-services.
Paper presented at the 17th international conference on advanced information
systems engineering, Porto, Portugal
Bakos, Y., & Brynjolfsson, E. (1999). Bundling information goods: Pricing,
profits, and efficiency. Management Science, 45(12), 1613–1630
Bakos, Y., & Brynjolfsson, E. (2000). Bundling and competition on the internet.
Marketing Science, 19(1), 63–82
Ballon, P. (2004). Scenarios and business models for 4G in Europe. Info, 6(6),
363–382
Ballon, P. (2007). Business modelling revisited: The configuration of control and
value. Info, 9(5), 6–19
Barabba, V., Huber, C., Cooke, F., Pudar, N., Smith, J., & Paich, M. (2002).
A multi method approach for creating new business models: The general
motors onstar project. Interfaces, 32(1), 20–34
Barnes, S. J. (2002). The mobile commerce value chain: Analysis and future
developments. International Journal of Information Management, 22(2),
91–108
Barney, J. R. (1991). Firm resources and structural competitive advantage.
Journal of Management, 17(1), 99–120
Barney, J. R. (2001). The resource based view of the firm: Ten years after 1991.
Journal of Management, 27(6), 625–641
Barras, R. (1986). Towards a theory of innovation in services. Research Policy,
15(4), 161–173
Barras, R. (1990). Interactive innovation in financial and business services: The
vanguard of the service revolution. Research Policy, 19(3), 215–237
Berg, M. (1999). Patient care information systems and healthcare network:
A socio-technical approach. International Journal of Medical Informatics,
55(2), 87–101
Berger, S., Mcfaddin, S., Narayanaswami, C., & Raghunath, M. (2003). Web
services on mobile devices – Implementation and experience. Paper presented
at the 5th IEEE workshop on mobile computing systems and applications,
Monterey, California
Bergholtz, M., Jayaweera, P., Johannesson, P., & Wohed, P. (2003). Process models
and business models – A unified framework. In A. Olivé, M. Yoshikawa, &
E. Yu (Eds.), Advanced conceptual modeling techniques (pp. 364–377).
Berlin Heidelberg New York: Springer
 References 303

Bergman, S., Frissen, V. A. J., & Slaa, P. (1995). Gebruik en betekenis van de
telefoon in het leven van alledag (Use and meaning of telephone in daily life).
In Toeval of noodzaak: Geschiedenis van overheidsbemoeienis met de
informatievoorziening (Co-incidence or necessity: History of government
occupation in information provisioning) (pp. 277–327). Den Haag: Rathenau
Instituut
Berry, L., Shankar, V., Parish, J., Cadwallader, S., & Dotzel, T. (2006). Creating
new markets through service innovation. MIT Sloan Management Review,
Winter, 56–63
Blazevic, V., Lievens, A., & Klein, E. (2003). Antecedents of project learning and
time-to-market during new mobile service development. International Journal
of Service Industry Management, 14(1), 120–147
Bohlin, E., Lindmark, S., Rodríguez, C., & Burgelman, J.-C. (2006). Mapping
European wireless trends and drivers. Brussels: European Commission
Booz-Allen, & Hamilton. (1982). New product management for the 1980s. New
York: Booz-Allen & Hamilton
Borst, P. (1997). Construction of engineering ontologies for knowledge sharing
and re-use. Enschede, The Netherlands: University of Twente
Boswijk, A., Thijssen, T., & Peelen, E. (2005). Een nieuwe kijk op de experience
economy: Betekenisvolle belevenissen (A new view on experience economy:
Meaningful experiences). Upper Saddle River, NJ: Pearson
Bouwman, H. (2004). Anywhere, anytime, anyplace or here and now in this
context: Third generation mobile services: A Vignet-study. Paper presented at
the 54th annual conference of the ICA
Bouwman, H., & MacInnes, I. (2006). Dynamic business model framework for
value webs. Paper presented at the 39th annual Hawaii international
conference on system sciences, Big Island, Hawaii, January 4, 2006–January
7, 2006
Bouwman, H., & Van Den Ham, E. (2003a). Exploring value networks enabling
the delivery of back office content to mobile workers. Paper presented at the
ITI’03 Europrix conference, Tampere
Bouwman, H., & Van Den Ham, E. (2003b). Business models and emetrics,
A state of the art. In B. Preissl, H. Bouwman, & C. Steinfield (Eds.), Elife
after the Dot.com bust (pp. 609–618). Berlin Heidelberg New York: Springer
Bouwman, H., & Van der Duin, P. (2003). Technological forecasting and
scenarios matter: Research into the use of information and communication
technology in the home environment in 2010. Foresight, 5(4), 8–20
Bouwman, H., Carlsson, C., Molina-Castillo, F., & Walden, P. (2007). Barriers
and drivers in the adoption of current and future mobile services in Finland.
Telematics and Informatics, 24(2), 145–160
Bouwman, H., Carlsson, C., Molina-Castillo, F. J., & Walden, P. (2008). Trends
in mobile services in Finland 2004–2006: From ringtones to mobile internet.
Info, 10(2), 75–93
Bouwman, H., De Vos, H., Faber, E., Haaker, T., Kijl, B., Eldin, A., et al. (2005).
Dynamic provisioning of service bundles: A state of the art. Enschede, The
Netherlands: Freeband, Telematica Instituut
304 References

Bouwman, H., Faber, E., & Haaker, T. (2004). Balancing strategic interests for
network value of mobile services. Paper presented at the 10th AMCIS
conference, New York
Bouwman, H., Faber, E., & Haaker, T. (2005). Designing business models for
mobile service bundles. Paper presented at the Hong Kong mobility
roundtable, Hong Kong
Bouwman, H., Faber, E., & Van Der Spek, J. (2005). Connecting future scenario’s
to business models of insurance intermediaries. Paper presented at the 18th
Bled ecommerce conference E integrity, Bled, Slovenia
Bouwman, H., Haaker, T., & De Vos, H. (2005). Designing 3G+business models:
A practical approach. Paper presented at the 26th McMaster world congress,
Hamilton, Canada
Bouwman, H., Haaker, T., & De Vos, H. (2007). Mobile service bundles: The
example of navigation services. Electronic Markets, 17(1), 28–38
Bouwman, H., Haaker, T., Steen, M., & De Vos, H. (2003). The value proposition
from the end user perspective as main driver for creating complex business
models. Paper presented at COST 269, Helsinki, Finland
Bouwman, H., MacInnes, I., & De Reuver, M. (2006). Dynamic business model
framework: A comparative case study analysis. Paper presented at ITS 2006 –
16th biennial conference, Beijing, China
Bouwman, H., Staal, M., & Steinfield, C. (2001). Klantenervaring en internet
concepten. (Consumer experience and internet concepts). Management &
Informatie, 9(6), 52–60
Bouwman, H., Van De Wijngaert, L., & De Vos, H. (2008). Context-sensitive
mobile services for police officers. Accepted for: International Conference on
M-business. Barcelona, Spain. July 6–8
Bouwman, H., Van Den Hooff, B., Van De Wijngaert, L., & Van Dijk, J. (2005).
Information & communication technology in organizations. London: Sage
Boyd, C., & Jacob, K. (2007). Mobile financial services and the under-banked:
Opportunities and challenges for M-banking and M-payments. Chicago, IL:
The Center for Financial Service Information
Braet, O., & Ballon, P. (2007). Strategic design issues of IMS versus end-to-end
architectures. Info, 9(5), 44–56
Brandenburger, A., & Nalebuff, B. (1996). Co-opetition. New York: Currency/
Doubleday
Broens, T. H. F., Huis In’t Veld, R. M. H. A., Vollenbroek-Hutten, M. M. R.,
Hermens, H. J., Van Halteren, A. T., & Nieuwenhuis, L. J. M. (2007).
Determinants of successful tele-medicine implementations: A literature study.
Journal of Tele-Medicine and Telecare, 13(6), 303–309
Brynjolffson, E., Yu, H., & Smith, M. (2006). From niches to riches. The anatomy
of the long tail. Sloan Management Review, 47(4), 67–71
Buijs, J. (1984). Innovation and intervention. Deventer: Kluwer
Buijs, J., & Valkenburg, R. (1996). Integrale Productontwikkeling (Integral
product development). Utrecht, The Netherlands: Lemma
Burgelman, R. A. (1983). A process model of internal corporate venturing in the
diversified major firm. Administrative Science Quarterly, 28(2), 223–244
 References 305

