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Social Media and Business Models

Alexander Osterwalder

A lot has been written on the value of social media for businesses (Blogs, Wikis, Twitter, Facebook, etc.) - some of it relevant, some of it hype. I will limit myself to mapping out three business model areas where social media can have an impact.

Social media refers to a category of online media or platforms that facilitate discussions, participation, and sharing of various forms of content in a very convenient way.

Technologies in this area include blogs, wikis, social networking platforms, micro-blogs, and other platforms that facilitate sharing user generated content.

Players - and service providers - in this arena range from Facebook (social network) and Twitter (microblogging), to Youtube (user generated content), LinkedIn, Wikipedia, Flickr, and many, many more.

In this blogpost, I'm less interested in the technological possibilities of social media, but ask myself how these tools can be instrumental to your business model.

I singled out three areas visualized in the Business Model Canvas image below: co-creation, marketing as conversations, and open innovation.

As a modern organization, we have, of course, integrated all three of these areas into the production and sales or our bestselling book Business Model Generation (more at the end of this post)

A) Co-Creation

Understanding and satisfying customer needs is the basis of any enterprise. So what could be better than integrating the customer into the product or service development process. The question to ask is:

    How can social media enable your customers to contribute to value creation?

On the extreme end this means user generated content. Threadless, for example, is a community-based t-shirt company that allows people to submit new t-shirt designs that can be discussed and voted upon on the website.

Less extreme examples are which allows buyers to review and discuss products, or eBay, which allows the community to evaluate sellers. All this contributes to better value propositions based on customer contributions.

B) Marketing as Conversations

Don't you find it annoying when somebody desperately tries to sell you something (remember that last phone marketing call that ripped you out of your deepest concentration)? Well, hard selling is dead - or at least it's a dying species. The question to ask is:

    How can social media enable your customers to become your best advocates/sales people?

Social media is transforming the way companies can market their products and services. The authors of the cluetrain manifesto nicely put this when they state that "markets are conversations".

In a nutshell, this means that your most valuable sales force is your existing customer base. You will probably argue that this has always been the case.

However, what has changed is that we increasingly rely on our friends and peers to make buying decisions - not company marketing.

Hence, you must focus on existing customers as channels to reach their friends and peers. This is where it ties back into the above point: customers that have participated to co-create value are more likely to become your best advocates.

C) Open Innovation

Increasingly organizational boundaries are becoming fuzzy. Companies understand that they need to open up to outside ideas, talent, and patents to leverage their own resources and activities. The question to ask is

    How can social media enable your organization to integrate ideas and knowledge from outside its boundaries?

Open innovation is a concept that my friend Henry Chesbrough has eloquently discussed in his books Open Innovation and Open Business Models.

Social media has given open innovation another boost. It allows engineers to easily reach beyond company boundaries and it allows R&D departments to effectively collaborate with outside scientists across the world.

An example that I particularly appreciate is the software company Red Hat.

The organization's core product, Red Hat Enterprise Linux, is deeply engrained in the freely available open source operating system Linux. A software which could have never reached its current levels of success without the Internet and social media.

Business Model Generation

The book is actually the reason why I wrote this post. Last week I asked my 2'800+ followers on Twitter to retweet (i.e. pass on the message) that we needed help in promoting Business Model Generation in order to improve our Amazon sales rank.

This would help us in our negotiations to sell our self-published book to leading publishing houses. In the minutes and hours that followed 16 influential Twitterers helped us regain a decent sales rank in the bestselling management books on

A special thank you goes to the following Twitterers

@ajenkins @emenel @essen2punt0 @joemmanuelponce @leanbot @LeilaOliva @lylebclarke @michaelscher @NohaMahmoud @petdekoning @robdebob @skfreidel @StefanHagen @stuntspeaker @StUpPal @ThinkWay

The reason why people were willing to help us promote the book among their friends and peers is simple. We had 470 people participate as part of the book project - they helped us co-create the book on the Business Model Hub and got their name in the book as a reward. These participants are the best advocates one can imagine. A warm thank you to all of them.

Many of the above Twitterers stem from that group, others have joined the conversation as fans later on.

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