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====== Topic 4: How do business models work? ======
[[ocs:private:01.wp:bb:1.2_topics:start| Return to Topics]]

Business modeling provides the building blocks for organizational and
consumer value creation. Models help define communities of participation,
and then help the groups proof their concepts at a high level before
engaging in the participatory design, or research and development process.
Business models often use a series of mechanics to create competitive
advantage. Mechanics can include: “switching costs, recurring revenue,
earning vs spending, game-changing cost structure, get others to do the
work, scalability, and protection from competitors.”((
Amarsy, Nabila.
__Why Some Business Models Are Better Than Others__,
Strategyzer,
Accessed: February 28, 2020,
[[https://www.strategyzer.com/blog/posts/2015/4/7/why-are-some-business-models-better-than-others]]
)) Let’s take a moment
to explore a few common examples of business models and mechanics
behind the products and services, we use within our own homes.

===== Amazon Prime =====
[[ocs:private:01.wp:bb:1.2_topics:4.how_bm_work| Return to Top]]

Switching costs is one of the seven business model mechanics defined in
the Business Model Ontology((
Osterwalder, Alexander,
__The Business Model Ontology a Proposition in a Design Science Approach__,
2004, 
[[http://www.hec.unil.ch/aosterwa/PhD/Osterwalder_PhD_BM_Ontology.pdf]]
)). This mechanism finds ways to keep
customers by creating a high cost for switching to a different service
provider. Amazon Prime (AP) is an excellent example of a business model
that uses the switching cost mechanism. If you have purchased movies on
AP, you will know that you cannot easily or efficiently download your
movies for watching without the Amazon app or website. 

This means that you are locked in to being an Amazon user if you intend to
continue enjoying your movie purchases. Another common mechanism is
recurring revenue.

===== Cell Phone Service Providers =====
[[ocs:private:01.wp:bb:1.2_topics:4.how_bm_work| Return to Top]]

Cell phone service providers like AT&T often use recurring revenue as a
method to maintain a competitive advantage. When you sign up for a
contract you generally receive a lower monthly rate, and the provider
benefits from the increased certainty they will receive revenue for a
defined period of time. If you have ever received a free phone in exchange
for a two-year service contract, you’ve experienced both switching costs
and recurring revenue mechanisms. If you want to switch to a different
service provider, the cost of paying back the phone and buying out the
contract can be a huge deterrent.

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