Changing business model due to external factors

Competition

Changing business models due to external factorsSometimes there is a need to change the business model due to some external factors that we can’t control. This morning I read an interesting article David Linthicum who is known to track the cloud market and write about current trends. Today, he wrote about the fight between Netflix vs. Verizon and how these companies are escalating their fight of who owns the customer and whose fault is it if Netflix content does not stream well. Lets analyze the core business for both parties seen from consumer perspective. Netflix get paid by the consumer to be able to stream movies and Verizon gets paid for the consumer to use the bandwidth. The question that now remains is whether the consumer has the right to restrict the consumer what services they use, how they use it and if this creates a monopoly for Verizon in the service delivery if they force the consumer to only consume Verizon content. The same formula applies to other vendors such as AT&T U-Verse and many others. I am using U-verse in my household and if there is a day when AT&T starts to dictate my consumer behavior, I will be moving on to another service.

It is interesting to see how success always leads into trouble for the one that is successful and in this case it is Netflix. Verizon wants to block the success by restricting and causing an unpleasant user experience for the consumer. It is the consumer that pays the penalty in the end of the day. If you love Netflix, you need to have a service that supports it and you can’t have a service provider dictating your tastes. That is the old-fashioned way and the new generation of users will not tolerate this type of service delivery.

The point in this article is really to provide yet another example of a business model that is evolving and in this case I am talking about Verizon. This organization needs to realize and build its model in a way that enables consumer to see value in its service and not create artificial blocks for its customers. I do understand that Netflix is using Verizon bandwidth, but that is the same with any service that the consumer is going to utilize. Same applies to Hulu and whatever other video/movie service happens to be popular. We have seen so many drastic moves in business models the past 3 years from market leaders going under and new service provides appearing. Just look at the new transportation service Uber. Last week we heard that it is valued as much as $18 Billion dollars. Some cities are trying to block its success to protect traditional taxi and transportation service. There is a business model change happening in transportation business as well and new players will win in the end of the day as that is what the consumers are going to choose.

photo by: mediaexpression

Velocity of Business Models

velocity of business models

velocity of business modelsIt is amazing to see how the velocity of business models is changing the entire cloud landscape. I read  an InformationWeek article this morning about Gartner’s Magic Quadrant 2014 for cloud, its winners and losers and how for example Rackspace business model has change drastically the past year or so. Rackspace used to be the poster child in hosting and providing high value services, but now they are forced to look for new market segments besides the more traditional developer market that they have been aiming mostly according to the InformationWeek article.

The price decrease from larger players such as Microsoft, Amazon and many others have forced Rackspace’s of this world to look at their business model and try to figure out what to do to survive in the ever increasing competition.  It is not easy, no question about it. What is interesting to me at least from a research perspective is the speed of change that has definitely increased during the past years in software and IT business. If you look at service providers that used to manage internal IT infrastructure environments are now feeling the pressure of enterprises moving to the public cloud, whereby the service provider has to reinvent the business model as well.

Rackspace is not the only one that is feeling the pressure. According to the InformationWeek article, Dimension Data was in the Challenger Quadrant last year and has now been dropped to the Niche Player quadrant in the same way as Rackspace. WMware is listed as a Niche player this year, but Gartner cautions that they are offering services to managers that are responsible for virtualization and these managers are different from the business managers that want to build next generation solutions and these are typically the ones that will use public cloud such as Microsoft Azure. This is exactly what I have seen myself when working with both software vendors and enterprises. Enterprises especially were slow to move to Microsoft Azure, but that has really accelerated and even Gartner has noticed the rise of Microsoft Azure market share. This was also reported by Redmondmag where there are only two leaders in the Magic Quadrant, Amazon Web Services. and Microsoft. What is interesting in the new Magic Quadrant is that there are no challengers at all in the quadrant.

I think specialization is really what organizations such as Rackspace needs to do. All of my web-sites are based on WordPress and I have selected a hosting provider that is specialized in providing WordPress hosting only. WP Engine does WordPress only hosting and their site says exactly what I wanted “Hassle-Free WordPress Hosting“. What this means in real life is that they know WordPress inside out, they apply all of the WordPress fixes and monitor the security, take backups etc. Yes, all of this would be able to do on Microsoft Azure, but I would have to do it myself, but I am not in that business. I much rather have a premium hosting provider that I know is not all over the map and based on my experience, they really know what they are doing. I am running a solution on Microsoft Azure that integrates our Dynamics CRM 2013 Online and SharePoint 2013 Online and I will post another blog entry about this exciting integration case.