Camponovo, G., & Pigneur, Y. (2003). Business model analysis applied to mobile
business. Paper presented at the 5th international conference on enterprise
information systems, Angres
Carlson, R. (1996). The information super highway. Strategic alliances in
telecommunications and multimedia. New York: St Martin Press
Carlsson, C. (2006). Special issue on mobile technology and services. Electronic
Commerce Research and Applications, 5(3), 189–191
Castells, M. (1996). The information age: Economy, society and culture. Volume 1
The rise of the network society. Cambridge MA: Blackwell
Chen, Z., & Dubinsky, A. (2003). A conceptual model of perceived customer
value in E-commerce: A preliminary investigation. Psychology & Marketing,
20(4), 323–347
Chesbrough, H. (2003). Open innovation: The new imperative for creating and
profiting from technology. Boston: Harvard Business Press
Chesbrough, H., & Rosenbloom, R. S. (2002). The role of the business model in
capturing value from innovation: Evidence from xerox corporation’s
technology spin-off companies. Industrial and Corporate Change, 11(3),
529–555
Chesbrough, H., Vanhaverbeke, W., & West, J. (Eds.). (2006). Open innovation:
Researching a new paradigm. Oxford, UK: Oxford University Press
Chiasson, G. (1999). Bundle of joy. Telephony, 237(23), 42–46
Chlamtac, I., Conti, M., & Liu, J. J.-N. (2003). Mobile ad hoc networking:
Imperatives and challenges. Ad Hoc Networks, 1(1), 13–64
Christensen, C. M. (1997). The innovator’s dilemma. When new technologies
cause great firms to fail. Boston: Harvard Business School
Clark, G., Johnston, R., & Shulver, M. (2000). Exploiting the service concept for
service design and development. In J. Fitzsimmons & M. Fitzsimmons (Eds.),
New service develop (pp. 71–91). Thousand Oaks, CA: Sage
Clausing, D. P. (1994). Total quality development: A step-by-step guide to world-
class concurrent engineering. New York: ASME Press
Cristiano, J., Liker, J. K., & White, C. C., III. (2000). Customer driven product
development through quality function deployment in the US and Japan.
Journal of Product Innovation Management, 17(4), 286–308
Cross, N. (1994). Engineering design method: Strategies for product design.
Chichester: Wiley
Cuevas, A., Moreno, J. I., Vidales, P., & Einsiedler, H. (2006). The IMS service
platform: A solution for next-generation network operators to be more than bit
pipes. IEEE Communications Magazine, 44(8), 75–81
Curtis, B., Kellner, M., & Over, J. (1992). Process modeling. Communications of
the ACM, 35(9), 75–90
Cushnie, J., Hutchison, D., & Oliver, H. (2000). Evolution of charging and billing
models for GSM and future mobile internet services. Berlin Heidelberg New
York: Springer
Dahlberg, T., Mallat, N., Ondrus, J., & Zmijewska, A. (2007). Past, present and
future of mobile payments research: A literature review. Electronic
Commerce Research and Applications (in press)
306 References

Das, T. G., & Teng, B. S. (1998). Resources and risk management in the strategic
alliance making process. Journal of Management, 24(1), 21–42
Davenport, T. (1993). Process innovation: Reengineering work through
information technology. Boston: Harvard Business School Press
Davis, F. D. (1989). Perceived usefulness, perceived ease of use, and user
acceptance of information technology. MIS Quarterly, 13(3), 319–340
Deitel, H. M., Deitel, P. J., & Nieto, T. (2001). e-Business & e-commerce. How to
program. Upper Saddle River, NJ: Prentice-Hall
Deitel, H. M., Deitel, P. J., & Steinbuhler, K. (2001). e-Business & e-commerce
for managers. Upper Saddle River, NJ: Prentice-Hall
Delaere, S., & Ballon, P. (2007). The business model impact of flexible spectrum
management and cognitive networks. Info, 9(5), 57–69
Demkes, R. (1999). COMET: A comprehensive methodology for supporting
telematics investment decisions. Enschede: Telematica Instituut
Den Hertog, P. (2000). Knowledge-intensive business services as co-producers of
innovation. International Journal of Innovation Management, 4(4), 491–528
De Reuver, M., Bouwman, H., & MacInnes, I. (2007). What drives business model
dynamics? A case survey. Paper presented at the 8th world congress on the
managment of ebusiness, Toronto, Ontario, Canada
De Reuver, M., Haaker, T., & Bouwman, H. (2007). Business model dynamics:
A longitudinal, cross-sectional case survey. Paper presented at the 20th Bled
econference, Bled, Slovenia
De Vos, H., Haaker, T., Kleijnen, M., & Teerling, M. (2008). Context-aware and
location based mobile services and consumers’ perceived value. Paper
submitted to ECIS 2008
De Vos, H., Haaker, T. I., & Moen, S. (2007). How to move from research
prototype to exploitation phase: The DEM-DISC case. In P. Cunningham &
M. Cunningham (Eds.), Expanding the knowledge economy (Vol. 4, pp. 615–
622). Amsterdam: IOS Press
Devlin, B., Gray, J., Laing, B., & Spix, G. (1999). Scalability terminology: Farms,
clones, partitions, and packs: RACS and RAPS. Retrieved February 5, 2008,
from Http://Arxiv.Org/Abs/Cs.AR/9912010
Dietz, J. L. G. (1996). Introductie to DEMO: Van Informatietechnologie Naar
Organisatietechnologie (Introduction to DEMO: From information technology
to organization technology). Alphen Aan De Rijn, The Netherlands: Samsom
Doherty, D., Glapa, M., Kamat, S., Magee, F., Prakash, S., & Ruffolo, D. (2004).
Balancing network and business planning for cable telephony. Paper
presented at the 11th international telecommunications network strategy and
planning symposium, Vienna, Austria
Droës, R. M., Meiland, F. J. M., Doruff, S., Varodi, I., Akkermans, H., Baida, Z.,
et al. (2005). A dynamic interactive social chart in dementia care: Attuning
demand and supply in the care for persons with dementia and their carers. In
L. Bos, S. Laxminarayan, & A. Marsh (Eds.), Medical and care compunetics
2 (pp. 210–220). Amsterdam: IOS Press
 References 307

Drop, R., Dijkhuis, J., Van Der Duin, P. A., & Stavleu, H. (2000). Bestemming
2005: Corporate scenario’s voor KPN (Destination 2005: Corporate
scenarios for KPN). KPN Studieblad, April/May, 204–221
Dym, C., Agogino, A., Eris, O., Frey, D., & Leifer, L. (2005). Engineering design
thinking, teaching, and learning. Journal of Engineering Education, 94(1),
103–110
ECLAC. (2003). Road maps towards an information society in Latin America and
the Caribbean. Santiago, Chile: ECLAC
Edvardsson, B., Gustafsson, A., & Enquist, B. (2006). Success factors in new
service development and value creation through services. In D. Spath & K.-P.
Fähnrich (Eds.), Advances in service innovations (pp. 165–189). Berlin
Heidelberg New York: Springer
Estenfeld, K. (2006). Mobile business evolution. Paper presented at the CICT
conference, Copenhagen, Denmark
European Commission. (2003). The competitiveness of business-related services
and their contribution to the performance of European enterprises. Retrieved
January 23, 2008, from Http://Ec.Europa.Eu/Internal_Market/Services/Brs/
Competitiveness_En.Htm
European Commission. (2005). European monitoring centre on change. Retrieved
August, 2006, from Http://Eurofound.Europa.Eu/Emcc/Publications/2005/
Ef0567en.Pdf
Evans, P., & Wurster, T. (1999). Blown to bits: How the economics of information
transformsstrategy. Boston: Harvard Business School Press
Expert Choice. (2006). Expert choice 11. Retrieved January, 2008, from
Http://www.Expertchoice.Com/Software/
Faber, E., & Bouwman, H. (2003). Designing business models for mobile services.
Exploring the connections between customer value and value networks. Paper
presented at the ICEB 2003, Singapore
Faber, E., Ballon, P., Bouwman, H., Haaker, T., Rietkerk, O., & Steen, M. (2003).
Designing business models for mobile ICT services. Paper presented at the
16th Bled electronic commerce conference e-transformation, Bled, Slovenia
Faber, E., Haaker, T., Bouwman, H., & Rietkerk, O. (2003). Business models for
personalised real-time traffic information in cars: Which route to take. Paper
presented at the ICEC, Pittsburg
Fähnrich, K.-P., & Meiren, T. (2006). Service engineering: State of the art and
future trends. In D. Spath & K.-P. Fähnrich (Eds.), Advances in service
innovations (pp. 3–16). Berlin Heidelberg New York: Springer
Farley, P., & Capp, M. (2005). Mobile web services. BT Technology Journal,
23(2), 202–213
Feijóo, C., Marín, A. Á., Martín, Á., & Rojo, D. (2006). European regulation,
competition models and mobile content access. Paper presented at the CICT
conference, Copenhagen, Denmark
Fijnvandraat, M., & Bouwman, H. (2006). Flexibility and broadband evolution.
Telecommunication Policy, 30(8–9), 424–444
308 References

