The following content isprovided under a Creative Commons license. Your support will helpMIT OpenCourseWare continue to offer high qualityeducational resources for free. To make a donation or toview additional materials from hundreds of MIT courses,visit MIT OpenCourseWare at ocw.mit.edu. BOB JONES: I was workingin this consulting firm. I got bored. I wanted to go starta business, and I said it’s not likeI’m in my dorm room. It’s not like I haven’tdone this before, so I need to be sensibleabout it this time. Because I’ve hadstart-ups that succeeded and start-ups that failed, andI like the successes more than I like the failures. So I interviewed a bunch ofpeople, scientists, marketing types, et cetera and cameup with about 15 ideas and said that’s too many.I need some filters. The first filter was I needto solve the right problem, because I’m goodenough at operations that I’m going tohit the target. But it’s embarrassing ifyou pick the wrong target. So my definition ofthe right problem is that you would cheerfullypay for the solution and you will tell your friends. So I can lower yourcholesterol with a nutritional intervention. It’s not the right target,because you don’t care. You’ll forget to take it, yourmedication, most of the time, and you’re never going to talkabout it with your friends.And I can’t afford to educateyou, because I’m a start up. If your back hurts, ooh, that’sa whole different matter. Because if I can helpyou with something that makes yourback stop hurting, you will cheerfully pay for it. You will tell your friends. And if furthermoreI can set it up so that when you stop taking mystuff your back starts hurting, that’s the right target. Second filter, I have tobe able solve the problem. So if I had an enzymethat metabolized gluten, I would be speaking toyou today from my yacht. So that one’s off the table. That killed all butabout five of the ideas. The remaining filterwas somebody besides me thinks this companyis a cool idea and will buy it ifI don’t screw it up. So the last thing I did wastook the remaining ideas and called some senior execsthat I was friendly with, had companies thatcould, well, one day buy the business– Procter& Gamble, Johnson & Johnson, Pepsi, et cetera– andsaid, I’m having some ideas.I’d like to hear yourthoughts on them. I’m not selling anything. Well, I knew youwere up to something. What are you doing? And when I wouldoffer an idea, if I would hear crickets and–OK, on to the next idea. That’s how we arrived at sleep. There’s somewhere between 50and 70 million people in the US that have trouble sleeping,and they complain about it. And nobody has to tell themthe benefits of a good night’s sleep. Everybody just feelsbetter, and there are nutritional interventionsthat will solve the problem.And the companiesI talked to said if you don’t screw this up,we’d like to be first in line to talk to you inabout two years. So with that as background,I had several businesses in the past where wemade nutrition bars and sold themthrough clinicians. So my business model waslet’s make a nutrition bar, and let’s sell itthrough clinicians. But I talked to anumber of consumers and said, how do you feelabout eating something at 10:00 or 10:30 at nightthat will have you asleep a half hour later? And most of them said I don’tfeel so good about that. I don’t like the ideaof eating something. OK, what would you like? Well, you know those little5 Hour Energy drink things? Make me one of those, exceptwith the opposite effect.Oops, looks like I’m inthe beverage business. OK, well so maybewhat I can do here is find the clinicians thatyou are seeing about the fact that you’re havingtrouble sleeping, and I can do what I did before. My business model will be Iwill call on the clinicians. The clinicians willsay, this is fabulous. I will tell my patients. The patients willwant to buy it. One day I will call Walgreens. We’ll stock it there. We’ve done this before.You may remembera little while ago I said I had a really bad fiveor six weeks where everybody told me no. I called doctors, nurses,physical therapists, dietitians. I went to assisted livingfacilities and retirement communities and talked toresident care directors. And without exception,I was told no. People don’t talk totheir doctor about sleep. They talk to their doctorabout their ear ache. If they do talk to theirdoctor about sleep, the doctor runs forcover, because he doesn’t know how to solve the problem. And he’s been trained that thisis a symptom of something else. You are depressed andyou need a therapist, or you have sleep apnea and youneed one of those Darth Vader devices that blowspositive air pressure and it keeps youfrom having apnea.So let’s refer you tosomebody else next. So nobody was willing totalk about our intervention. This was the point–at this point, we had made ourminimum viable product, and we were offeringfree samples. And they didn’t wantit even if it was free, so clearly the businessmodel was flawed. We weren’t going to be able toget it into Walgreens or places like that if we couldn’tfind any customers. And the