What is it that we should learn from this blog entry? The first learning is that nothing stays the same, even if you are a market leader or perceived as market leader. The second learning is that the change has definitely accelerated and this is causing bloodshed for the ones that have been resisting the change. The third and maybe the most positive thing is that the change is also creating new opportunities for entrepreneurs that identify gaps in the current offerings. We need to remember that business will continue, but maybe with new players. That is the name of the game.

photo by: jpctalbot

SaaS Channel Compensation

Channel Compensation models

Channel Compensation modelsSaaS Channel compensation is one of the hardest things that software vendors are facing today. If you have a nice traditional software business model with good software maintenance revenue and mature channel, you are reluctant to change or touch it. Let’s dive into some of the difficulties that software vendors are experiencing.

I am currently running educational sessions in SaaS channel development where my audience is given the task to present the business case of a channel partner for a given software vendor. We are using Business Model Canvas to model the business. The task that I am giving to my students is to represent the software vendor leadership team that is trying to recruit a channel partner to become a reseller. The way this is done is to present a Business Model Canvas to the channel partner management team.  If the software vendor management team can’t convince the channel partner of the benefits, then the business model is broken.  I have done this exercise with many software vendors and it is one of the most powerful ways to get the software vendor to think about the partner, not about themselves.

I have bad news for you. There are no exact rules what kind of compensation models a software vendor should have for its channel, but what is known is how to calculate whether a business can be profitable for the channel partner using different compensation models. Why is this? The biggest issue that software vendors have is that many of the processes and tasks that the channel partner has taken care of in the past, have now moved back to the software vendor. One of them is the monitoring the cloud infrastructure, provisioning the solution, upgrading the software etc. In the end of the day, it is all about roles and responsibilities that the software vendor and the channel partner have to agree on. The more the software vendor moves responsibilities towards the channel partner, the more margin the channel partner expects to get and this is very typical in the traditional software channel model. The software vendor delivered the CD or download to the channel partner, but in the new SaaS world, the instance is provisioned by the software vendor and the channel partner becomes the “middle man” between the end user customer and the software vendor. Let’s review some of the industry “standard” commission models and some implications around them:

SaaS Channel Margins

If you look at the percentages, the one that is missing is the typical 10% which is really more of an opportunistic percentage that anybody will give out regardless of business model. If you call a software vendor and tell them that you have a lead, they will pay you at least 5%, but 10% is not uncommon.

When you add an additional 10% (now the total is 20%) it adds more interest to the channel partner. The software vendor can not expect any active sales with this percentage and can’t really ask the channel partner to do any serious account management. This is mainly lead generation activity and typically there are other products that the channel partner is reselling as well.

If we add an additional 10 % (now the total is 30%), this is still too small to be able to build an organization and requires the channel partner to have many different products that they are reselling. Larger reseller with deep pockets to build and maintain an organization, 30% is doable.

When the percentage is 40% or more, the software vendor can expect investments from the channel partner and reporting responsibilities on pipeline to the software vendor channel account manager. This type of percentage is also doable for smaller channel partners that want to build a business around the solution and build a dedicated team.

The biggest surprise that most software vendors are facing when we discuss about the roles and responsibilities is the amount of additional work that the software vendor has to take on. In a pure SaaS channel scenario, the border of responsibilities are blurred and the end user customer ends up in many cases in direct relationship with the software vendor. This has been a big no-no in the past for channel partners as they have wanted to “own the client”. However, the reality is that the cloud is changing the roles and channel partners have to make changes in their models as well. This is a behavioral change that is taking place and can be compared with the changes that are taking place how software sales people are compensated. Nobody wants to change the way things were in the past, but the market and competition is forcing the change and the ones that keep doing the same thing as before, will eventually be on the loosing side. We have already seen this in many organizations.

Before talking about channel margins, the software vendor has to decide what kind of role they expect the channel partner to play and then define how much they can afford to give a way of the margin. Some software vendors have even decided that a channel is not an option in their new business model and this is of course an option if the company has the resources to build its business with its own direct sales and internet marketing methods.

 

 

photo by: woody1778a

Is the cloud killing your business?

Is the cloud kiling your business?