Fishbein, M., & Ajzen, I. (1975). Beliefs, attitude, intention and behaviour: An
introduction to theory and research. Reading, MA: Addison-Wesley
Forrester. (2006a). The European mobile landscape 2006
Forrester. (2006b). Towards an open mobile internet (Presentation for open
mobile internet initiative)
Foster, R., Daymon, C. M., & Tewungwa, S. (2002). Future reflections. Four
scenarios for television in 2012. Retrieved November, 2007, from
Http://Media.Bournemouth.Ac.Uk/Research/Documents/Fullreport.Pdf
Frodigh, M., Parkvall, S., Roobol, C., Johansson, P., & Larsson, P. (2001). Future-
generation wireless networks. IEEE Personal Communications, 8(5)(October),
10–17
Galbreath, J. (2002). Twenty-first century management rules: The management of
relationships as intangible assets. Management Decision, 40(2), 116–126
Gallouj, F., & Weinstein, O. (1997). Innovation in services. Research Policy,
26(4–5), 537–556
Giaglis, G. M. (2001). A taxonomy of business process modeling and information
systems modeling techniques. The International Journal of Flexible
Manufacturing Systems, 13(2), 209–228
Goldstein, S. M., Johnston, R., Duffy, J. A., & Rao, J. (2002). The service
concept: The missing link in service design research? Journal of Operations
Management, 20(2), 121–134
Gordijn, J., & Akkermans, H. (2001). E3-value: Design and evaluation of
E-business models. IEEE Intelligent Systems, 16(4), 11–17
Gordijn, J., Akkermans, H., & Van Vliet, H. (2000). Business modelling is not
process modelling. In S. W. Liddle & H. C. Mayr (Eds.), Conceptual
modeling for E-business and the web (pp. 40–51). LNCS 1921. Berlin
Heidelberg New York: Springer
Grace, D., & O’Cass, A. (2005). Service branding: Consumer verdicts on service
brands. Journal of Retailing and Consumer Services, 12(2), 125–139
Granovetter, M. (1994). Business groups. In N. J. Smelser & R. Swedberg (Eds.),
The handbook of economic sociology (pp. 453–475). Princeton: Princeton
University Press
Grant, R. M. (1991). The resource based theory of competitive advantage.
Implications for strategy formulation. California Management Review, 33(3),
114–135
Grönroos, C. (1992). Service management and marketing: Managing the moment
of truth in service competition. Lexington: Lexington books
Grönroos, C. (1994). From marketing mix to relationship marketing: Towards a
paradigm shift in marketing. Management Decision, 32(2), 4–20
Grönroos, C. (2000). Service management and marketing: A customer relation
management approach. New York: Wiley
Grönroos, C. (2007). Service management and marketing: Customer management
in service competition (3rd Ed.). Chichester: Wiley
Grönroos, C., Heinonen, F., Isoniemi, K., & Lindholm, M. (2000). The netoffer
model: A case example from the virtual marketspace. Management Decisions,
38(4), 243–252
 References 309

Grover, V., & Saeed, K. (2003). The telecommunication industry revisited –

The changing pattern of partnerships. Communications of the ACM, 46(7),
119–125
Gruber, T. R. (1995). Towards principles for the design of ontologies used
for knowledge sharing. International Journal of Human Computer Studies,
43(5–6), 907–928
GSMA/IFC. Micro-payment systems and their application to mobile networks.
Retrieved February 5, 2008, from www.Infodev.Org/En/Publication.43.Html
Guiltinan, J. P. (1987). The price bundling of services: A normative framework.
Journal of Marketing, 51(2), 74–85
Gulati, R., Nohria, N., & Zaheer, A. (2000). Strategic networks. Strategic
Management Journal, 21(3), 203–216
Haaker, T., & De Vos, H. (2007). Customer preferences for bundled content
services. Paper presented at the 18th European regional ITS conference,
Istanbul, Turkey
Haaker, T., Bouwman, H., Kijl, B., Galli, L., Killström, U., Immonen, O., et al.
(2007). Challenges in business models for context aware services. Paper
presented at the Collecter Iberoamérica, Cordoba, Argentina
Haaker, T., Faber, E., & Bouwman, H. (2006). Balancing customer and network
value in business models for mobile services. International Journal of Mobile
Communications, 4(6), 645–661
Haaker, T., Galli, L., Kijl, B., Killström, U., Immonen, O., & De Reuver, M.
(2006). Challenges in designing viable business models for context-aware
mobile services. Paper presented at the 3rd international CICT conference,
Copenhagen, Denmark
Haaker, T., Oerlemans, K., Steen, M., & De Vos, H. (2004). STOF business
blueprint method. Handbook for successful cooperation in the development
and exploitation of innovative (mobile) ICT-services. Enschede, The
Netherlands: Telematica Instituut
Hammer, M. (1990). Reengineering ork: Don’t automate, obliterate. Harvard
Business Review, July–August, 104–112
Harlam, B. A., Krishna, A., Lehmann, D. R., & Mela, C. (1995). Impact of bundle
type, price framing and familiarity on purchase intention for the bundle.
Journal of Business Research, 33(1), 57–66
Hauser, J., & Clausing, D. (1988). The house of quality. Harvard Business
Review, 66(3), 63–73
Hawkins, R. (2002). The phantom of the marketplace: Searching for new
E-commerce business models. Communication & Strategies, 46(2), 297–329
Hedman, J., & Kalling, T. (2003). The business model concept: Theoretical
underpinnings and empirical illustrations. European Journal of Information
Systems, 12(1), 49–59
Hegering, G. G., Küpper, A., Linnhoff-Popien, C., & Reiser, H. (2004).
Management challenges of context-aware services in ubiquitous environments.
Paper presented at the DSOM, Heidelberg, Germany
Hekkert, M. P., Suurs, R. A. A., Negro, S. O., Kuhlmann, S., & Smits, R. E. H. M.
(2007). Functions of innovation systems: A new approach for analyzing
310 References

technological change. Technological Forecasting & Social Change, 74(4),

413–432
Henderson, J. C., & Venkatraman, N. (1993). Strategic alignment: Leveraging
information technology for transforming organisations. IBM Systems Journal,
32(1), 4–16
Herzwurm, G., Schockert, S., Dowie, U., & Breidung, M. (2002). Requirements
engineering for mobile-commerce applications. Paper presented at the
M-commerce conference, Athens
Heskett, J. L., Sasser, W. E., & Schlesinger, L. A. (1997). The service profit
chain: How leading companies link profit and growth to loyalty, service and
value. New York: Free Press
Hill, C., & Jones, G. (1995). Strategic management: An integrated approach.
Boston: Houghton Mifflin
Hofacker, C. F., Goldsmith, R. E., Bridges, E., & Swilley, E. (2007). E-Services:
A synthesis and research agenda. Journal of Value Chain Management,
1(1/2), 14–44
Holland, Chr., Bouwman, H., & Smidts, M. (2001). Return to the bottom line.
Leidschendam: ECP NL
Howells, J. (2006). Role of R&D services in service innovation. Manchester:
RENESER
Hughes, J., Lang, K. R., & Vragov, R. (2007). An analytical framework for
evaluating peer-to-peer business models. Electronic Commerce and
Applications, 7(1), 105–118
Huis In’t Veld, R. M. H. A., Fielt, E., Faber, E., & Vollenbroek-Hutten, M. M. R.
(2007). Business model for mobile tele-health services: Phase 1: Developing
the business model. Enschede, The Netherlands: Freeband, Telematica
Instituut
Hummel, J. M. (2001). Supporting medical technology development with the
analytic hierarchy process. Groningen, The Netherlands: Rijksuniversiteit
Groningen
Idenburg, P. J. (2005). Oog voor de Toekomst. Over Marketing en Consumenten in
een Veranderende Samenleving (Eye on the future about marketing and
consumers in a changing society). Schiedam, The Netherlands: Scriptum
Management
Ilie, V., Van Slyke, C., Green, G., & Lou, H. (2005). Gender differences in
perceptions and use of communication technologies: A diffusion of
innovation approach. Information Processing Management Journal, 18(3),
13–31
Immonen, O., Haaker, T., Galli, L., Killström, U., Pitkänen, O., & De Reuver, M.
(2006). Can advertising based earnings logic become a basis for future
mobile models? Paper presented at the 3rd International CICT conference,
Copenhagen, Denmark
Jaokar, A., & Fish, T. (2004). Open gardens: The innovator’s guide to the mobile
data industry. London, UK: Futuretext
Johnson, G., & Scholes, K. (2002). Exploring corporate strategy – Text and cases
(6th ed.). Harlow, Essex: Prentice-Hall
 References 311