route I had chosento get to the customers was not working. Nevertheless, therewere people who were calling us back and buyingour minimum viable product. The one that looksbad tastes bad, and because the littlemanufacturer spilled a little solution on the threadsand it dried into something like superglue, you need avise grips to get the cap off. People were buying it anyway.Clearly we hadsomething there, so it was time to address the businessmodel of what is it we have, and to whom should we bemarketing it, and how. Along the way I ended up in aconversation with Whole Foods. Because when I was runninga soy foods company I sold a lot of tofu tothem, and I knew them. So I thought, oh, OK. We’ll put this together. We’ll sell itthrough Whole Foods. But who is our customer? We did a lot of work,a lot of interviews, got told no somemore and concluded that there are a numberof niche markets here that we could work with. But the one where we were goingto start was working moms, and not working moms who haveinfants or toddlers at home. They expect to betired, and they want to be able to wakeup if the baby’s not sleeping through the night. So forget it. But once their kids arepreschool, kindergarten, or older, they’ve gotthe hardest job on earth. Most of them havehusbands who don’t shop, don’t cook, don’t pick up theirsocks, so they’re hardworking.They’re daytime professionals. They’re fussyabout what they buy and what theybring in the house. They do shop at Whole Foods. It looks like theright market for us. So in my conversationwith Whole Foods, I was pretty directwith them and said, look, I can live along and happy life and never put myproducts on your shelf. The moral of the point, Idon’t want to be on your shelf if it doesn’t make sense. So really the purpose ofthis meeting in my view is to figure out willit ever make sense and if so, what’sthe trigger point. And the answer to that waswhen we see enough reorders through Amazon to showthat there’s a there there, come back and see them.Keep them posted. They’ll remain interested. We are after all friends,and it’s a provocative idea. So the revised businessmodel now having gone through thispostulate the idea, develop a minimumviable product, shake it down inthe marketplace, identify the target iswe’re reaching working moms via mommy bloggers. We’ve identified 100of them, some of whom have as many as100,000 followers. There’s also all mannerof social media ways to reach working moms. So working moms,we’re reaching them. We’re selling the productthrough our website which will be a minusculepercentage and through Amazon until such point as we haveenough of a reorder stream to make a justifiableapproach to Whole Foods and other retailers. Shortly after that, wehope to sell the business. So Rich, that’s sort of animpromptu summary of how our business modelmorphed and pivoted, and it’s a work in process.So if you don’t have anythingelse to do, wish us luck. AUDIENCE: [INAUDIBLE]. BOB JONES: Thank you. PROFESSOR: So thereason I wanted Bob to tell you aboutthat is to reemphasize this is not just anacademic exercise. He told you about howhe succeeded before. He told you how hefailed the first time. He did somethingdifferent the second. He took the second modelinto the third market, which turned out not to be theright thing for that market. And he’s reinventing it. And it’s been aninteresting thing. So what we say up here,we’re not giving you a formula on how to do it. We’re trying to get you to thinkabout these kind of issues, and this is an exampleof an in-process thing. And it’s been aninteresting route. Bob, any other comments orpeople from the audience? BOB JONES: It’spractically a reality TV RICH KIVEL: What weresome of the learnings? It sounds like you modifiedthe business model throughout.There were learnings[INAUDIBLE] You integrated different approaches. What were some of the learningsthat came out of that? What would you havedone differently if you wererelaunching it today? PROFESSOR: Rich, is your mic on? BOB JONES: OK. Rich’s question,for those of you who may not have heard itfrom the back of the room, was what were some ofmy learnings so far? And if I were to relaunch thebusiness today, what would I do differently? And I think that mostentrepreneurs are stubborn. I’m no exception to that. Well, you almostnever tackle something that’s going to be easy. And I have a guy on mybusiness advisory board who will give me 10 reasons whyevery idea I have will fail, and why every suggestionI make is dumb. And it’s quite useful becauseeight of the 10 things he’ll rattle off, I’vethought about and addressed. And two of them I think, ooh,I’d better think about that. But you have to be willingto walk through walls because it’s hard.And most of you will fail. I did. You’ll just need todecide that as a jockey, you need a different horse. But I found somethingthat worked. And I went out andproudly talked about it to the investment community. And then I tried it. And I tried it. And I tried it. And it didn’t work. So one of the things Iwould have done differently, were I to do