Is the cloud kiling your business?Cloud adoption is accelerating and it is also in the process killing many businesses. I read today an interesting blog entry “Are Cloud Vendors Cutting Out the Channel” and this article explains in great detail what is happening on the marketplace in respect to channel partners including value-added resellers (VARs) and MSPs. I remember vividly when Steve Ballmer suggested strongly a few years ago that Microsoft partners should really start adopting the cloud and a couple of years later, he stated that it might in fact soon be too late as the competition is already doing it. Pure channel partners with a business model to resell without adding any value will disappear from the markets.

I have recently talked to quite a few channel partners and the common message that I heard was that the markets are getting tougher and having a business without having a specialty or vertical experience might in fact kill the business sooner than later. I am seeing this also among software vendors that are refusing to adopt the cloud model. There are thousands of new pure SaaS entrants that want to be new market leaders in their domain and many end user organizations are refusing to go with the old-fashioned model where IT departments are the only part of organization that will be buying software and services. Based on the blog entry today, Tiffany Bova from Gartner concludes that many IT consumers are now “front-office buyers” from departments such as sales, marketing, finance, and human services. These departments are bypassing the centralized IT and this type of “uncontrolled” buying pattern will continue going forward in my opinion.

Microsoft management has been vocal to its partner network that every partner should by now be looking at cloud transformation and Kevin Turner (Microsoft COO) expressed his concern during Microsoft Worldwide Conference in Houston (July 2013) that only 3 percent of the company’s channel network was actively selling cloud services and this included products such as Windows Azure and Office 365. These numbers will change with time and I am convinced that there will be many partners that will experience the pressure the hard way. If the channel partner starts too late with the transformation, it might become irrelevant and have the wrong type of personnel with skills that do not match what the market wants. I am sure that somebody reading this blog will not agree with me, but I have seen already now quite a few channel partners that do not know what to do going forward. There is a real need to reboot the business model and rethink how the company will be surviving in the future.

I forecasted a couple of years ago that Sony will not survive the competition of e-books and devices due to many factors, Amazon Kindle being one of them.  A few days ago, I read that Sony will be exiting the business. Sony had its own e-book format and I was one of the ones that spent hundreds of dollars in books, which now will be converted to Kobo Android devices. I have no intention to buy any new devices. The reason I am sharing this is that even large organizations are forced to change the business model every now and then and consumers make wrong bets on the horse that they should be riding.

When I look at the global markets and what is happening around us, the change has accelerated in software domain and it has taken many by surprise. I would not be surprised that we hear bad news from many large industry dominant players in the software space that the transformation into new generation solutions has failed and consumers and businesses have adopted technologies that are more nimble and easy to use. It is very dangerous to ignore the trends and even more dangerous to think that market leadership means anything without hard work to maintain it.

Complexity of Channel Development for SaaS Software Vendors

Let's have some complexity

Let's have some complexityChannel development can be complex if you have a SaaS solution and you want to ensure that your growth comes through the channel. I have spent my past 20 years involved in software channel development on many continents and I have seen many different variations in both failure and success. I think the biggest obstacle for many software vendors to become successful with their channel is when they ignore to recognize and understand the business model that their channel partners have or are building. SaaS software vendors assume that their solution is the only one that makes sense, but a typical channel partner have tens of other solutions that they can represent.

What SaaS vendors forget in many of the cases is to realize that a channel partner has to make a sizable investment in personnel, marketing, support and any other functions that the company has to have to become successful. What it means in real terms for the SaaS vendor is that a channel partner is making a considerable investment on behalf of the SaaS software vendor. That is what the SaaS vendor is really asking for. Invest in us, and we will then pay you your share of the success. If you do not sell anything, you will be left with your investment. I think every Channel Account Manager (CAM) making outbound calls to potential channel partners need to first figure out how the channel partner can make money and how they can help their business to become better. If the CAM focuses on the product/solution and not on the channel partner business, the relationship will never take off. I have experienced this so many times during my career and every relationship that I have put time and effort to, typically has paid off.  Today, I got a call from a document management software vendor and the CAM not only presented his case well, but gave the reasons why I should take the next steps in the discussion. It takes skills to do what the CAM did and he was focusing on my business, not on how good his solution was technically.