Johnson, S. P., Menor, L. J., Roth, A. V., & Chase, R. B. (2000). A critical
valuation of the new service development process. In J. Fitzsimmons &
M. Fitzsimmons (Eds.), New service development (pp. 1–32). Thousand Oaks,
CA: Sage
Johnston, R. (1999). Service operations management: Return to roots. International
Journal of Operations & Production Management, 19(2), 104–124
Jonason, A., & Holma, B. (2002). Pricing for profits on the mobile internet. Paper
presented at the IEEE international engineering management conference
Jones, C., Hesterly, W., & Borgatti, S. (1997). A general theory of network
governance: Exchange conditions and social mechanisms. The Academy of
Management Review, 22(4), 911–945
Kaasinen, E. (2005). User acceptance of location-aware mobile guides based on
seven field studies. Behaviour and Information Technology, 24(1), 37–49
Kambil, A., & Short, J. (1994). Electronic integration and business network
redesign: A roles-linkage perspective. Journal of Management Information
Systems, 10(4), 59–83
Kaplan, R., & Norton, D. (1992). The balanced scorecard: Measures that drive
performance. Harvard Business Review, January–February, 71–79
Kaplan, R., & Norton, D. (1996). Using the balanced scorecard as a strategic
management system. Harvard Business Review, January–February, 75–85
Katz, M. L. (2002). Industry structure and competition absent distribution
bottlenecks. In E. Noam, J. Groebel, & D. Gerbarg (Eds.), Internet television.
Mahwah, NJ: Lawrence Erlbaum Associates
Kiiski, A. (2006). Impacts of MVNOs on mobile data service market. Paper
presented at the regional ITS conference, Amsterdam, The Netherlands
Kijl, B., & Timmerman, W. (2003). Presence and instant messaging: Cross case
analysis. Enschede: Telematica Instituut
Killström, U., Virola, H., Galli, L., Immonen, O., Pitkänen, O., & Kijl, B. (2006).
Business models for new mobile applications and services. Retrieved
February 27, 2008, from Http://www.ist-mobilife.org/ (D1.5)
Killström, U., Galli, L., Haaker, T., Immonen, O., & De Reuver (2007).
Marketplace dynamics and business models framework. In M. Klemettinen
(Ed.), Enabling technologies for mobile services: The mobilife book.
Chichester, UK: Wiley
Klein, S., & Loebbecke, C. (2003). Emerging pricing strategies on the web:
Lessons from the airline industry. Electronic Markets, 13(1), 46–58
Klein-Woolthuis, R. (1999). Sleeping with the enemy, trust and dependence in
inter organisational relationships. Enschede, The Netherlands: University of
Twente
Klemettinen, M. (Ed.). (2007). Enabling technologies for mobile services: The
mobilife book. Chichester, UK: Wiley
Konczal, E. F. (1975). Models are for managers, not mathematicians. Journal of
Systems Management, 26(1), 12–15
Koolwaaij, J., Tarlano, A., Luther, M., Morhs, B., Battestini, A., & Vaidya, R.
(2006). Contextwatcher – Sharing context information in everyday life. Paper
312 References

presented at the IASTED international conference on web technologies,

applications, and services (WTAS2006), Calgary, Canada
Koppenjan, J., & Groenewegen, J. (2005). Institutional design for complex
technological systems. International Journal of Technology, 5(3), 240–257
Kothandaraman, P., & Wilson, D. (2001). The future of competition. Value
creating networks. Industrial Marketing Management, 30(4), 379–389
Kotler, P. (1988). Marketing management: Analysis, planning, implementation,
and control (6th ed.), Englewood Cliffs, NJ: Prentice-Hall
Kotler, P. (1999). Principles of marketing. London: Prentice-Hall
Kotler, P. (2000). Marketing management – International Edition – The Millennium
Edition. Englewood Cliffs, NJ: Prentice-Hall
Kotler, P., Armstrong, G., Saunders, J., & Wong, V. (1996). Principles of
marketing: The European edition. Hemel Hempstead, UK: Prentice-Hall
Koushik, S., & Joodi, P. (2000). E-Business architecture design issues. IT Pro,
May/June, 38–43
Koutsopoulou, M., Kaloxylos, A., & Alonistioti, A. (2004). Charging, accounting
and billing management schemes in mobile telecommunication networks and
the internet. IEEE Communications Surveys, 6(1), 50–58
Krueger, M. (2001). The future of M-payments, business options and policy issues.
Retrieved February 5, 2008, from Http://Fiste.Jrc.Es/Pages/Detail.Cfm?Prs=750
Kubr, T., Marchesi, H., Ilar, D., & Kienhuis, H. (1998). Starting up – Achieving
success with professional business planning. Zürich, Switzerland: Mckinsey
Kumar, V. (2001). Wireless communications “Beyond 3G”. Alcatel Telecommuni-
cations Review, 1(1), 28–32
Kuo, Y.-F., & Yu, C.-W. (2006). 3G telecommunication operators’ challenges and
roles: A perspective of mobile commerce value chain. Technovation, 26,
1347–1356
Kurvinen, E. (Ed.). (2006). Results of service and application evaluation.
Retrieved January 28, 2008, from Http://www.Ist-Mobilife.Org, (D1.9)
Lamura, G. (2003). Supporting carers of older people in Europe: A comparative
report on six European countries. Paper presented at the 11th European social
services conference, Venice
Lankhorst, M. (Ed.). (2005). Enterprise architecture at work. Berlin Heidelberg
New York: Springer
Lankhorst, M., Van Der Stappen, P., & Jansen, W. (2001). State of the art in E-
business services and components. Enschede: Telematica Instituut
Larsson, R. (1993). Case survey methodology: Quantitative analysis of patterns
across case studies. Academy of Management Review, 39(6), 1515–1546
Law, A., & Kelton, D. (1982). Simulation modeling and analysis. New York:
McGraw-Hill
Lee, C.-S. (2001). An analytical framework for evaluating E-commerce business
models and strategies. Internet Research: Electronic Networking Applications
and Policy, 11(4), 349–359
Leem, C. S., Suh, H. W., & Kim, D. W. (2004). A classification of mobile
business models and its applications. Industrial Management & Data Systems,
104(1), 78–87
 References 313

Li, F., & Whalley, J. (2002). Deconstruction of the telecommunications industry:

From value chains to value networks. Telecommunications Policy, 26(9–10),
451–472
Limbu, D. K., Wah, L. E., & Yushi, C. (2004). Wireless web services clients
development – Using web services standards and J2ME technology. Synthesis
Journal, 5, 151–162
Limonard, S. (2006). User driven business models for digital television. Exploring
the long tail for audiovisual content on TV and the internet. Enschede, The
Netherlands: Freeband, Telematica Instituut
Limonard, S., & Teem, R. (2007). User driven business models – Assessing the
value of the long tail for audiovisual services. Retrieved January 31, 2008,
from Http://www.Cs.Tut.Fi/~Lartur/Euroitv07_Ajp/WIP7.Htm
Liu, N. (2006). Business model, operation model & profit model. Retrieved March
18, 2007, from Http://www.Huawei.Com/Publications/View.Do?Id=685&
Cid=342&Pid=61
Loebbecke, C., & Radtke, S. (2005). Business models and programming choice:
Digital video recorders shaping the TV industry. Paper presented at the 11th
Americas conference on information system, Omaha
López-Nicolás, C., Molina-Castillo, F. J., & Bouwman, H. (Draft). An assessment
of advanced mobile services acceptance: Contributions from TAM and
diffusion theory models. Delft, The Netherlands: Delft University of
Technology
Loucopoulos, P., & Karakostas, V. (1995). Systems requirement engineering. New
York: Mcgraw- Hill
Lovelock, C. H. (1984). Developing and implementing new services. In W. R.
George & C. E. Marshall (Eds.), Developing new services (pp. 44–64).
Chicago: American Marketing Association
Low, J., & Cohen Kalafut, P. (2002). Invisible advantage. How intangibles are
driving business performance. Cambridge: Persues Publishing
Luczak, H., Gill, C., & Sander, B. (2006). Architecture for service engineering.
The design and development of industrial service work. In D. Spath & K.-P.
Fähnich (Eds.), Advances in service innovations (47–63). Berlin Heidelberg
New York: Springer
Magretta, J. (2002). Why business models matters. Harvard Business Review,
May, 86–92
Mahadevan, B. (2000). Business models for internet – Based E-commerce.
California Management Review, 42(4), 55–69
Maitland, C. F., Bauer, J. M., & Westerveld, R. (2002). The European market for
mobile data: Evolving value chains and industry structures. Telecommuni-
cations Policy, 26(9–10), 485–504
Maitland, C., Van De Kar, E., Wehn De Montalvo, U., & Bouwman, H. (2005). Mobile
Information and Entertainment Services: Business Models and Service Networks.
International Journal of Management and Decision Making, 6(1), 47–64
Mallat, N., Rossi, M., & Tuunainen, V. K. (2004). Mobile banking services.
Communications of the ACM, 47(5), 42–46
314 References

Malone, T. W. (1987). Modeling coordination in organizations and markets.