itagain, would have been to test the idearight from the get-go, rather than just assumingthat because it had worked in the past, that this marketand this group of people was like the last market andthe last group of people. PROFESSOR: That’s great. BOB JONES: Yes sir. AUDIENCE: It seems likemost of it is [INAUDIBLE] BOB JONES: I don’t reallyknow how to do that. What I like istranslating science, which is somewhere nearto the leading edge, into something thatconsumers can buy.And I don’t want to getmetaphysical with you here. But I think there are somereally fundamental things wrong with ourhealth care system. And we don’t often enoughprovide consumers with stuff they can buy, which works,without a prescription. And I like being in that arena. And I like being able tounderstand what consumers want and translating somefairly serious science– it’s pretty sophisticatedbiochemistry in our little beveragefor sleep– into something that we can describe withoutgoing into all the science.So I actually don’t know. I don’t reallyhave any experience selling the one-off stuff. So with that as background, I’mgoing to duck your question. I don’t know. There was maybe one more. Yes, sir? AUDIENCE: [INAUDIBLE] BOB JONES: We had threeingredients in the product. And there were publishedpapers on the action of each of the three.So sucrose getsmetabolized here. Protein gets metabolized here. And gluconeogenesis runs throughthe liver, blah, blah, blah. And uncooked corn starchwith its complex double bonds takes a far longer periodof time to metabolize. And we would show thepapers to the clinicians. And they’d say, wellthis is a no-brainer. First of all it’s just a food.So it won’t hurt you. It costs $1.00. Might help. Go for it. That was all theresistance we found. There were maybe3% of the doctors out there that wecalled on who said, when you got a clinicaltrial on it, call us back. And we did in fact eventuallydo a clinical trial with the JoslinDiabetes Institute. It did what it wassupposed to do. But as an entrepreneur,I was unwilling to wait. Let’s get in the market. My measure of whether or not itworks is, do they reorder it? PROFESSOR: Hey. Thank you, Bob. [APPLAUSE] OK, so now segueingfrom what Bob told you about he’s doing to findcustomers and everything, the question againis business models.And tonight we have Rich Kivel,who I’ve known for many years. Originally an internet ITtechnology entrepreneur, moved into themedical area and bio, and more recently into thefinancial technology area. So Rich Kivel– hisbio is on the website. And his topic isbusiness models. Take it away, Rich. RICH KIVEL: Thank you very much. Great. Can everybody hear me OK? All right. It’s great to be back here. I’ve had the privilege of doingthis class with Joe for– he’s invited me back for many years. I won’t say how many,but many, many years.So it’s also great to be here,being the 25th year of it. Has anybody here actuallyattended this class before? All right. That’s good. So I could tell someof the same jokes. And I will actually get laughsout of them. [INAUDIBLE] So first of all, Iwant to start off because I love social media. And I’m going to includeyou in my social media life a little bit. So everybody hereuses Twitter, yes? Or most of you? That’s our hashtag. So on the count of three, I wantyou guys all to cheer and yell in a congratulatory way forJoe celebrating the 25th year of this class, all right? One, two, three. AUDIENCE: [CHEERING AND YELLING] RICH KIVEL: You guys. I love it. Joe, that is live. That was outstanding. So what I get to talk abouttoday is actually kind of fun. It’s business models. And unlike a lot ofaspects of business, business models themselves,they change all the time.And as a matter offact, they become an incredibly intricateand important part of how a business succeeds orfails, which is something new. As I’ve worked around MIT forthe past 15 or more years, so often theresearchers, scientists, engineers that I speak with areso focused on their product, their technology,the intricacies of a particular design,that they actually don’t think about the customer. And they don’t thinkabout how it’s ever going to get to the market. They’re more interestedin can they actually get that new particularengineering-physics combined technology to do somethingthey never did before.Can they get thatparticular molecule to operate in a certain way? Or can they get thatthin film polymer to elude a particular drug? And that’s fantastic. But very often weforget about how do we actually impact theworld with our technologies, whether it be internettechnologies, applications, hardware, software,biotechnology. So business models are reallythe foundation of that. And very often that’sleft to business students. And one of the wonderfulthings about MIT is that there’s thisgreat convergence, where business studentsactually have discussions with engineers and scientistsand researchers and vice versa.And that doesn’thappen everywhere. So we take it for granted here. So I’m very privilegedto come and talk to you about business models. My background, as