SaaS Channel AlignmentOne way to understand the channel partner is to create a Business Model Canvas for both the channel partner and the SaaS software vendor and then analyze them side-by-side and see if there is business model alignment. What it means in real terms is that each side has an interest to do business, both parties have an opportunity to make money and become successful. I have run workshops using this type of approach and the typical reaction from the software vendor is to realize that some of the foundational thinking has been based on wrong assumptions. It is important to realize that this has nothing to do with the skills of the software vendor, it is just a perspective that they never had and thought of when setting their channel strategy. The key is to help to build the “story” for the channel partner and part of the story is also to identify how your solution fits in the other solutions that the channel partner might be representing. If you want to become successful with your channel, stop focusing on yourself and put some time focusing on the channel and how you can make them happy and successful.

photo by: futureatlas.com

Are you renewing your your business model before it is too late?

Business Model Change will cause many organizations to loose market share
Business Model change will cause many organizations to loose market share

Business Model change will cause many organizations to loose market share

Many organizations are feeling the pain of spinning-out-of-control with their business model. I have spent the last few weeks contemplating on everything that I have learned the past two years in software technology and I have to say that it has even got me off guard how quickly things are changing for companies. Organizations that used to have a solid business model are running into huge difficulties, and mostly not because of bad products, but more or less of not having understood the market correctly. Dallas Morning News wrote about Nintendo’s surprise profit warning today where they say that the game console Wii U has sold 70% less than expected. That is a huge miscalculation from Nintendo, but the issue is not just the console, it is that the market has moved on to games on smart phones and Sony and Microsoft has taken the market with more innovative products that appeal the current gamers. Nintendo is not on their own, we have seen this with many other sectors/players. Who would have thought 3 years ago that BlackBerry market share would drop to be almost non-existent?

What I have also seen happening is the struggle among system integrators and the current business model that is starting to fail them. I have had the luxury to serve not only software vendors and system integrators, but also end user organizations and what I am seeing clearly is an acceleration of interest in providing more cost effective, flexible with full support for mobility with a reluctance to customized and tailored solutions. This has a tremendous impact on system integrators specifically. My guidance to end user organizations is to look at the ecosystem players to identify the best-of-breed solutions, ensure that these solution vendors have defined an API strategy that enables seamless integration between modules without having to do everything from scratch. This is of course not something that many system integrators want to see as many of them have based their survival on selling hours, and doing it with long-lasting projects. The problem with this approach is that many of these long-lasting projects fail as smaller system integrators do not have the skills to manage projects and if the end user organization has negotiated a good contract with penalties, the system integrators ends up “paying for the solution”. I have seen this many times and specifically and this does not have a good impact on any ecosystem in the long run. This is one of the reasons why smaller system integrators have been “swallowed” by the larger ones as system integrators need scale.

Another way to differentiate from the masses is to be very specialized in a given vertical domain (or functional domain) where  you can command the pricing for your delivery. This is something that larger SIs have difficulties with as their scalability comes from using offshore and in these scenarios it is not easy to maintain highly skilled vertical experts where the client is prepared to pay a higher price.

The problem that I see in the market does not apply only for system integrators, there is a huge pressure mounting for traditional software vendors that are still making good money, but with new and exciting entrants popping up from different areas such as Silicon Valley, it is evident that many software vendors will have the same path as Nintendo and BlackBerry. I do not want to sound pessimistic or doom organizations to fail, but I have seen the signs of radical transformation and this is based on my numerous hours each week tracking the market, studying software and working with clients. Just look at the valuation of Dropbox from last week where the investment was based on 10 Billion dollar valuation. It is amazing to even think about this, but I think it is logical. It is a sign from the marketplace that things are changing and valuations are based on what people want and see as being the next wave of things.

Vendor ecosystems are also making huge bets on the next wave of computing. Microsoft is adding data centers around the world like recent announcement of Azure data center in Brazil. IBM is betting their farm on IBM Watson that is in the cognitive computing space and IBM’s acquisition of SoftLayer will increase the competition in the cloud space especially now when IBM announced that they will invest 1.2 Billion in data centers around the globe. What this means to me is that the acceleration of software solutions to the marketplace using new modern ways. This means that it is not good enough to “repurpose” what you have, but  you have to think about how your solution is going to be consumed and how it will fit into other ecosystem players. Think about Dropbox for example. The concept is very simple what they do and there are a myriad other players doing the same thing. They have understood the role of ecosystem and their technology is embedded in every app that is relevant and that has to include document sharing/distribution of some sort.

photo by: PSParrot

What is all this talk about enterprise app stores about?