Management Science, 33(10), 1317–1332
Markus, M. L. (1990). Toward a critical mass theory of interactive media. In
J. Fulk & C. W. Steinfield (Eds.), Organizations and communication
technology (pp. 194–218). Newbury Park, CA: Sage
Mason, H., & Rohner, T. (2002). The venturing imperative. Boston: Harvard
Business Press
Matthing, J., Kristensson, P., Gustafsson, A., & Parasuraman, A. (2006).
Developing succcesfull technology-bases services: The issue of identifying
and involving innovative users. Journal of Service Marketing, 20(5), 288–297
Maxmilien, E., & Sigh, M. (2004). A framework and ontology for dynamic web
services selection. Internet Computing, 8(5), 84–93
Mcnaughton, R., Osborne, P., & Imrie, B. (2002). Market-oriented value creation
in service firms. European Journal of Marketing, 36(9/10), 990–1002
Meiren, Th. (2006). Services’ R&D as performed by manufacturing firms.
Stuttgart: Springer
Melão, N., & Pidd, M. (2000). A conceptual framework for understanding
business processes and business process modelling. Information Systems
Journal, 10(2), 105–129
Menor, L. J., Tatikonda, M. V., & Sampson, S. E. (2002). New service
development: Areas for exploitation and exploration. Journal of Operations
Management, 20(2), 135–157
Methlie, L. B., & Pedersen, P. E. (2007). Business model choices for value
creation of mobile services. Info, 9(5), 70–86
Microsoft. (2003). Mobile web services roadmap. Retrieved January 24, 2008, from
Http://www.Microsoft.Com/Serviceproviders/Resources/Bizresmwsroadmap.
Mspx
Miles, I., Keenan, M., & Kaivo-Oja, J. (2002). Handbook of knowledge foresight
society. Manchester: PREST/FFRC
Millen, D. R. (2000). Rapid ethnography: Time deepening strategies for HCI field
research. Paper presented at the 3rd conference on designing interactive
systems: Processes, practices, methods, and techniques, New York, NY
Miller, D., & Shamsie, J. (1996). The resource based view of the firm in two
environments. The hollywood firm studios from 1836 to 1964. Academy of
Management Journal, 39(3), 519–543
Miller, R., & Lessard, D. (2000). The strategic management of large engineering
projects. Shaping institutions, risks and governance. Boston: MIT Press
Mintzberg, H. (1983). Structure in fives: Designing effective organizations.
Englewood Cliffs, NJ: Prentice-Hall
Mobilife. (2008). Homepage of mobilife. Retrieved January 28, 2008, from
www.Ist-Mobilife.Org
Mobinet. (2002). Retrieved in 2005, from Http://www.Mobile.Commerce.Net/
Story.Php?Story_Id=1471&S=2. Link is no longer available
Mogg, A. (2004). Limits of free-TV (presentation). Cologne: University of
Cologne
 References 315

Monge, P., & Contractor, N. (2003). Theories of communication networks.

Oxford: Oxford University Press
Moon, Y. (2005). Break free from the product life cycle. Harvard Business
Review, 83(5), 86–94, 153
Mooney, J. G., Gurbaxani, V., & Kreamer, J. L. (1995). A process oriented
framework for assessing the business value of information technology. Paper
presented at the 16th annual international conference on information systems,
Amsterdam, The Netherlands
Morris, M., Schindehutte, M., & Allen, J. (2005). The entrepreneur’s business
model: Towards a unified perspective. Journal of Business Research, 58(6),
726–735
Myers, J. (2002). Consumer interest in DVR-features. Retrieved June, 2004, from
www.Jackmyers.Com/Pdf/03-27-02.Pdf
Nalebuff, B. (2004). Bundling is an entry barrier. Quarterly Journal of Economics,
119(1), 159–187
Neely, A., Adams, C., & Kennerley, M. (2002). The performance prism. The
scorecard for measuring and managing business success. London: Prentice
Hall
Netsize. (2007). The Netsize guide. Retrieved January 24, 2008, from
Http://www.Netsize.Com/Downloads/Registration.Aspx
Niemegeers, I. G., & Heemstra De Groot, S. M. (2003). Research issues in ad-hoc
distributed personal networks. Wireless Personal Communications, 26(2–3),
149–167
Noam, E. (2002). Will internet TV be American? Trends in Communication,
11(2), 101–109
Nokia, & Sun. (2004). Deploying mobile web services using Liberty Alliance’s
Identity Web Services Framework (ID-WSF). Retrieved January 24,
2008, from Http://www.Sun.Com/Software/Products/Identity/Sun_Nokia_Id-
Wsf_Deployment_Paper.Pdf
Normann, R. A. (2000). Service management: Strategy and leadership in service
business. Chichester: Wiley
Oliver, P., Marwell, G., & Texeira, R. (1985). A theory of critical mass I.
Interdependence, group heterogeneity, and the production of collective action.
American Journal of Sociology, 91(3), 522–556
Olla, P., & Patel, N. V. (2002). A value chain model for mobile data service
providers. Telecommunications Policy, 26(9–10) 551–571
O’Mahony, M., & Van Ark, B. (2003). EU productivity and competitiveness: An
industry perspective. Can Europe resume the catching-up process? Brussels:
European Commission
OMG. (2006). Business process modeling notation Specification. Retrieved
February 11, 2008, from Http://www.Bpmn.Org
Ondrus, J., & Pigneur, Y. (2005). A disruption analysis in the mobile payment
market. Paper presented at the 38th annual Hawaii international conference on
system sciences, Hawaii
316 References

Ondrus, J., & Pigneur, Y. (2006). Towards a holistic analysis of mobile payments:
A multiple perspectives approach. Electronic Commerce Research and
Applications, 5(3), 246–257
O’Neill, P., & Sohal, A. (1999). Business process reengineering: A review of
recent literature. Technovation, 19(9), 571–581
Osterwalder, A., & Pigneur, Y. (2002). An e-business model ontology for
modelling e-business. Paper presented at the 15th Beld electronic commerce
conference, Bled, Slovenia
OVUM. (2006). Off-portal developments and operator strategy. London: OVUM
Panagiotakis, S., Koutsopoulou, M., & Alonistioti, A. (2005). Business models
and revenue streams in 3G market. Paper presented at the 14th IST mobile
and wireless communications, Summit, Dresden, Germany
Parasuraman, A., Zeithaml, V., & Berry, L. (1988). SERVQUAL: A multiple item
scale for measuring consumer perceptions of service quality. Journal of
Retailing, 64(1), 168–174
Pashtan, A. (2005). Mobile web services. Cambridge, UK: Cambridge University
Press
Petrovic, O., & Kittl, C. (2003). Capturing the value proposition of a product or
service. Paper presented at the international workshop on business models,
Lausanne, Switzerland
Pfeffer, J., & Salancik, G. (1978). The external control of organizations. A
resource dependence perspective. New York: Harper & Row
Pigneur, Y., (2004). An ontology for M-business models. Lecture Notes in
Computer Science, 2503/2002, 3–6
Pilioura, T., Tsalgatidou, A., & Hadjiefthymiades, S. (2003). Scenarios of using
web services in M-commerce. ACM Sigecom Exchanges, 3(4), 28–36
Pine, J., & Gilmore, J. (1999). The experience economy. Boston: Harvard Business
School Press
Porter, M. (1980). Competitive strategy. New York: The Free Press
Porter, M. (1985). Competitive advantage: Creating and sustaining superior
performance. New York: The Free Press
Porter, M. (1990). The competitive advantage of nations. London: The Macmillan
Press
Porter, M. (2001). Strategy and the internet. Harvard Business Review, March,
63–76
Porter, M., & Millar, V. (1985). How information gives you competitive
advantage. Harvard Business Review, 63(4), 149–160
Powell, M. W. (1990). Neither market nor hierarchy: Network forms of
organisation. Research in organisational behaviour, 12, 295–336
Power, A. (2000). Channel surfing. Outlook, January, 54–61
Qiu, C., De Ronchi, D., & Fratiglioni, L. (2007). The epidemiology of dementia:
An update. Current Opinion in Psychiatry, 20(4), 380–385
Raessens, B. (2001). e-Business your business. Over de effectiviteit van E-
commerce (E-Business your business. About the effectiveness of e-
commerce). Utrecht, The Netherlands: Lemma
 References 317

