Components  of  the  business  model  for  sharing  economy

As Doganova and Eyquem-Renault (2009) suggest, business models can vary according to which audience it is presented too. This implies that a business model can be individualized so it fits the specific purpose, company or market (Doganova & Eyquem-Renault, 2009).

Before choosing the components for the business model framework for sharing economy, it needs to be taken into consideration that this business model will be incorporated into the company as a secondary business model. This means that whilst the company will already have an extensive functioning business model for their current operations, the sharing

economy business model will serve as an extension of this primary business model. As such, the secondary business model can be simpler and will only contain the components for which there will be the most significant changes from the primary business model. When choosing the components it is important to consider the factors that will make them relevant for a sharing economy context. The three components chosen to be included in the framework

presented in this chapter are value proposition, operational value chain and financial model.

The following three sections will explain why each of these three components is relevant and included in the framework.

5.1.1 Value proposition

Value offering/proposition is considered a must-have component in any business model, as evidenced by the numerous mentions in the business literature and this being the most cited component in Table 2. Furthermore, in the case of the sharing economy in particular, the literature highlights that the primary driver for most consumers engaging in collaborative consumption is the added value they can derive from it compared to the value they receive when buying to own (Botsman & Rogers, 2011; Bove-Nielsen, 2015; Gansky, 2010; Skytte, 2014). This “value” is what will make the consumer choose a product over another. Whilst traditionally this comes in the form of low price or differentiation (Afuah, 2003), in sharing economy, there is a further dimension to consider. That is to say, whilst the value of the product or service itself is relevant, one must also take into account the intrinsic or perceived value the consumers gain when engaging in collaborative consumption. When describing value in the business model framework for sharing economy it is therefore important that both dimensions are included.

5.1.2 Operational value chain

Operational value chain refers to the process, steps and activities that a company must undergo in order to deliver on their value proposition. This component has been constructed based on three of the components from Table 2. These are customer interface/relationship, internal infrastructure/connected activities and partner network/roles (Morris et al., 2005).

Some of these operational activities also resemble the elements of Porter’s value chain network: “… it performs a number of discrete but interconnected value-creating activities, such as operating a sales force, fabricating a component, or delivering a product…” (Porter, 2001, p. 74). This component is relevant to a business model in the sharing economy since it includes elements that are expected to change considerably in this context. The activities associated with sharing economy are expected to have an impact on the organisational requirements. The major contributor to impact these organisational requirements is the changes in the target market. It will require a different approach to selling to groups of

consumers instead of selling to individuals. Additionally, the product itself changes when it is

Chapter 5: Business model framework for sharing economy

sold for access to a group of people instead of selling to own. In a sharing economic context, the consumers do not only receive value from the products itself, but also from the service or network surrounding it (Botsman & Rogers, 2011). Therefore, in a sense, the company will have to sell a “relationship” to the consumer instead of just selling a product. These

contributors, amongst others, will most likely require the organisation to develop new technology, create dedicated divisions for the sharing economy and be prepared for new challenges within the legal aspects.

This component in the business model framework will therefore serve to provide an overview of the changes and new arrangements a company must undertake in order to deliver value in a sharing economy context; or in other words, the internal and external operations and

infrastructure that need to be implemented in order to engage in sharing economy and deliver the above value to its customers.

5.1.3 Financial model

In general a financial model explains how a business intends to earn a profit (Morris et al., 2005). The economic model was the second most frequently cited component in Table 2, arguing that there are grounds to include an economic model in all business models related to for-profit activities. As Shafer states: “In the end though, for-profit companies must make money to survive…” (Shafer et al., 2005, p. 4). The financial model in a sharing economy context will most likely differ from a production company’s regular financial model. For a service company, the financial model might not change considerable. The purpose of a financial model in this thesis is to describe possible ways for the company to generate revenue, and as such the sharing economy financial model may well differ from that of a production company’s core financial model. This is because whereas production companies by and large generate revenue via fixed payments from selling products, financial models that are most frequently used for sharing economy are monthly subscription, usage payment, service fee or a combination of all.

The authors of this thesis recognize that in addition to detailing revenue generation, a financial model would normally include a description of the costs incurred by the company during the course of the business. It is also accepted that there will be costs associated with a company developing a sharing economy division. These costs can come in the form of

investments in developing software, special training of employees or the costs endured by making the product or service shareable. However, since these costs will be highly variable from company-to-company based on factors such as their pre-existing company structure and resources, it has not been deemed possible to describe them here in generic, “one size fits all”

terms. Therefore, the financial model in the business model framework for sharing economy presented here will only include the impact the form of revenue generation.