Iced tea at Georgia's, version 2We are moving into app economy and that is happening very fast. There are many predictions on the marketplace on this trend with Gartner forecasting that 25% of enterprises will have their own enterprise apps stores for managing corporate-sanctioned apps on PCs and mobile devices – all this within 4 years. Others are saying that this is already happening and it won’t take four years. Whatever the case is, ISVs needs to pay attention to this as CIOs in large organizations need to take control of the situation with deployed apps both in tablets as well as smart phones.

I think there is a big misconception in the word “app” when thinking about business models. Many relate an “app” to small apps used by smartphones with either free or almost free business model. These are mostly consumer-focused apps, but the trend is that consumers will be using their smartphones to conduct business using apps, but these apps will be connected to backend cloud solutions that bring the scalability and logic to the game. Look at an app as just the UI to full-blown solutions where end users can run their business with small devices or tablets and use the cloud infrastructure as foundation.

The forecast for App Economy is huge and according to APPNATION, App Economy is going to reach $151B by 2017. What it really means for ISVs and any software developers organization is that they need to really get a better understanding how app economy is going to impact them going forward. CIOs will be asking questions how an ISV will support enterprise app stores and how the ISVs will support these app stores with their solutions. I am a bit amazed how little there is discussion off apps in our workshops but I think this is going to change going forward. Based on the study by APPNATION, the majority of mobile device owners under 45 years are using video apps and this supports my previous blog entry of eLearning.

There will be a need for both consumer-oriented and enterprise-oriented apps stores and it will be a space that will bring new opportunities for many players. The competition in this space will be based on innovation of solutions that people want to use and the use is measured on how much content the apps consume from the cloud. It is not rocket science, but it is a new world that people need to get used to.

In the end of the day, apps will have to be monetized in one way or the other and that is where the subscription economy comes to play and organizations need to understand how to price their solutions and all this based on value pricing.

Have you modeled your digital business based on traditional business models?

flickr featured in metro toronto {notes}Some organizations are trying to move into the digital world, but keeping their traditional business processes intact. I run into one of these again yesterday. I have been contemplating of discontinuing my digital Wall Street Journal subscription for a while as I feel that it has become a bit weak on news and I can get most of the news from other sources as New York Times digital subscription.

Last night, I decided finally to pull the plug and go to the Wall Street Journal web-site to remove my credit card information as the charge has been month-to-month and I knew that my next charge would be 28th. After 30 minutes I gave up as I could not find where to “unsubscribe”. As a final push, I was pretty sure that others might have had the same issue, but of some reason all of my searches went to a page that said “just remove the automatic billing from your account”. I did not find that place… anywhere…. Finally I found somebody else having the same issue and the only way to discontinue is to call them and talk to a physical person. Not even an email would do it, you have to call. What on earth is WSJ thinking? If they want to move into this century and make the customer experience convenient, they should let me discontinue anytime without having to talk to anybody and without them using my time to figure out how to make all this happen. I am sure that newspapers are not swimming in money nowadays, but alienating clients this way does not make it any better.WSJ.com should change their  business processes to work in the digital era.

Do you think I will be going back anytime soon to subscribe if the unsubscribe is so hard? I do not think so. What they are doing to themselves is exactly the opposite. They are trying to hold to the clients in the old-fashioned way by making the process of unsubscribe difficult and unpleasant. What WSJ end up doing with people like me is to push us away even further as they just spent my valuable time for their business process that does not bring me any value at all. The unsubscribe process should have taken me less than 30 second to do. Login to the web-site, go to account settings and remove the recurring billing. That’s it. When I finally got to talk to a person at WSJ, he wanted to connect with me to another department that was busy so he was gracious enough to do it himself so I would not have to call next day or spend any more time on this thing.

Funnily, another similar incident happened today with another company in the bring-and-mortar business. My son has had a pass to 24-hour fitness for a few months and now as he moved to a new city to study at a university, we wanted to cancel his membership. It was very easy to get the membership, but a hassle to cancel. First of all, they did not let us to cancel it at the gym where we signed him up, they told us to call a  number to do it. Guess what… that wasn’t easy either… They said that even if I was the one that did the signup for my son and my credit card is used on the account, it would have to be my son to cancel it.  After serious discussion, the person took off my credit card from the profile…. This organization is also keeping its processes in the brink-and-mortar age and it will take time for them to realize that the new generation of users will not tolerate this kind of waste of time that they are causing their customers. Yes, I do understand that by making this difficult for people, some just ignore the hassle and keep on paying.