Räisänen, V., Karasti, O., Steglich, S., Mrohs, B., Räck, C., Del Rosso, C., et al.
(2005). Basic reference model for service provisioning and general
guidelines. Helsinki: Mobilife
Ramaswamy, R. (1996). Design and management of service processes. Reading:
Addison-Wesley
Rappa, M. (2000). Business models on the web. Retrieved February 23, 2006,
from Http://Digitalenterprise.Org/Models/Models.Html
Rappa, M. (2001). Managing the digital enterprise – Business models on the
web. Retrieved October, 2007, from Http://Digitalenterprise.Org/Models/
Models.Html
Rayport, F. (1999). The truth about business internet business models. Strategy
and Business, 16(3rd Quarter), 1–3
Rayport, J. F., & Jaworski, B. J. (2001). e-Commerce. New York: McGraw-Hill
Rayport, J. F., & Sviokla, J. (1994). Managing in the market space. Harvard
Business Review, 72(6), 141–145
Rayport, J. F., & Sviokla, J. (1995). Exploring the virtual value chain. Harvard
Business Review, 73(6), 75–85
Recker, J., Indulska, M., Rosemann, M., & Green, P. (2005). Do process
modelling techniques get better? A comparative ontological analysis of
BPMN. Paper presented at the 16th Australian conference on information
systems, Sydney, Australia
Rendón, J., Kuhlmann, F., & Aranis, J. P. (2007). A business case for the
deployment of a 4G wireless heterogeneous network in Spain. Paper presented
at the 18th European international telecommunications society conference
(ITS), Istanbul, Turkey
Reneser. (2006). Research and development needs of business related service
firms. Utrecht: Dialogic
Renkema, T. (1996). Investeren in de Informatie-Infrastructuur. Richtlijnen voor
besluitvorming in organisaties (Investing in information infrastructure.
Guidelines for decision making in organisations). Deventer, The Netherlands:
Kluwer Bedrijfsinformatie
Rietkerk, O., & Timmerman, W. (Eds.). (2003). Communities of interest: Cross
case analysis. Enschede, The Netherlands: Telematica Instituut
Ritter, T., Wilkinson, I., & Johnston, W. (2002). Measuring network competence:
Some international evidence. Journal of Business & Industrial Marketing,
17(2–3), 119–138
Rockart, J., & Bullen, C., (1981). A primer on critical success factors. Cambridge,
MA: Sloan School of Management, MIT
Rogers, E. M. (1995). Diffusion of innovations. New York: Free Press
Rojas, E. (2005). The GSM evolution and the mobile revolution in Latin America.
Business briefings wireless technology. Retrieved February 5, 2008, from
Http://www.Touchbriefings.Com/Pdf/1433/Rojas.Pdf
Roland Berger. (2005). What’s the score on mobile data services? Amsterdam:
Roland Berger
Roussel, A., Daum, A., Flint, D., & Riseley, M. (2000). B2C web business
models: Winners and losers. Gartner Group Research
318 References

Rowley, J. (2006). An analysis of the E-service literature: Towards a research

agenda. Internet Research, 16(3), 339–359
Saaty, T. (1980). The AHP. Planning, priority setting, resource allocation. New
York: McGraw-Hill
Sabat, H. K. (2002). The evolving mobile wireless value chain and market
structure. Telecommunications Policy, 26(9–10), 505–535
Sakaguchi, T., Nicovich, S., & Dibrell, C. (2004). Empirical evaluation of an
integrated supply chain model for small and medium sized firms. Information
Resources Management Journal, 17(3), 1–19
Salter, A., & Tether, B. (2006). Innovation in services: Through the looking glass
of innovation studies. A background review paper prepared for the inaugural
meeting of the Grand Challenges in Services (GCS) forum, held at Said
Business School, Oxford, May 2006
Sandy, J.-C., & Bouwman, H. (2006). Un Marco Conceptual Para El Análisis Y
Diseño De Modelos De Negocio De Servicios Moviles En Latinoamérica
(Designing mobile services: Conditions for the future development of mobile
services in Latin America). Paper presented at the 12th Americas conference
on information systems, Acapulco, Mexico
Schoenbachler, D. D., & Gordon, G. L. (2002). Multi-channel shopping:
Understanding what drives channel choice. Journal of Consumer Marketing,
19(1), 42–53
Schuler, D., & Namioka, A. (1993). Participatory design: Principles and
practices. Hillsdale, NJ: Lawrence Erlbaum Associates
Schumpeter, J. (1934). Theory of economic development. Oxford: Oxford
University Press
Scott Morton, M. (Ed.). (1990). The corporation of the 1990s: Information techno-
logy and organisational transformation. New York: Oxford University Press
Selz, D. (1999). Value webs. Emerging forms of fluid and flexible organizations.
Retrieved January 26, 2008, from Http://En.Scientificcommons.Org/12748919
Shafer, S. M., Smith, H. J., & Linder, J. C. (2005). The power of business models.
Business Horizons, 48(4), 199–207
Shapiro, C., & Varian, H. (1999). Information rules: A strategic guide to the
network economy. Boston, MA: Harvard Business School Press
Shostack, L. G. (1984). Designing services that deliver. Harvard Business Review,
62(1), 133–139
Silverstone, R., & Haddon, L. (1996). Design and the domestication of
information and communication technologies: Technical change and everyday
life. In R. Mansell & R. Silverstone (Eds.), Communication by design. The
politics of information and communication technology (pp. 44–74). Oxford:
Oxford University Press
Silverstone, R., & Hirsch, E. (Eds.) (1992). Consuming technologies: media and
information in domestic spaces. London: Routledge
Simonin, B. L., & Ruth, J. A. (1995). Bundling as a strategy for new product
introduction: Effects on consumers’ reservation prices for the bundle, the new
product, and its tie. Journal of Business Research, 33(3), 219–230
Simons, L. (2006). Multi-channel services for click and mortars. Delft, The
Netherlands: Delft University of Technology
 References 319

Simons, L., & Bouwman, H. (2004). Developing a multi channel service model
and design method. International Journal of Internet Marketing and
Advertisement, 1(3), 229–250
Simons, L., & Bouwman, H. (2005). Multi channel service design processes:
Challenges and solutions. International Journal of Electronic Business, 3(1),
50–67
Smith, A., Mitra, S., & Narasimhan, S. (1998). Information systems outsourcing:
A study of pre-event firm characteristics. Journal of Management Information
Systems, 15(2), 61–93
Stabell, C. B., & Fjeldstad, Ø. D. (1998). Configuring value for competitive
advantage: On chains, shops, and networks. Strategic Management Journal,
19(5), 413–437
Stähler, P. (2001). Gesellschäftsmodelle in Der Digitalen Ökonomie. Merkmale,
Strategien Und Auswirkungen (Business models for the digital economy.
Branding, strategies and consequences). St Gallen: University of St Gallen
Steen, M., Van Eijk, R., Gunther, H., Hooreman, S., & De Koning, N. (2005).
We-centric services for police officers and informal carers. Paper presented at
the HCI close to you: Sigchi.Nl conference, The Hague, The Netherlands
Strauss, B., Schmidt, M., & Schoeler, A. (2005). Customer frustration in loyalty
programs. International Journal of Service Industry Management, 16(3),
229–252
Stremersch, S., & Tellis, G. J. (2002). Strategic bundling of products and prices:
A new synthesis for marketing. Journal of Marketing, 66(1), 55–72
Tafazolli, R. (Ed.). (2005). Technologies for the wireless future. London: Wiley
Tanriverdi, H., & Iacano, C. S. (1998). Knowledge barriers to diffusion of tele-
medicine. Paper presented at the international conference on information
systems, Helsinki, Finland
Tanriverdi, H., & Iacono, C. S. (1999). Diffusion of tele-medicine: A knowledge
barrier perspective. Telemedicine Journal, 5(3), 223–244
Tapscott, D., Lowi, A., & Ticoll, D. (2000). Digital capital – Harnessing the
power of business webs. Boston: Harvard Business School Press
Tax, S. S., & Stuart, F. I. (1997). Designing and implementing new services:
The challenges of integrating service systems, Journal of Retailing, 73(1),
105–134
Taylor, S., & Todd, P. (1995). Decomposition and crossover effects in the theory
of planned behavior: A study of consumer adoption. International Journal of
Research in Marketing, 12(2), 137–155
Teerling, M., Haaker, T., & De Vos, H. (2007). Understanding consumer value of
mobile service bundles. Paper presented at the networking and electronic
commerce research (NAEC 2007), Lake Garda, Italy
Teng, J., & Kettinger, W. (1995). Business process redesign and information
architecture: Exploring the relationships. Database Advances, 26(1), 30–42
Tian, M., Voigt, T., Naumowicz, T., Ritter, H., & Schiller, J. (2004). Performance
considerations for mobile web services. Computer Communications, 27(11),
1097–1105
Tidd, J., Bessant, J., & Pavitt, K. (2001). Managing innovation. New York: Wiley
320 References

