Paths of Business Model Evolution

Findings from Business Model Patents

Woori Han, Bomi Song and Yongtae Park

Department of Industrial Engineering, Seoul National University, Seoul, Korea

Keywords: Business Model Evolution, Business Model (BM) Patent, Technology based Business Model.

Abstract: All firms have business models (BMs) and they continuously modify their BMs to adjust to dynamic

environment. The objective of this paper is to find paths of technology based BM evolution by investigating

BM patents which are representative data source of technical BMs. The paper begins by reviewing the BM

and BM patents, and provides a description and justification of the proposed evolutionary paths of BM ‒

major (origination, transplant, mutation) and minor (variation, alternation, addition or subtraction)

evolutionary stream. The paper concludes by highlighting the key findings and drawing limitation and

further research.

1 INTRODUCTION

As the competitive landscape and conditions change

over time, companies may face the immediate need

to change and adopt their business models in order

to remain competitive (Schweizer, 2005). According

to advances in technology and changes in business

environment, business model (BM) have been

modifying and improving constantly over time.

Firms need to revise their BMs over time to keep up

with changing technology, market and regulatory

conditions. It is indispensable to maintain

profitability of the firms. And technology guides the

most strongly dynamics of a business model in early

development phase of a new business. For a

successful BM, firms should take technological

characteristics and potentials as inputs, and convert

them through customers and markets into economic

value (Chesbrough and Rosenbloom, 2002).

In spite of the importance of BM innovation and

evolution as a critical element for continuous

growth, activities to improve existing business, to

explore trends depend solely on the intuition of

analysts or the discussion of experts. In this aspect,

this research identifies paths of technology based

BM evolution by analyzing BM patents.

The BM patent typically covers combination of

software and business methodology line innovative

online shopping (Dorney, 2001). With the rapid

progress of information technology since the mid

1990s, the current spotlight is on patents for internet-

based inventions, and the number of BM patents is

exploding. BM patents have high value as a

qualitative database, containing detailed BMs both

in manufacturing and the service field.

In light of this, we will propose evolutionary

paths of BM by investigating BM patent information.

To achieve the research purpose, the scope of this

research is as follows: In section 2, definitions and

characteristics of BM and BM patents are briefly

described; and proposed evolutionary paths of

tehcnology based BM are shown in section 3. A

suggested approach can be used as a guideline in

exploring continuous growth and evolution of BM

and developing BM strategies.

2 BACKGROUND

2.1 Dynamic Perspective of BM

As technology developed, the needs of new business

opportunity and new way of business operation

management were raised. In this context, there has

been an increasing interest in delineating the concept

and providing further understanding of the BM. The

BM is the method of doing business by which a

company can sustain itself -- that is, generate

revenue. It spells-out how a company makes money

by specifying where it is positioned in the value

chain (Rappa, 2000). And the components of the

BM are defined differently by various authors as

197

Han W., Song B. and Park Y..

Paths of Business Model Evolution - Findings from Business Model Patents.

DOI: 10.5220/0004065401970200

In Proceedings of the International Conference on Data Communication Networking, e-Business and Optical Communication Systems (ICE-B-2012),

pages 197-200

ISBN: 978-989-8565-23-5

 2012 SCITEPRESS (Science and Technology Publications, Lda.)

presented in Table 1.

Table 1: Definition of BM component.

Timmers

(1998)

Product/service/information flow architecture

Business actors and roles

Actor benefits

Revenue sources

Marketing strategy

Afuah &

Tucci

(2001)

Customer value Price

Revenue sources Scope

Connected activities Capabilities

Implementation Sustainability

Baghdadi

(2005)

Business events, input, and output

Production system Logistic system

Business management/ control system

Information system Partners

Within today’s business environment, the BM

should also be enjoying dynamicity in order to cope

successfully with the continuous changes.

Characterizing the BM as dynamic (MacInnes,

2005) is essential mainly because many industries

nowadays. Unlike the traditional world of business

which is characterized by stability and low levels of

competition, the world of digital business is complex,

dynamic and has high levels of uncertainty and

competition. Hence, in the more complex and

sometimes unique digital business, the BM needs to

be explicit and more flexible (Al-Debei and Avison,

2010). In line with this thinking, the function of a

BM is an interface or an intermediate theoretical

layer between the business strategy and the business

processes.

