Business Model Canvas is a great tool that will allow you to create a precise, straightforward business model that will be comprehensive for you, your team, your investors, and your partners. Sounds amazing? Yes! Sounds difficult? Not at all!
This template is great in its simplicity. You no longer need to present huge business plans to your investors (we are sure they will be grateful). By filling the Canvas, you will give the precise and simple answers to such fundamental questions as “What is your value proposition?”, “Who are your audience?”, “What are your revenue sources?”, and many others. If you are able to answer them for yourself, you will have no difficulty presenting your project to partners and investors and establishing business relationships.
In this article, we will consider the use of this template, its structure, and it benefits in respect to an ordinary business plan. We will study its structure in detail and give you extensive comments on each of its points. We will also apply this template practically by considering the business model of one of the biggest marketplaces of our time – Airbnb. Hopefully, it will help you to understand the essence of the template and successfully use Business Model Canvas for your marketplace business.
What is Business Model Canvas?
Business Model Canvas is a graphical representation of the main points that show the basis of your business. It was developed by Swiss business strategist, Alexander Osterwalder, and information systems management professor, Yves Pigneur. They defined the main blocks that serve as a basis for any organization: business structure, value proposition, clients, relationships with clients, and finance.
Generally, the template is used when creating a new business. All the main points of the business can be presented in a simple and logical way on the spreadsheet, and later these materials can be used for meetings with potential investors and partners. They will definitely appreciate the precise and logical presentation of your idea.
However, Business Model Canvas can be used not only by startups, but also by mature businesses. If the organization for some reason does not have Business Model Canvas, it’s high time they got it and filled it out! It will help to find out the strong and weak points of the business and highlight possible gaps in the processes.
How is it different from a business plan?
Business models and business plans have completely different formats, purposes, and ways of developing and presenting them to potential partners.
To make a long story short, a model is a brief presentation of your business structure. It does not contain any information about the strategy of the business idea realization. It also does not contain any figures and calculations reflecting the plan of business development.
However, a business plan is an extensive strategic document that describes the way of developing the future business. It contains a deep analysis of the market, the steps of attracting investments, detailed calculations of expenses and revenue, and much more information.
Both of these documents are important and are not interchangeable in any way. However, the main point you should remember is that the business plan is based on the business model, and its development is started only when the business model is validated and approved.
The structure of the Business Model Canvas
The first thing to consider when starting to establish a new company is its internal structure – the processes of conducting the business and the resources for its establishment. Additionally, no business can exist without partnerships with external organizations, and this aspect should also be considered when creating the business model.
- Processes – the ways of managing the company’s workflow.
- Resources – here you describe the most important active assets necessary for the functioning of your business model. The key assets are:
- Material resources – physical objects such as production assets, buildings, equipment, transport, etc.
- Intellectual resources – intellectual property such as trademarks, information protected by property rights, patents, databases of partners and clients, etc.
- Human resources – this is a crucial factor for every business, yet some types of startups, like science-based or creative ones, require particular attention to this resource.
- Finance – a lot of business models require different financial resources or financial assurance such as money assets, credit money or reserves.
- Partners – the organizations establish partnerships in order to optimize their business models, minimize risks or get resources. These relationships become the basis for lots of business models. There are several types of partnership:
- Strategic collaboration between non-competition organizations.
- Co-competition (a strategic partnership between competitors).
- Joint venture companies for launching new business projects.
- Relationship of the producer with the supplier in order to ensure getting components of the necessary quality.
- Activities – this block describes the way the company is going to achieve the business purpose. This can be done in several ways:
- Research & development – if it is a completely new product, the company should conduct market research as to whether it is necessary to the clients and develop it according to their suggestions.
- Quality check – in order to provide the best user experience, the company should constantly control and ensure the perfect quality of the product.
- Marketing & advertising – even the best product needs to be promoted and advertised for the audience to know about it.
The value proposition is the complex of advantages that the company can offer its clients. Let’s look at some of the advantages of value proposition:
- Novelty – some value propositions are oriented on satisfying completely new needs that have never existed on the market before.
- Productivity – increasing the efficiency of the client’s business or performance of the product is traditionally used for creating the value proposition.
- Custom manufacture – the merchandise and services satisfying the individual requirements of the clients are of high value.
- Do one’s work – the value proposition may offer the clients help in doing their job.
- Price – offering the existing advantages for a lower price is one of the most popular strategies for fulfilling price-sensitive requirements.
- Cost reduction – offering the clients help in reducing their own expenses.
- Risk mitigation – the clients will appreciate lowering the risks when buying the products or services.
- Availability – making the goods or services available for those clients who did not previously have access to them.
- Convenience – simplicity and user-friendliness of the merchandise can be a value proposition as well.
This block defines which customer groups the company is going to attract and satisfy their needs. In order to do this more efficiently, you need to classify them according to their needs, behavior and other features – in other words, to define the target audience. Why is this necessary?