Joe saidis– I started my career in technology, andthen moved very much into bioscience, biotechnology,bioinformatics, diagnostics. I spent about the past10 years doing that. I took two years off, andwas focused specifically on the financialservices industries. So I worked for a very largefund in Westport, Connecticut. Now back in the Boston area.And now focused again more onnot only funding and financing of early-stagedevelopment companies, but also in identifyinggreat intellectual property and technology, all-aroundscience and research. So today’s talk is going tobe about business models. And I’m hoping to sharesome insights with you. Essentially this is howI think of these things. We start off with a wholebunch of disparate data points. We call that information. Hopefully we begin toconnect those dots. It’s almost like apointillist painting, where you have thousands of dots. And then slowly asthey come together, they start to connect. And then ultimately outof that, you have wisdom. You have an image thatis created out of that.What I hope to dotoday is provide you each of those three–information, knowledge, and wisdom. So let’s start off witha simple foundation. And the foundation is tosay this– many definitions of a business model exist. The one that I like the mostis simply this– a method by which a firm usesits resources– cash, technology, its people– tooffer its customers better value than its competitors,and make money doing so. It tells who pays how much,and how often do they pay. For those of youthat are looking to start companies, or evenbegin to work for companies, especiallyearly-stage companies, the question that theboard, the investors, the new employee coming inthe door are going to ask is, what do you do? Who do you sell to? And how do you make money? It’s pretty simple. The how do you makemoney part is often the challenge formany start-ups.They have very cool technology. They think they knowwho’s going to buy it. But they have noidea how they’re going to get it in thehands of those individuals. Are they going tocreate a website? Are they going to join–sign on to the app store? Are they going to go retail? Are they going touse a distribution channel or partner? That’s the big crux of it. So that’s the question you haveto continue to think about is, how do we ultimately make moneyfrom what we are developing? So what’s changeda lot in the way we operate in this world isthe way that companies operate, the way that companiesare formed and developed. And this chart is not reallymeant, in great detail, to be read.But overall, whatyou have here is an example of how over time, youhave points of history where, as industriesdeveloped, changed, they went away, what you had isdifferent ways of communicating with the world, differentways of actually connecting with consumers. If you think about back in thedays of merchants and mechanics and industrialbusinesses, the way they operated and communicatedwas much different. Retail stores existed, but in avery, very, very different way.They were family-run stores. Most of the products andservices we bought from were from a few largeretailers like Sears, whether that be yourwasher and dryer or your tools or other things. As technology continuedto mature, what you saw is the financial serviceindustry becoming very, very sophisticated. And the financialservice industry began to allow us to seebusiness in a global way. Out of that came complexadvertising campaigns, global marketing anddistribution mechanisms. And what you saw is entirelynew ways to buy and reach the end user, the products. What really changed is,at this end of the world, where you had technology, wasthen introduced in such a way that distribution of goods–ultimately the ability to connect an individualwho wants a product or service to thatproduct or service– the barriers of distance,the barriers of manufacturing suddenly went away. The United States hasprobably done this better than almost anyplace in the world. We can get somethingdelivered tomorrow that we ordered this afternoonat 11:00 AM or 1 o’clock in the afternoon, whether it bea product or service, because of financial support andbacking for those type of organizations, whether itbe the manufacturers, the UPS, the FedEx, and others.The distribution channelshave shrunk greatly. When I travel to differentparts of the world, they find an amazing selectionof products and services that we have inthe United States. And when you go elsewhere,you notice how limited it is. If you’re livingin parts of Europe, if you’re livingin parts of Africa, parts of Asia, if you’reliving in most of Russia– the ability to actuallyorder something today and see it arrives in the nextmonth is very, very unlikely.And the more remote youare, the less likely it is it’s evergoing to reach you on time, or withoutbeing lost in some part of the distribution channel. So I encourage youto think about, as technology has changedand distribution channels have changed, it hasimpacted the way that we operate and build companies. So at MIT, when wethink about how do you bring a