Organizations and firms need to design and

adopt suitable BMs in order to survive and succeed

in a world of increasing environmental complexity.

Since, enhancing their competitive positions by

improving their ability to respond quickly to rapid

environmental changes with high quality business

decisions can be supported by adopting suitable

BMs for the new world of digital business (Al-Debei

and Avison, 2010).

2.3 BM Patent

A BM patent is defined as a method of

administering, managing, or operating an enterprise

or organization, and is a technique used in

conducting business (Koda, 2000). Most BM patents

are intended to protect the business model within

legal boundaries. They also describe the real world

business and business models of manufacturing and

the service field in electronic environments, and they

are the only sources of information that can explain

the business process or method thoroughly.

BM patents in the United States Patent and

Trademark Office (USPTO) are classified as class

705. This class contains four major and numerous

smaller groupings directed to specific and general

business data processing machines and methods.

These methods still heavily reflect the electrical and

computer engineering that underlie them.

Basically, a BM patent encompasses processes

and methods of general business. Despite the

considerable contribution that BM patents can bring

to business, there has been little research conducted

on them. Furthermore, most of that research has

focused on analyzing the need to apply patents and

conduct patenting activity, rather than the content of

the BM patent itself (Coriat and Orsi, 2002; Connor

and Leak, 2002; Wu, 2005). Therefore, in this

research we deal with the contents of BM patents. In

particular, we focus on technology based BM in an

attempt to identify paths of evolution.

3 EVOLUTIONARY PATHS OF

TECHNOLOGY BASED BM

By investigating BM patents we can find that there

are several paths in evolution of technical BMs. The

identified evolutionary paths were divided into two

types depending on the degree of change. Firstly, if

the evolutionary change takes place on the whole

BM, then that kind of evolutionary path assorts in

major stream of evolution (origination, transplant,

mutation). Along with this, if the evolutionary

change occurs in the component level of a BM, then

it belongs to minor stream of evolution (variation,

alternation, addition or subtraction). Figure 1

illustrates the evolutionary paths of technology

based BMs with some symbols respectively.

Figure 1: Evolutionary paths of BMs.

3.1 Major Stream

3.1.1 Origination

Origination of a BM means that a totally new BM,

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which did not exist at all, is came into the world by

any chance. Most of the BM origination arises from

creative business ideas and technologies materialize

that kind of ideas. One of the most famous cases of

technical BM origination is automatic teller’s

machine (ATM) (No. 4660168: Apparatus for

completing a customer initiated ATM transaction).

An ATM having various peripheral devices such as

a card handler mechanism, a printer mechanism, one

or more cash dispenser mechanisms, and a

depository mechanism, include a dedicated

processor and memory for controlling the operation

of the peripheral device connected thereto. The

ATM also includes a peripheral control unit

connected to the various subsystem controllers and

to an ATM control unit for receiving generated

transaction sequence event messages and in response

thereto concurrently processing the messages to

initiate simultaneous real-time operation of the

various peripheral devices. It made possible to self

service system, that is to say, customers participate

actively in the process of service production not only

just receive the service.

3.1.2 Transplant

The great part of major evolution of technology

based BM can be considered as BM transplant. With

the advance of technology, existing BMs should be

changed on the whole BM due to the transfer of

infrastructure. Owing to the development of

information technology especially, almost

businesses based on off-line market move to on-line

marketplace. Nowadays, mobile marketplace takes

center stage of business and moreover, ubiquitous

technologies lead to a new business world. Among

the huge amount of transplant BM cases which can

be found in BM patent database, healthcare services

are explicable for transplant BMs. Healthcare

services were originally delivered by hospitals or

pharmacies, so a patient should visit the hospitals or

pharmacies. But as technology developed, the

patient does not need to go out. Patent No. 7260586:

“Method and system for home medical management”

and patent No. 7307543: “System and method for

video observation of a patient in a health care

location” shows that the patient can receive

healthcare service in his/her home. Patent No.