- The target audience:
- The difference in their demand determines the difference in your offer to each group.
- The interaction is handled via the different channels.
- The way of establishing the relationships will also be different.
- Different groups of clients can bring different profits.
- They are attracted by different aspects of your offer.
- Sales channels – how will you sell your product?
- Interaction with the clients – this is about the company’s way of communicating with the different target audiences and bringing the value proposition to them. The channels of communication, distribution, and selling compose the system of the company’s interaction with the clients.
Relationship with customers
This block defines the way of company-client interaction and client support by the company.
- Personal support – the client communicates directly with the company representative before and after the purchase.
- Special personal support – a particular client has a personal manager that is assigned to them.
- Self-service – the company does not communicate directly with the client but provides all the necessary tools for them to deal with everything on their own.
- Automated service – this is a combination of the more advanced form of self-service with the automation of the processes.
- Communities – many companies create and support online communities that allow users to exchange their knowledge. They help to understand the needs of the customers better.
- Collaborative creation – some companies do not build traditional buyer-seller relationships and instead create a product in collaboration with the client (allowing them to participate in creating the design or content).
This block describes the two major money flows of the company: the expenses for maintaining the business and he revenue from selling the value proposition.
- Expenses – when creating the business model, here you should include all the possible expense items for establishing and maintaining of your business. For example:
- Organizational costs (establishing the company as a legal entity).
- Human resources (salaries for the employees of the company).
- Office (cost of the rental, maintenance, buying the equipment, etc.).
- Online platform (if your company handles business via the Internet, it is a must to have a website or an application; here you include the work of developers, PMs, administrators, maintenance of hardware, etc.).
- Marketing & advertising.
- Revenue – the earnings of the company that cover the expenses and bring profit to the owners.
- Earnings from selling a value proposition (revenue from selling physical goods, commission, earnings from selling subscriptions or premium services, etc.).
- Advertising (earnings from posting the advertisements on the online platform).
- Brand usage (if your company is already a widely recognizable brand with a registered trademark, you can charge other organizations to use the brand).
Business Model Canvas for online marketplaces with the example of Airbnb
In order to understand how to apply the Canvas for developing the marketplace business model, let’s analyze one of the top marketplaces in the world – Airbnb. Taking into account the success and worldwide recognition of the platform, we believe it is a good example to follow.
The infrastructure of Airbnb’s business will be represented by the partners and resources of the company. In order to get the support of the business, they should establish a partner relationship with different businesses, and travel and legal authorities. To provide the best user experience for the hosts, they use the services of different companies and apply the digital instruments of third-party providers. Let’s look at the partnership network and the resources of Airbnb more closely:
Key partners – partnership is essential for the development of the business.
- Hosts – the suppliers of the marketplace whose property brings Airbnb part of the revenue.
- Investors – the people whose money helps Airbnb to support and develop the business.
- Lobbyists – the laws of the different countries may impose legal and financial restrictions on renting one’s property on a commercial basis. That is why Airbnb needs support at a governmental level.
- Business travel partners – in order to expand their potential audience, Airbnb collaborates with platforms engaged in the organization of business trips, such as Concur, Triplink, and others. Thanks to the partnership, the Airbnb apartments appear among the variants of accommodation for business travelers. You can learn more here.
Other partners – partnership is used in order to improve the quality of the service and to provide a better user experience.
- Photographers – the research demonstrated that places with attractive professionally made photos get more bookings than the ones with amateur pictures. That is why Airbnb hires photographers in order to take the pictures of the properties. This service is free for hosts, so the company has to cover the expenses.
- Integrations – in order to improve the functionality of the platform, Airbnb uses third-party tools such as integration with Google maps, cloud storages, identification services, etc.
- Insurance – the marketplace provides the insurance for the hosts’ property for the deals confirmed via the marketplace.
- Listings – the major resource of Airbnb that brings the actual revenue.
- Technical resources – used for maintenance of the online platform (the platform architecture, machine learning algorithms, analytic tools, hardware, etc.).
- Brand – since Airbnb is a famous and reputable company, its brand has financial value and acts as a trust factor for the clients and partners.
Airbnb has developed a stunning idea for short-term rental; however, they would never have become so successful without their activities for attracting users:
- Providing a positive user experience by making the transactions smooth and easy.
- Growing the community (adding new participants, extending to new cities, etc.).
- Keeping the travelers returning by providing an exciting experience and lots of events.
- Extending the value proposition (event hosting, Airbnb-plus apartments, etc.).
Airbnb’s clients trust them with their property and their money since the marketplace can offer value for them. Let’s consider the value proposition of Airbnb in more detail:
- Additional income from their property
- Fast and simple transactions
- Meeting people from different countries
- The host may choose to accept only verified guests
- Extensive options for calendar and booking management
- Transparent ratings of guests
- Lower cost than hotels
- More variety of apartments
- Fast and simple transactions
- Local experiences during the trip, meeting new people
- Transparent ratings of hosts
No business can exist without defining a target audience. In order to develop a better offer for each group of customers, the business owners and marketers usually split the audience into segments. Let’s see what types of customers use Airbnb’s service.