Tilson, D., & Lyytinen, K. (2006). The 3G transition: Changes in the US wireless
industry. Telecommunications Policy, 30(10–11), 569–586
Timmers, P. (1998). Business models for E-commerce. Electronic Markets, 8(2),
3–7
TNO. (2006). Marktrapportage Elektronische Communicatie December 2006.
Delft, The Netherlands: TNO
Turban, E., Lee, J., King, D., & Chung, H. M. (2000). Electronic commerce: A
managerial perspective. Upper Saddle River, NJ: Prentice-Hall
Turpeinen, P. (1998). Tarpeet Ja Motiivit. Uusmedia Kuluttajan Silmin (Needs
and motives. new media through the eyes of a consumer). Helsinki, Finland:
Tekes
UMTS Forum. (2002). Report 21 charging, billing and payment views on 3G
business models. London: UMTS Forum
UMTS Forum. (2006). 3G/UMTS evolution: Towards a new generation of
broadband mobile services. London: UMTS Forum
Van Bossuyt, M., & Van Hove, L. (2007). Mobile payment models and their
implications for NextGen Msps. Info, 9(5), 31–43
Van De Kar, E. A. M. (2004). Designing mobile information services: An
approach for organisations in a value network. Delft, The Netherlands: Delft
University of Technology
Van De Kar, E. A. M., & Verbraeck, A. (2007). Designing mobile service systems.
Delft, The Netherlands: IOS Press
Van Der Duin, P. A (2000). Destination 2005. Scenario & Strategy Planning,
2(1), 22–25
Van Der Heijden, K. (1996). Scenarios. The art of strategic conversation.
Chichester: Wiley
Van Der Roest, H. G., Meiland, F. J. M., Comijs, H. C., Vernooij-Dassen, M. J. F. J.,
Van Hout, H., Jonker, C., et al. (2007). What do you need? That’s the
question. The subjective and objective needs of people with dementia living in
the community. Paper presented at the Alzheimer Europe congress, Estoril,
Portugal
Van Der Roest, H. G., Meiland, F. J. M., Maroccini, R., Comijs, H. C., Jonker, C.,
& Dröes, R. M. (2007). Subjective needs in people with dementia. A review
of the literature. International Psychogeriatrics, 19(3), 559–592
Van Oirsouw, R., Spaanderman, J., & De Vries, H. (1993). Informatie-economie:
investeringsstrategie voor de informatievoorziening (Information economy:
Investment strategy for data processing). Schoonhoven, The Netherlands:
Academic Service
Van Weering, M., Jones, V., & Thiele, F. (2007). Chronic pain application: Trial,
platform and results description. Enschede: Freeband
Vargo, S. L., & Lusch, R. F. (2004a). The Four service marketing myths. Journal
of Service Research, 6(4), 324–335
Vargo, S. L., & Lusch, R. F. (2004b). Evolving to a new dominant logic for
marketing. Journal of Marketing, 68(1), 1–17
 References 321

Varian, H. R. (1996). Differential pricing and efficiency. First Monday, 1(2),

Retrieved December 19, 2004, from Http://www.Firstmonday.Dk/Issues/
Issue2/Different/Index.Html
Venkatesh, R., & Kamakura, W. (2003). Optimal bundling and pricing under a
monopoly: Contrasting complements and substitutes from independently
valued products. The Journal of Business, 76(2), 211–231
Venkatesh, V., Morris, M. G., Davis, G. B., & Davis, F. D. (2003). User
acceptance of information technology: Toward a unified view. MIS Quarterly,
27(3), 425–478
Verschuren, P., & Hartog, R. (2005). Evaluation in design-oriented research.
Quality & Quantity, 39(6), 733–762
Versteeg, G., & Bouwman, H. (2006). Business architecture: A new paradigm to
relate business strategy to ICT. Information Systems Frontier, 8(2), 91–102
Veryzer, R. W. (1998). Discontinuous innovation and the new product
development process. Journal of Product Innovation Management, 15(4),
304–321
Vogel, H. L. (2004). Entertainment industry economics – A guide for financial
analysis (6th ed.). Cambridge, UK: Cambridge University Press
VWS. (2004). Healthcare in an aging society: A challenge for all European
countries. The Hague, The Netherlands: Ministry of Health, Welfare and
Sports
Wang, Y. (2008). A studio based approach for business engineering and mobile
services. Delft, The Netherlands: Delft University of Technology
Ward, J., & Daniel, E. (2005). Benefits management: Delivering value from IS &
IT investments. Hoboken, NJ: Wiley
Weill, P., & Vitale, M. R. (2001). Place to space. Migrating to e-business models.
Boston: Harvard Business School Press
Weiss, M., & Amyot, D. (2005). Design and evolution of E-business models.
Paper presented at the 7th IEEE international conference on E-commerce
Technology, CEC
White, S. (2004). Process modelling notations and workflow patterns. Retrieved
February 22, 2008, from Http://www.Omg.Org/Bp-Corner/Bp-Files/Process_
Modeling_Notations.Pdf
Wigand, R., Picot, A., & Reichswald, R. (1997). Information, organization and
management. New York: Wiley
Wohltorf, J., & Albayrak, S. (2005). Decision Cockpit for Mobile Services.
Retrieved January 5, 2008, from Http://www.Dai-Labor.De/Fileadmin/
Files/Publications/Wohltorf-Albayrak_2003_BPMJ_Decision-Cockpit-For-
Mobile%20Services.Pdf
World Resources Institute. What works: Smart communications – Expanding
networks, expanding profits. Providing telecommunications services to low-
income markets in the Philippines. Retrieved February 5, 2008, from
Http://www.Digitaldividend.Org/Pdf/Smart_Communications_Case.Pdf
322 References

Yin, R. K., & Heald, K. A. (1975). Using the case survey method to analyze
policy studies. Administrative Science Quarterly, 20(3), 371–381
Zmijewska, A. (2007). Factors influencing adoption and diffusion of mobile
payments systems. A holistic framework. Sydney: University of Technology
Authors

Harry Bouwman, Ph.D., is associate professor at and Interim Chair of the

Information and Communication Technology section, Faculty of
Technology, Policy and Management of Delft University of Technology,
the Netherlands, and private docent at Institute for Advanced Management
System Research, Åbo Akademi, Turku, Finland.
Tim De Koning, M.Sc., received his Master degree from Faculty of
Technology, Policy and Management, Delft University of Technology. At
the moment he is employed by KPMG IT Advisory, The Hague, the
Netherlands.
Mark De Reuver, M.Sc., received his Master degree from Delft
University of Technology, and is now Ph.D. candidate at the Information
and Communication Technology section of Delft University of
Technology, the Netherlands.
Henny De Vos, Ph.D., is scientific researcher at the Networked Business
group of Telematica Instituut, Enschede, the Netherlands.
Rose-Marie Dröes, Ph.D., is associate professor in Psychogeriatrics and
program leader of the research group Care and support in Dementia at the
Department of Psychiatry, the Alzheimer Centre and the Institute for
Research in Extramural Medicine of the VU University Medical Centre in
Amsterdam.
Edward Faber, Ph.D., is scientific researcher at the Networked Business
group of Telematica Instituut, Enschede, the Netherlands.
Erwin Fielt, Ph.D., is scientific researcher at the Networked Business
group of Telematica Instituut, Enschede, the Netherlands.
Ralph Feenstra, M.Sc., received his Master degree from Delft University
of Technology, and is now Ph.D. candidate at the Information and
Communication Technology section of Delft University of Technology, the
Netherlands.
324 Authors

Timber Haaker, Ph.D., is scientific researcher at the Networked

Business group of Telematica Instituut, Enschede, the Netherlands.
Rianne Huis In ’t Veld, Ph.D., is a researcher at Roessingh Research and
Development, Enschede, the Netherlands.
Björn Kijl, M.Sc., received his Master degree from the faculty of
Electrical Engineering, Mathematics and Computer Science, and is now
Ph.D. candidate at the School of Management and Governance University
of Twente, Enschede, the Netherlands.
Sander Limonard, M.A., is a researcher and consultant at TNO
Information and Communication Studies, Department of Strategy, Policy
and Innovation, Delft, the Netherlands.
Zhengjia Meng, M.Sc., received his Master degree from Faculty of
Technology, Policy and Management, Delft University of Technology, the
Netherlands. At the moment he is employed by Shell.
Jean-Carlo Sandy, M.Sc., is a Ph.D. candidate at the Information and
Communication Technology section, Delft University of Technology, the
Netherlands.
Hidde Schipper, M.Sc., received his Master degree from Faculty of
Technology, Policy and Management, Delft University of Technology, the
Netherlands. Currently he is working as a business analyst at Royal Philips
Electronics, Boston.
Marc Steen, M.Sc., received his Master degree in Industrial Design
Engineering at Delft University of Technology, and is currently working at
TNO Information and Communication Technology. His Ph.D. research is
on human-centered design.
Patrick Van Der Duin, Ph.D., is assistant professor at the Strategy,
Technology & Entrepreneurship section, Faculty of Technology, Policy
and Management, Delft University of Technology. He is specialized in
futures research and innovation management.
Miriam Vollenbroek-Hutten, Ph.D., is manager of the research cluster
Technology Assisted Pain Rehabilitation at Roessingh Research and
Development, Enschede, the Netherlands.
Index