What I truly believe is that I should be able to be sitting in the cockpit and deciding where my monies go if I have subscribed to something and specifically if I committed things online without taking to anybody, I should be able to discontinue things without having to go through a process that does not bring any value to me as consumer. I think I have to put a new standard in my family when subscribing to something. I will ask or figure out how to get out from the commitment before committing to anything.

Have you had similar experiences? I am sure you have. If you are building a business where you serve end users, think about what the end user experience that you want your solution/service to bring to the consumer. Do you want it to be appealing and a pleasurable to use? I you do, you should not implement processes that I just gave examples of.

 

Does your channel partner program play a strategic role in your cloud business?

La Villette - 22-08-2006 - 19h32In preparation to my upcoming workshops and seminars, I am updating myself on multiple different things in respect to ISVs (independent software vendors) and one of the key drivers based on the workshops we have delivered the past 2 years is by far the question how ISVs should align themselves with channel partners. Today when doing some reading, I run into an interesting study by Forrester Consulting (commissioned by Avangate, September 2012) where 79% of the researched ISVs (53 US and UK SMB enterprise software publishers) feel that their channel partner program is of strategic importance.

One of the key concerns that ISVs had in this study was that channel partners are ill-equipped in changing their business model from front-loaded licensing model to a recurring model where partners are incented to renew customers as to acquire them. As much as 49% of the ISVs where concerned that channel partners are not going to be able to support new or evolving business models.

Another key finding in the study was that smaller software vendors are ill equipped to expand to new markets and this mainly due to support-related issues. Channel partners expect ISVs to help in marketing and generating demand, but smaller ISVs are typically not funded to be able to support this type of activity.

The study revealed many other factors that the channel partners were concerned about such as channel partners now been able to support end customer over the lifetime of the contract, inadequate efforts in renewing the end customer contracts and overall bad visibility over the end user customer. The roles are responsibilities are definitely changing in respect to ISVs and channel partners and this I have had the opportunity to run a bunch of channel alignment workshops where we map the ISV business model with the channel business model and if there is any misalignment between these, the results are typically miserable.

ISVs have a tendency to dream that their solution is the only solution on the planet that matters, but unfortunately there are others with the same belief. I like to use Business Model Canvas in the channel alignment exercise as it portrays extremely well potential issues that ISVs have to deal with such as giving the opportunity for the channel partner to become profitable. That is easier said than done.

Pricing alone does not make your business model

Most software vendors (ISVs) struggle how to price their solution, specifically when moving the cloud. Many vendors are trying to “retrofit” the current model to the new cloud model, but this just does not work. You just can’t make your pricing to reflect your current business model where everything is based on higher cost structure such as Cost of Customer Acquisition (CAC), cost of having a different operational model in your organization such as support, marketing etc.

When I look back at all of the workshops that I have done in the cloud transformation field, each and every ISV has had to recognize that something has to change in the model and we use the Business Model Canvas to do a simple “sanity check” what kind of things the organization has to change to be able to make this transition. I am not talking about organizations that are “born in the cloud” but  organizations that typically have a successful traditional software business with good but declining maintenance and support revenue. Many of these organizations are now forced to rethink their current business model as smaller and nimbler organizations are “eating their lunch”.

This does not impact only ISVs, but also Systems Integrators (SI) that are used to the “big ticket” development projects and many end user organizations are tired to the ongoing and inflexible “platform” that has been created. This comes back to my previous blogs where I recommend organizations to go to the roots and identify what is “good enough” as a solution for people to be able to manage their business without having to deal with monster projects.

In the end of the day, pricing is just one small piece of the overall puzzle and therefore it is easy to say that without value, people are not willing to pay and if you do not bring value, your overall business model will never work. The Business Model Canvas has 9 building blocks and if one of these building blocks equal zero or is dysfunctional (some are not needed like channel), then the entire business will fail sooner or later. Check out the Business Model Canvas Structure that has been defined by Dr. Osterwalder:

Business Model Canvas

I am a believer in value-based pricing with the recognition that there are competition out there that will eventually force you to evaluate the pricing levels. Just look what is happening with Amazon and Microsoft on the cloud infrastructure front. It is a bloody battle but this is of course great for the consumers and businesses as the cloud becomes even more affordable and non-brainer as development platform.