- By type of accommodation: entire apartment, private room, shared room
- By location: countryside, city
- By travel type: business and leisure travelers
- By demographic: families with children, couples, retired people
- By income: looking for low-cost or premium accommodation
- Digital advertisement campaigns
- Content marketing (newsroom, guidebooks)
- Social media
- Free advertisement in travel blogs
Before developing each business, it is necessary to decide how the company will maintain relationships with their customers. Airbnb appears to be using a combined type of customer support: self-service for routine issues and personal support for extraordinary ones. Let’s take a closer look at Airbnb’s interactions with customers.
- Additional opportunities for getting new income (short periods between guests, premium listings on top)
- Support in case of any issues (accidents, damage, and other complaints)
- Support during all guest stays
- Orientation on host success
- Additional benefits for super hosts
- Deal with all issues in a timely manner
- Manage risks of both parties
- Secure and transparent storage of personal data
We cannot even imagine the monetary turnover of a company that is worth about $31 billion dollars. So we can give only a minor part of the possible expenses of Airbnb. Their revenue streams seem to be simpler, since we know approximately what monetization model they use. However, a worldwide recognizable brand is also likely to bring huge revenues to the company – and for this we cannot calculate even approximate figures.
- Development and maintenance of the platform (work of developers, office, hardware)
- Staff salaries (developers, non-technical staff, support specialists, photographers)
- Maintenance of offices
- Cost for transactions (using the services of payment providers)
- Legal issues (lobbying, legal proceedings if any)
- Customer support (office and salaries of support specialists)
- Cooperation with partners (travel platforms, insurance companies)
- Marketing & Advertising
- Transaction fees from both parties:
- Hosts – 3-5% from rental hosts, 20% from event hosts
- Guests – 5-15% from rental guests, no fee from event guests
- Premium services – the owners of VIP apartments pay a $149 fee for company representatives to check the apartment and to award the category of an Airbnb-plus apartment.
- Brand value – the revenues from using the brand, advertising, partnerships, etc.
Tips on creating a marketplace business model
We have provided you with lots of useful information regarding creating a business model canvas for an online marketplace, however we understand that it can be difficult to take it all in at once. We also understand that the most difficult part of any project is deciding what to start with. So we will now give you some organizational tips on creating a business model for your own business.
1. Before you start
Hopefully, before deciding to start your own business, you have conducted thorough market research, figured out your major competitors, and studied their business. We suggest that you start with analyzing the business models of your competitors. You can even create a model describing their business like we made Airbnb’s. This will help you not only to understand their business but will give you experience in working with the business model canvas. So, we recommend you study the models of competitors and pick the most successful ideas that can be implemented in your business.
The best way to work on developing a business model is to brainstorm in a small team. So, to start to design your canvas, you will need:
- A team of 3-5 people
- Printed or drawn canvas template on a big sheet of paper
- Lots of sticky notes and markers
- About 45-60 minutes
While discussing the business model, don’t forget that it should contain only the basic and most general points of your business. Leave details and strategic planning for later steps. We also recommend you make the process as logical as you can:
- Connect the blocks: each point of the value proposition with the corresponding customer segment
- If some ideas refer to the current aspects of the business and some of them to the future, keep them separate to avoid mixing them up
- If different ideas refer to different departments, keep them separate as well
These simple actions will help you to make the business model more logical and structured and will save your time in the future.
We recommend doing this step a few days after the brainstorming in order to have a more fresh and unprejudiced view of the results of your work. Evaluate the model according to the following criteria:
- Is it easy for the customers to use your product or will they find a cheaper/more convenient alternative?
- Is your model scalable?
- Will it produce repetitive revenue?
- Will you earn some money before you spend it?
- Is your business model protected from the competition?
We recommend that each team member evaluates the business model on a 1-10 scale, justifying their point of view. Your initial model will most likely be changed a lot of times before it becomes polished and viable.
In this article, we have considered the template of the business model canvas and its use in developing your own business. After reading our material, you now know everything about its structure and usefulness for business. Let’s go over the structure once again:
- Infrastructure is about setting the structure of your future business. This block consists of describing the working processes, the existing resources, and partnerships with external organizations.
- Value proposition is the set of advantages your product can offer to customers.
- Target audience should also be described in the business models. It is better to split it into the different segments and to describe the value proposition to each of them.
- Relationship with clients describes the way your company will curate and support your customers before and after they have purchased the product.
- Finance is of particular importance since it describes the expenses necessary for business management and the revenues the company will have from selling the product.
In order to make everything more clear for you, we have laid out Airbnb’s marketplace business model canvas. Now you can see that the template is absolutely applicable to a real business. We have also given you some tips on how to organize the development of your business model. Hopefully, they will be useful for you.