Discussant s Statement Paper. 2 nd SCIL Congress 2005, St. Gallen, October 11 12, 2005 Workshop 5: Business Models for Marketing elearning Programmes

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2 Discussant s Statement Paper Prof. Dr. Michael H. Breitner Institut für Wirtschaftsinformatik (Institute for Information Systems Research) Wirtschaftswissenschaften / Universität Hannover (School of Economics / Business Administration Department) Königsworther Platz 1, D Hannover, Germany Phone: Germany or Fax: Germany breitner@iwi.uni-hannover.de 2 nd SCIL Congress 2005, St. Gallen, October 11 12, 2005 Workshop 5: Business Models for Marketing elearning Programmes Opening questions: 1) What are elearning business models and what s their purpose? 2) How is a comprehensive view of a priori and a posteriori marketing of elearning programmes and services possible? 3) What is the influence of up to date information and communication technologies and infrastructures on elearning programmes and services? 4) Which are the critical success factors for marketing elearning programmes and services? 5) How do today s dynamic business webs and value chains change the marketing of elearning programmes and services? Today s information and knowledge societies of the highly developed countries have to face various challenges: Information systems must be omnipresent, business processes must be adapted and optimized permanently, e. g. towards customer orientation and quality management, and employees must be kept well educated life-long. Globalization and mobility/flexibility of employees make e(lectronic)learning programmes and services more and more important. Often blended learning is the right choice preserving the essential relationship between teachers and learners. elearning programmes and services are needed which allow learning anytime and anywhere, often also with small mobile devices. This bares enormous potentials especially for s of specialized mobile learning programmes and services with laptops, PDAs or smartphones. The readiness to pay for education already increases significantly all over Europe. Basis of a successful offer (and usage) of elearning programmes and services is a coherent, consistent and holistic elearning strategy. elearning strategies have to address economical, pedagogical and technological goals. The economical aspects are the heart of an elearning business model which should be sustainable. It should be suitable to complete existing elearning theories and models focusing only the pedagogical and technological dimensions of elearning. Sustainable business models for elearning integrate and consolidate strategic propositions concerning a market(ing) submodel, an activity submodel and an asset submodel with various subsubmodels and analyses, see the first figure below. Here, marketing has a double meaning: - 1 -

3 1) To find out a priori which elearning programmes and services should be (further) developed and who are (potential) customers; 2) To find and address a posteriori (potential) customers for existing elearning programmes and services (presales, sales and aftersales activities). Quality management and evaluation Production factors analysis Services model Production model Activity model Competition model Cost/benefit analysis mediumand longterm profit maximization Assets model Market model Market analysis Finance model Accounting model Model of customers Revenue/cost analysis Revenue model and sustainability analysis Figure 1: Trilateral elearning business model by M. H. Breitner/G. Hoppe focusing on medium- and long-term profit maximization. The three perspectives are connected to various subsubmodels and analyses. Some of the subsubmodels or analyses cannot be indicated clearly, e. g. a cost/benefit analysis. By analyzing these issues crucial success factors for the commercialization of elearning programmes and services are identified. Different business models suitable for elearning s exist. The assumption that primarily rather simple applications can be exploited successfully is incorrect. Sustainability leads to medium- and long-term success based on concentrating on core competencies, on pursuing right target groups, on finding suitable revenue submodels, and on designing appropriate programmes and services. Large potentials for combining several revenue sources with economies of scale and low provision costs can be realized by offering elearning programmes and services, see the second figure below. The market(ing) submodel defines the various actors, their roles and the market structures. A separation of supply and demand submodels is useful. Statements about customer segments and positioning of a business are included. The activity submodel focuses the activities of a business. The activity submodel integrates manufacturing, marketing, after sales and support activities and is normally based on the concept of a value chain. The asset submodel comprehends cost and revenue submodel. Profit is as well the incitement as the objective of a business model. Regarding the process of manufacturing, marketing and deploying programmes and services in a value chain, several possible activities for elearning s can be identified, see the second figure below. This figure depicts exemplary activity submodels for elearning s which base mainly on deconstructing the elearning value chain. A full service fulfils all activities using in-house resources. This submodel demands the highest