company fromthe idea to the market, or what is so often calledthe lab to the market, the way you think about that has tointegrate the business model. So for those of you here thatare scientists or researchers or engineers, as you’re thinkingabout your new products, your service, oryour technology, you have to continually testwho is going to buy this.How am I going to getit to the consumer? How will this ultimately impactthe people that I care about, the people that aregoing to benefit from my product or my service? Just as Bob wassharing with us– before– some of the learningshe had as he was developing his new company, werethose bumps in the road as they realized that variousideas they had about, hey, we’ll give it away for free. Or perhaps we’ll go throughthis particular distribution channel. Those things did not work. You learn from those. You incorporate. You speak to more consumers. You speak to more investorsthat are expert in the space. And you modify your approach. So as all of you think aboutbuilding companies, products, and technology, thinkabout how are you getting it to the consumer. I think the mistake thata lot of people have is they think that as theyread The Wall Street Journal or Bloombergor MSNBC is, they hear about thestories of these companies, and the stratosphericgrowth of these companies.But they think success isthis linear process, when it’s really not. Success is really messy. It’s noisy. There’s lots of bumps, lotsof failures and challenges, whether it be because ofmarket acceptance, technology failures, or ithappens just simply because the market was notready for what you were doing. The goal is foryou to figure out throughout thosebumps and those curves how to identifyopportunity, and also how to modify yourproducts and services. So that brings us tobusiness models in general. There’s lots of differentways to think about a business model. Complexity was famous for years. I remember when I wasin graduate school, they would talk aboutbusiness models, sales and marketing and distribution. And it was mind boggling. If they pass it out onan 8 1/2 x 11 sheet, you would need a magnifyingglass to figure out what was happening because thedistribution channels were not as sophisticated.The technology wasnot as sophisticated. So you had complex models. And within thesecomplex models, there were lots of pointsof failure, lots of points where your reselleror your OEM channel– your original equipmentmanufacturer– or your distributorwas failing, lots of points where themanufacturing was not succeeding or the retailenvironment was struggling. So what’s happened is you’veseen simplification of business models– these ideas thatbecome simplified in such a way where you say to yourself,I’m building this, and I want it to be inthe hands of these people, whether that be a consumer, adoctor, a lawyer, if it happens to be a large corporation.What’s the easiestway to get there? And leveragingtechnology, leveraging all of those thingsthat are out there, including the good adviceof experienced people, will help simplify this. An example might beZipcar, a company we’re all very familiar with. This is a relativelysimple business model. It almost seems sosimple that you’d be amazed if you presentedthis to an investor and said, this is our model. This is it. And we’re going to buildbasically a company worth– a publicly tradedcompany– I don’t even know what the marketcap is at right now. Fantastic, successfulorganization, operating globally in manycities around the world. They kept it very simple,very organized business model. How many peoplehere use Dropbox? You get 2/3 of the grouphere that use Dropbox.When’s the last time you sawa Dropbox advertisement on TV? It doesn’t exist. 20 years ago, if you werelooking to build a company, you’d have to have anadvertising budget. You’d have to thinkabout how we’re going to wind up gettingthis into the hands of the right people. Who are the right people? Are we going tosell to businesses? Are we going tosell to individuals? What’s Dropbox’s business model? How come you guys knowso much about Dropbox? AUDIENCE: [INAUDIBLE] RICH KIVEL: How was that? Word of mouth. Other people told you. It’s viral. So somebody tells youabout this incredible thing called Dropbox. You can sign up for free. You can get a certain amountof megabits of space for free. And all of a sudden, youstart uploading photos. Or you’re sharing PowerPointpresentations and documents. And your friend signs on. And then all of a sudden,you tell three other friends.And they sign on. And then all of a sudden,when that is shown as viable, before you know it, they’vegot an entire model here that is making them afortune, because they now have businesses andlarge– what they call Pro subscribers, largeusers– paying large dollars in order to access that data. It’s fantastic. Does that look like acomplicated business model? No, not really. Here’s another exampleof simplicity rules. We have the luxury ofleveraging technology. And we also have different typesof mechanisms in order for us to educate consumers. Viral marketing