7260586 relates to a printed record contains

emergency contact information, medical history

information, personal information and medication

information. The report can be used as a life saving

device in an emergency situation to provide

emergency personnel with required information. It

can be also used during doctor visits and hospital

stays to eliminate mistakes and on a daily basis to

manage the individual's taking of medications. And

patent No. 7307543 relates to a system and method

for observing patients in geographically dispersed

health care locations. A patient is assigned to a

health care location comprising a patient visual

monitoring system, a patient audio receiver, and a

patient controller.

3.1.3 Mutation

Mutation of a BM intends to create a new

marketplace by dealing a novel value. Its business

configuration is not much different with its previous

BM, but it brings out a huge difference in the value

of the business. Apple’s iTune (No. 7797242:

Method and system for network-based purchase and

distribution of media) case can illustrate mutation

BM. In this BM, a potential purchaser can search

and browse through numerous media items on-line

that are available for purchase. The potential

purchaser can thereafter purchase one or more media

items on-line with great ease. Upon purchasing a

media item, the content for the media item can be

downloaded over the network to the purchaser. The

content for the media item is then encrypted for the

purchaser's use and stored on the purchaser's

machine. Thereafter, the purchaser can make use of

the media item (e.g., play the media item). Improved

graphical user interfaces suitable for reviewing,

browsing, previewing and/or purchasing numerous

media items are also disclosed.

3.2 Minor Stream

3.2.1 Alternation

The majority of the evolutionary path of technical

BMs can be considered as alternation BM. It

changes a certain component of BM, although

maintains overall BM. New technology leads to

substitute the existing BM components, and

emergence of a new component drives innovation of

a suitable structure and architecture. In other words,

alteration of the BM components is the main factor

of innovation and evolution of the industry. As a

representative case, for identification of the

customer which is one of the most important BM

component, sensing instruments are changed.

Traditionally a simple card with limited information

was used, but as technology developed, smartcard

(No. 6199762: Methods and apparatus for dynamic

smartcard synchronization and personalization) or

fingerprint (No. 7240207: Fingerprinting media

Paths of Business Model Evolution - Findings from Business Model Patents

199

entities employing fingerprint algorithms and bit-to-

bit comparisons) replaced its fucntion.

3.2.2 Addition / Subtraction

Firms try to change their BMs by adding new

business function components for diversification or

subtracting exist business function components for

simplification. Impact of that kind of attempt is

generally trivial but it cannot be ignored. With the

primary functions of ATM – cash dispensing,

deposit and transfer, there are numerous trials to add

and subtract supplement functions such as

advertisement (No. 5870724: Targeting advertising

in a home retail banking delivery service), currency

dispensing (No. 7584885: Currency dispensing

ATM with RFID card reader), and gift certificate

dispensing (No. 7660767: Application banking

machine gift certificate dispensing system).

3.2.3 Variation

For continuous improvement of the firms, they

provide another version or edition of their exist BM.

In this context, they change their business value

mostly. By way of example, a bank focus its

business value on optimizing accounts (No. 7383223:

Method and apparatus for managing multiple

accounts) then the bank can modify its business

value on enhanced management (No. 7536350:

Systems and methods for providing enhanced

account management services for multiple banks).

4 CONCLUSIONS

It is natural that interests in BM evolution are

growing and that demands for new businesses are on

the rise, due to humanity’s constant need for

newness. And a BM for a digital business should be

reviewed continually to ensure its fit with the

complex, uncertain, and rapidly changing external

environment. Accordingly, in this research we

identified distinct types of evolutionary paths of

technology based BMs and gave several examples to

demonstrate the paths.

Through this research, we can understand the

overall flow of technology based BM’s evolution.

This research is meaningful in its setting up

typology of technology based BM evolution paths.

We found the evolution from BM patent data, so the

evolution is basically derived from technology

development. But there are opportunities for further

research. In view of the technology-intensive

characteristics of BM patent, exploring evolution of

other technology-intensive businesses or knowledge-

intensive business services (KIBS) also can be a

meaningful work.

ACKNOWLEDGEMENTS

This work was supported by the National Research

Foundation of Korea(NRF) grant funded by the

Korea government(MEST) (No. 2009-0085757).

This work was supported by the National

Research Foundation of Korea(NRF) grant funded

by the Korea government (MEST) (No.2011-

0030814).

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