4 costs for a. Concentrating on offering, the activities of packaging and physical distribution are rather low. A content concentrates on delivering content for applications. Often content generation comes along with didactical planning and part of product definition. Application and hardware providing needs a large cost pool if software or hardware is developed individually. Often content and application s cooperate. Service s can focus manifold activities or concentrate on distinct issues. Activity Model Full service Content Application Hardware Service Product design Pricing Content generation Didactic planning Software provision Hardware provision Packaging Promotion Distribution Learning process related services Support activities Marketing Manufacturing Deployment Support In-house Outsourcing Figure 2: Some showcase activity submodels for elearning s based on an elearning value chain vertically depicted modifying Keating Typical types of s for programmes and services are, e. g.: 1) Navigators focus promotion issues. 2) Merchants are responsible for distributing and billing elearning programmes and services to end users what can for for example be done via learning portals. A learning portal is a contact point which matches suppliers and demanders of elearning programmes and services. 3) Customer relationship managers are responsible for managing and maintaining contacts with end users of elearning programmes and services. Besides, service s can deal with quality management, tutorial assistance, hosting services, and other services. Besides their core business, all types of s have to consider marketing issues, i. e. product design, pricing, promotion and distribution, as far as their individual elearning programmes and services are concerned. For example, a content has to sell his content in terms of a preliminary product to an application. Mostly, they all offer also at least basic support concerning their product

5 Depending on the activities an elearning supplier concentrates on, he has to consider the costs. Regarding the revenue submodel a big difference between commercial and academic suppliers of elearning products can be observed. Concerning academic suppliers of elearning products, the gap between costs of production and selling price is very often subsidized by public organizations or by grants. In contrast, commercial s have to close this gap themselves. Revenues can be generated directly by letting pay the users of an elearning programmes and services. Different revenue submodels imply not only the final users of elearning products as potential payers. Third parties, e. g. education institutions wanting to offer an elearning application to its learners, sponsors or data mining agencies, are possible payers, too. In these cases, revenues are called indirectly generated. Transaction dependent revenues are generated by selling an elearning product respectively by charging fees for specific additional services, e. g. fees for tutoring paid per time or fees for elearning news paid per use. Transaction independent revenues are generated by charging fees for services which are rather unspecific, e. g. membership fees for an elearning portal. It has to be considered that the organizational effort of implementing the submodels differs. It is very important to ensure the organizational fit of revenue and also activity submodel. Moreover the suitability of revenue submodels for specific elearning s must be investigated. Six common revenue submodels in the elearning sector are applicable as well to as to products and services, see the table below. Activity model Full service Content Application Hardware Navigator Services Merchant Other services Sa Revenue model B M Su A () () () () () () () () () () () Depends on the services C () () () () Table 1: Activity submodel/revenue submodel matrix with very promising and possible combinations (checks and checks in brackets, respectively). = computer based training (offline learning), = web based learning (online learning via internet, intranet or mobile communication like GPRS or UMTS), Sa = sale, B = brokerage, M = learners membership, Su = learners subscription, A = advertisement of third parties and C = sale of customers data