iscertainly one of those we’ll talk about today. So simply put, your businessmodel is not your business. Please remember that. The business model andbusiness model innovation is critical in developinga quality business, attacking new markets anddriving profitability. Just as Bob had sharedearlier, the ability to modify change anddwarf your business model is critical becausejust one small change can make all of the difference. And we’re going to talkabout some companies that made small changes.And it’s made all of thedifference in their success. So I’ll do the academicpart of this presentation to give you componentsof the business model. Then we’re going to talkabout some good examples. And then I’m going to leaveplenty of time for Q&A, and end on time,as I promised Joe. So from a businessmodel perspective, there’s lots of components. There’s aspects of a businessmodel that should exist. Overall, they’re pretty simple. What is the value proposition? What are the market segmentsthat you’re targeting? What is the value chain? And what is the structureof that value chain? Who’s involved in it? What is your positionwithin that value network? Are you at theearly, early stage from a standpointof manufacturing? Are you at the end stagefrom a standpoint of actually delivering the product orservice to the consumer or are you somewherein the middle? How do you generate revenue? And how do you generate margins? And those are twovery different things.There are companiesout there we all know that generate tremendousamounts of revenue. And their margins are verytiny– 1%, half a percent or less. But they make it up becausethe revenue is so extreme. You have othercompanies out there that have exceptionallyhigh margins, tremendously high margins, notvery large revenues. Think about luxurygoods resellers. Take a look at theaverage consumer that goes out and buys aluxury bag or a nice suit or an expensive watch. Well I can go buy awatch from Movado. Or I can go buy awatch from Swatch.These are beautiful watches. They’re made by largemanufacturing groups. They’re going through a very,very sophisticated distribution channel. And they’re made inthe tens of thousands. Those watches are soldanywhere between $39.00, $49.00 up to probably $1,000.00. And they’re soldin the thousands through retailers thatyou see in the mall, through retailersthat are online, and also through big-boxsellers like Walmart or Costco or others. You think, wow,that’s interesting. Someone like Swatch and alsoMovado, which is much higher end, they both sell throughsimilar distribution channels. They do tremendous volume. So they have very,very high revenues. But their marginsare incredibly small. The goal is saturate the market. Get as many peopleto buy as possible. Take a look at othertypes of products that are similar thatare called watches. Very often they’rethen called timepieces, where you have watches thatare handmade, where they’re made in a very, verysubtle way, where it’s a lot of on-hand or craftsmanwork and craftsman design, very low on themanufacturing side. It might take months tomake a particular watch, if not longer.And the watches sell fortens of thousands or hundreds of thousands of dollars. You think aboutIWC, Patek Philippe. Many of these watches will sellfor $100,000.00 or $50,000.00 for a watch. Totally differentbusiness model. Their margins are very large. But their overall revenues arerelatively small because they don’t sell a lot of pieces. Think about Mercedes-Benz. And think about Ford. If you base success on thetotal number of vehicles sold, Ford kills them yearin and year out. If you base it on margins,slightly different story. Ford has some products thatare incredibly high margins, like their SUVs. They have other products,like their low-end cars that are very low margins. But they’re lookingto get adoption within a particular marketplace. Mercedes, much different story. Very high margins on virtuallyevery vehicle they sell. Much lower volume. So all of these things have tobe taken into consideration. You cannot choose your businessmodel because it seemed like it made sense, because yousaw a competitor doing it. You have to figureout where are you within that particularvalue network. The competitive strategyplays into that, and what stage ofdevelopment is the company.So I’m going to flip througha couple of these slides. And we’ll diveinto some examples. And I’m hopingyou guys have lots of questions at that point. So the value proposition, whichis really number one here, is really a descriptionof the customer problem, the solution thataddresses that problem, and the value of thesolution from the customer’s perspective. The customer’s perspectiveis very important here. If I am buying, let’ssay an Apple product, which I see a lot of here,well there’s a lot of things there that I as a consumermight be attracted to. I love the design of it, thesize of it, the feel of it, the way it operates. If, for example, you’rebuying a desktop computer, and you chose topick out a Dell, or you chose to pick outanother type of manufacturer, not