Business model division of investments, 80, 81, 86,

dynamic, 64, 69–70, 139, 144, 127, 264
147, 172, 175, 178, 253 management of user profiles, 47,
external forces, 64, 68, 69, 144, 75, 77, 84, 117, 155, 160, 219,
168, 172 221–222, 231, 232, 260
feasibility, 9, 28, 71, 83, 88, 115, network complexity, 78–80, 87,
137–138, 206, 209, 216 127, 262
mobile, 4, 5, 31, 69, 71, 72, 83, network governance, 78–80, 86,
89, 111–114, 133, 147, 153, 127, 147, 160, 186, 189, 262,
162, 169, 217, 222, 231 264
phases, 64–70, 144, 147, 153, 155, network openness, 78–80, 86, 87,
160, 161, 163, 164, 167, 169, 127, 160, 262, 263
172, 178, 253 partner selection, 78, 80, 87, 156,
robustness, 115, 117, 118, 126, 187, 262–264
132, 133, 139, 143, 145–147, pricing, 80–81, 83, 84, 86, 87, 127,
149, 175, 205–216 157, 158, 209, 211, 219–223,
static, 64, 167, 168, 172 226–230, 232, 252, 256, 257,
viability, 4, 5, 71–73, 83, 88, 115, 264–266
117, 123, 126, 133, 136–138, quality of service, 75, 76, 78, 84,
209, 289, 292, 293 85, 130, 155, 161, 164, 223,
Business processes, 11, 31, 46, 260, 263
137–139, 141–143 security, 75, 76, 78, 84, 85, 127,
155, 158, 164, 185, 199, 223,
Critical design issues 260, 262
accessibility for customers, 75, 77, system integration, 75, 76, 78, 84,
84, 86, 155, 164, 258–260 127, 156, 158, 164, 185, 223,
branding, 70, 73, 74, 84, 155, 157, 232, 260
159, 164, 184, 219–223, targeting, 41, 73–75, 84, 85, 127,
225–230, 232, 257–259 129, 131, 163, 169, 184, 223,
creating value elements, 73, 74, 84, 256–260, 267
129, 131, 147, 189, 256, 257, 259 valuation of contributions and
customer retention, 70, 73, 75, benefits, 80–82, 86, 264, 265
84–86, 184, 257 Critical success factors
division of costs and revenues, 80, acceptable division of roles, 86–87,
82, 86, 109–110, 265 130, 162, 165, 249, 293, 294
326 Index

acceptable profitability, 86, 87, interactions, 26, 52, 56, 281

130, 161, 162, 164, 249, 293 organizational arrangements,
acceptable quality of service, 84, 56–57, 102–109, 288
85, 161, 162, 165 relations, 50, 56, 89, 160, 264
acceptable risks, 86, 87, 127, 130, resources and capabilities, 50, 56,
161, 162 57, 122
clearly defined target group, 84, 85, roles, 36, 52, 54, 86, 87, 89, 122,
128, 130, 131, 158, 161–165, 249 236, 262, 276
compelling value proposition, 74, strategies and goals, 56, 57, 122
83–85, 161–163, 165, 249 value activities, 45, 56, 57, 87, 122
sustainable network strategy, 86, 87 value network, 54, 56, 57, 78–80,
unobtrusive customer retention, 122, 126, 160, 192, 208,
84, 85, 161, 164 262–264
Organizational arrangements
Finance domain issues governance models, 102, 107–109
capital, 61–63 hybrid models, 108–109, 211
costs, 57–63, 80–83, 86, 87, 109, mobile, 31, 69, 102, 122, 172, 238
123, 124, 156, 157, 188, 209, open models, 79, 102, 107–109
211, 215, 265, 278–281, 287 roles, 57, 102–107, 109, 122,
cost sources, 62, 63, 123 238–239
financial arrangements, 43, 58, 62, walled gardens, 79, 102, 107–109,
63, 87, 109–111, 124 173
investment sources, 57, 58, 62, 123
performance indicators, 55, 62 Service domain issues
revenues, 37, 59–62, 80–83, 86, bundling, 22, 27, 44–46, 59, 75,
87, 109, 123, 124, 156, 157, 137, 138, 140–141, 143, 147,
188, 239, 264–266, 278–281 207, 210, 211, 214, 217–222,
revenue sources, 58, 62, 63, 123, 226, 228, 230–232
209, 248, 278 context, 38–40, 42–45, 90, 119,
risk, 59–63, 81–83, 86, 87, 109, 136, 179, 246
123, 124, 138, 157, 188, 189, customer, 36, 37, 45, 72, 73, 75,
265, 266, 287 84, 86, 119, 120, 127, 156, 184,
risk sources, 62–63, 123 192, 219, 235, 246, 257
effort, 43–45, 119
Mobile services, 4, 5, 7, 21, 23, 24, end-user, 39, 40, 42–45, 74, 119,
28, 37–42, 59, 72, 84, 89–94, 102, 179, 184, 246, 257, 258, 267
103, 106, 109, 111–113, 115, 122, market segment, 41, 44, 70, 74,
133, 138, 144, 146, 147, 149, 153, 84, 94, 129, 219, 259, 267
154, 157, 162, 180, 185, 186, 188, previous experience, 38, 39, 42,
203, 217–219, 222–225, 231, 233, 43, 45, 74, 84, 119, 258
234, 240–252, 254, 258, 261, tariff, 43–45, 119
269–281 value proposition, 38, 42, 43, 74,
75, 83, 84
Organization domain issues Service innovation
actors, 54, 56, 57, 79, 80, 122, mobile service innovation, 3, 28,
277, 278, 281 29, 94
 Index 327

STOF domains limitations, 138

finance design, 62–63, 121, positioning, 50, 55, 66, 76, 113,
123–125 131, 176
finance domain, 36, 37, 58–63, 71, practical implications, 139
83, 84, 86, 87, 119, 123, 129, purpose, 148, 167–168
181, 209, 236–237, 247–248,
264–266 Technology domain issues
organization design, 43, 56–57, access networks, 48, 49, 95, 96,
122–123 120
organization domain, 36, 37, applications, 48, 49, 55, 120
49–55, 57, 122, 138, 208, backbone infrastructure, 48, 49,
262–264 120
service design, 42–45, 48, 83, billing platform, 48, 55, 120
118–120, 132, 134, 136, customer data platform, 48, 55,
237–239 120
service domain, 45, 46, 71–73, 75, data, 46–49, 53, 55, 77, 78, 120,
77, 83, 84, 86, 119–121, 126, 185, 219, 274
127, 129, 130, 134, 135, 207, devices, 48, 49, 77, 120
234–235, 257–260, 272, 283 service platforms, 48, 120
technology design, 43, 48–49, 62, technical architecture, 46, 48, 57,
115, 120–121, 124, 130 76, 79, 115, 121, 125, 257, 260
technology domain, 36, 37, 46–49, technical functionality, 48, 77, 120
71, 72, 75–78, 83, 84, 86,
120–121, 126, 129–132, 134, Value
235, 260–262, 283, 294 customer value, 21, 26, 33, 36–40,
STOF method 52–55, 62, 70, 72, 74, 80,
application, 121, 123–125, 132, 83–85, 138, 161, 191, 192, 196,
255 198, 202, 213–215, 217–223,
design steps, 117–132, 138 232, 242, 250, 251, 266, 289
evaluation with CSFs, 115, delivered value, 42, 43, 45, 57, 70
126–128 expected value, 43, 44, 184
positioning, 131, 176 intended value, 33, 39, 41–45, 55,
quick scan, 115–126, 128, 135, 75, 113, 115, 119, 125, 257
136, 148, 237, 255, 288 network value, 29, 57, 72, 83,
robustness, 115, 118, 126, 132, 85–88, 144, 149, 161, 191–203,
133, 139, 143, 145–147, 175, 217, 232, 250, 251, 255
205, 206, 209 perceived value, 38–39, 42–44,
specification of CDIs, 129–132 61, 74, 76
STOF model provider value, 251
dynamic, 4, 5, 31, 44, 51, 52, 60,
63, 64, 69, 70, 139, 147, 159,
167–178, 181