6 Revenues by brokerage, e. g., come from fees or commissions for bringing together interested parties and for facilitating transactions. Membership fees are taken regularly for participating in regular elearning programmes and services, e. g. a regular newsletter or a forum. Subscription fees are taken for specific, individually requested services, e. g. information on elearning s in a specific postal area. Advertising messages can be posted by a supplier of elearning programmes and services. Promoting and/or merchandising the elearning programmes and services on the one hand, the supplier earns money by posting advertising messages on the other hand. Advertising can also be the sole source of revenue while programmes and services are offered for free. The sale of customer related information, e. g., to data mining agencies demands the collection of suitable data during the provision process. Legal issues may contradict the collection of user data. Comparing costs for implementing the submodels to realizable revenues according to observable market structures, crucial success factors for sustainable business models for elearning s come to the fore: 1) The submodels of a business model have to be defined consistently. 2) Target group and market segment have to be chosen carefully. Note that users coincide not always with payers. 3) Investments should aim on medium- and long-term profit maximization. The gap between provision costs and selling price should be closed. This can be realized by minimizing costs and/or by maximizing revenues. Revenues must compensate provision costs and exceed them in the long run. Business models based on manifold revenues often are not to prefer to business models with only one typical revenue source. Critical for a supplier is the balance between investments and likely revenues. The following equality for the profit P, combining costs C with revenues R considering the likelihood p, an interest rate i, and dates t k holds: P = R C = m p R n it k it k ( t ) e p C ( t ) e k k k k k = 1 k = m ) Cost reduction often can be realized by concentrating on core activities. They should be aligned with the core competencies of a company and reinforce each other. Cooperations and alliances should be considered ( dynamic business webs ). Strong partners are, besides cost reduction, connected with image aspects of an elearning program or service. 5) Reusability of elearning systems or at least single system components is an important possibility to realize cost reduction. The number of potential users of the elearning system increases by reusing system components. The separation of content and technology is one very promising way to ensure reusability. Extensibility, scalability and sustainability of the system components are associated keywords. These design principles also ensure that opportunities enabled by new information and communication technologies (ICTies) can be realized. 6) Revenues can be earned by different submodels. They generally differentiate in being generated directly or indirectly and in being generated transaction dependent or independent. An elearning should establish different revenue sources which are aligned with his activity submodel

7 7) Due to fast changes in the elearning environment, the adaptivity and scalability of a business model comes to the fore. 8) Successful elearning is based on a coherent, harmonious concept including organizational, social, economical and technical aspects. Depending on the didactical and technical complexity of an elearning system the prerequisites for its use vary. Benefits and costs of an elearning system are combined with its overall complexity. Each component of the elearning system has its proper benefits; by offering additional programmes and services or by embedding it in a comprehensive arrangement, a benefit surplus can be realized. Since the customer delivered value results from benefits and costs, less benefit does not mean less delivered value. Customers are more likely to buy a product with high customer delivered value, basing on lowcost and/or differentiated products combined with high usability. Based on this, customer acceptance is reached and customers can be bound to a company and its products. Customer orientation is required. 9) Third parties are normally interested in sponsoring saleable programmes and services. Branding has to be seen in combination with customer binding, too. Brand recognition is one crucial factor for the success of market leaders in elearning. 10) Very specialized programmes, e. g. flight or military simulations, are often provided by full service s. Although the target group is small, they create high revenues since they are relatively high-priced and come along with hardware and support contracts. 11) For standardized programmes an often observable sustainable business model is the combination of "sale of elearning programmes and services" with content and "software ". This results from relatively low complexity and isolated usability of programmes. This business model is not addressed to a specific target group; it matches individual learners as well as education institutions. Standardized s profit from the large target group and often create high revenues even though they are relatively low-priced. 12) programmes can not only be marketed via networks, but users access and use them online. They allow the provision of integrated net based services. services can easily create additional network effects. From a supplier s perspective, these services can be implemented relatively easy and cost-effective, e. g. economies of scale are realized, and cooperations can reduce costs. programmes allow the application of supplementary revenue submodels like brokerage, membership, subscription, advertisement and the sale of user data. Thus, bares large potentials for additional revenue sources combined with low provision costs. Considering the end user, network costs and opportunities have to be taken into account. Primary reference: Michael H. Breitner/Gabriela Hoppe, A Glimpse at Business Models and Evaluation Approaches for E-Learning, in: Michael H. Breitner/Gabriela Hoppe (eds.), Einsatzkonzepte und Geschäftsmodelle, Physica/Springer, Heidelberg, 2005, pp

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