like Apple–maybe you’re buying it for entirely differentreasons than that Apple user. So think about what is itthat the customer perceives as value. Is the customer looking for lowcost or are they looking for speed? Are they looking for something? You need to make sure that yourvalue proposition offers that.From a marketsegmentation perspective, it’s choosing your audience. And we could talk about thisentirely throughout this class. But I’m going to keep it short. You have to know who thatultimate end user is. Who is that person that’sgoing to write that check, recognizing that differentmarket segments have different needs. If you’re selling,we’ll use the example I did a moment ago– if you’reselling to that high-end watch buyer, who’s buyingessentially a timepiece that’s going to be passed downfor generations, that’s a different type of buyer, adifferent type of a marketing approach than if you’reselling a Swatch watch, which borders on a disposable watch.If it lasts fiveyears, it’s fantastic. By then, you probablyhave bought three or four more watches. Same thing for computers andcars and many other things. Additionally valuechange structure and position in the valuenetwork are critical to this. And they’re part of thatinitial slide I shared. So what is the firm’sposition in the value chain? What are the activitieswithin the value chain? And how the firm willcapture part of the value that it createswithin that chain, because where you fit withinthat chain and how much of it you own is really,really important to know. If you’re Netflixthink about where are you in the value chain.AUDIENCE: Describethe value chain. RICH KIVEL: Excellent. So you asked if I coulddescribe the value chain. So think about the entire cycle. And I’ll use Netflixas an example, because I mentioned it. So what does Netflixdo, essentially? AUDIENCE: They’re distribution. RICH KIVEL: They’redistribution. To who? AUDIENCE: End user. RICH KIVEL: The end user.They are at the farend, whichever end you want to call the far end. They’re at the farend of the cycle. There’s not much after that. They’re distributing a movie,something entertaining, to us. If you think aboutthat entire value chain or that entire cycle,it goes all the way back, way, way, way back tosomebody, maybe a year ago or 20 years ago that had anidea for a picture, an idea for a movie or afilm, who then as they moved through thatvalue chain, maybe they found a screenwriter. They ultimately,perhaps, found a studio. That studio ultimatelymade a decision whether they were goingto fund it or not, just like a venture capitalist. Movies are just like startingcompanies– idea, all the way through to the businessplan to the funding. That venture capitalist,or in the case of a movie, it’s the studio thatsays, we love it. We want it. The story’s outstanding. We want to buy the story. We’re going to putthis much against it. They then build the team. So they find who’sgoing to be the lead.Who’s going to be the second? Who’s going to be the third? Who’s going to theaction character? Who’s going to be the romantic? Where is it going to be filmed? All of these aspects arejust like a business. They’ve got to find theCEO, the CFO, the CTO. They have to figureout where are we going to locate the company. Where’s the bestplace for it to be? And then at that point,they start working on it, and toiling away,and filming it. And filming could takeweeks, months, or even years. Then ultimately,it’s distributed. Now it might be distributeddirectly into theaters. Or if it doesn’tget great reviews in the early, earlydays of distribution, it might actuallygo directly to DVD. And that’s whenNetflix jumps in. So if you think aboutit, that’s a long cycle.And I probably skipped 30 parts. So where do you fit withinthe distribution channel is absolutely criticalfor you to understand how you think about that, andwhere you actually capitalize and make money. Netflix also hadthe big challenge where they were facing a majorcompetitor at that time when they first came to market. Does anybody even rememberwho that competitor was? AUDIENCE: Blockbuster. RICH KIVEL: Blockbuster gottheir butt kicked by Netflix. What happened? What happened wastwo major things. Number one, technology changed. DVDs came out. VCRs were going away. So videotapes made perfect sensewhen you went into Blockbuster. It was big, bulky, didn’teven think about shipping it, easy to break.It gets crushed, doesn’t workso well, tape gets pulled out, whatever. Blockbuster had a great model. They were at the end of thecycle to us, the consumer. They put littlestores everywhere. And they made it easy. But all of a sudden,the DVD world came out, where youwere able to get super high-definitionquality picture motion pictures on a DVD that isas flat as an envelope. Netflix said, hey,why are we building stores for these things? People already knowthe movie they want. Or they could use this newtechnology called the internet, and figure out what movie theywant, which is mailed to them. The other big challengethat Blockbuster had was the whole processof limited supply, and demand on that supply. So they penalized you if youdon’t return the video on time because they werelosing revenue.If you didn’t get it putin that little tiny box by 7:00 AM or 10:00 AM the nextmorning, you got charged a fee. Why? Because somebodyelse wanted their one of three copies of that movie. They couldn’t havean unlimited supply. Whereas the abilityto reproduce and print DVDs– virtually unlimited. Everybody in thisroom could order a DVD today of a hotmovie that just came out.It could be at yourhouse tomorrow. There’s no distribution issue. The ability to reproduce thatDVD, drop it in an envelope, and mail it to you iseffortless, completely automated. So what you have hereis this convergence, where there was an opportunity. There was technologicalchange, whether it be DVDs or internet ora combination of both, that allowed Netflix tocompletely crush Blockbuster. And then Netflix changedthemselves, didn’t they? They recognized thatour ability to capture more bandwidth, the ability forus to actually download a movie was increasing in manyparts of the United States, not everywhere, not everywhere. But as our ability,especially in large cities, increased to downloadmovies– now all of a sudden, it changed to we don’t evenhave to ship it to you anymore. All you have todo is download it. It streams to you. And then they createda whole series of other distribution channels.Now you can getNetflix on your Roku. You can get Netflix inall of these other areas. So if you think about it, whenthe guy that started Netflix started off, it wasa very simple model. People like movies. They’re willing to pay for themso they can watch them at home. DVDs are the new thing. And we’ve developed a complexshipping method and mechanism and a model ofwarehousing DVDs that we can get it to people overnight.And they can keep itfor a day, a week. We don’t reallycare, because we’re going to keep shipping more. It was so simple. The business model couldnot have been easier. But what they didis they continued to change and morphtheir business model as the technology changed. And they continue to stayfar ahead of the curve. What is the latest thingthat Netflix is now doing? AUDIENCE: Producing movies. RICH KIVEL: They’reproducing movies. How crazy is that? But can you imagine if youwere the CEO of Netflix and you said to theVCs when you went in to talk to them a decadeago, well here’s the thing.I got a business idea. What we’re going to do is,we’re going to basically kick Blockbuster’s ass. We’re going to distributethese things on DVDs. And then we’re going tostart to do downloadable. And then, by theway, we’re going to become a movieproduction studio. Their head would explode. And they would justsay, listen you have no idea what you’re doing. And you don’t understandhow complex the market is. That’s why earlierI said, simplicity. When you launch yourbusiness, keep it simple. Show that that modelis easy to understand. And then from thereyou continue to expand. Who would have thoughtNetflix is now producing some of the best shows out there? Orange Is the New Black is oneof the top shows out there, produced by Netflix. What are some of the other ones? AUDIENCE: House of Cards. RICH KIVEL: House of Cards. So you think about–that’s mind boggling. What is the difference betweenNetflix and Blockbuster? Leadership, the abilityto change, the ability to see around the nextcurve, and actually change the business model ofthe company in order to adapt.So I’ll finish up this area ofrevenue generation and margins. We talked a littleabout that earlier. Competitive strategy–how will the company attempt to develop and sustaina competitor advantage? And I’ve shared alittle bit about that. Netflix is a great example. And then one othercomponent of this is where are you on the field? Understanding whereyour business is. And the Netflix example isone that is pretty clear. When you’re over inthis area here where you’re pilot testing, andyou’re in the gestational area, or you’re doing the roll out,or you’re in slow growth, that may not be the time to takeon two or three new business models or enter a different partof the distribution channel.But as you start to getthe terminal velocity, that’s the time when youstart to really look back and say, hey, now let’stake a look at our market in a different way. We’ve got the velocity, whetherit be the funding, the adoption within the marketplace. And then at that point,based on the maturity, you can start tothink of expanding. So where are you on the field? It’s always importantto know that. A lot of companies–Blockbuster is clearly one of them– that tooktheir eye off the ball, and they just focusedon what they were doing. And what they did is juststuff that we look at now. We go, gosh, that was so naive. You thought maybeeliminating the late fees is going to solve your problem. You thought reducing price–you thought more stores is going to– you look at that now. You say, wow, that’s the bestthat management team could come up with.They were not steppingback and saying, where are we on the field, guys? What’s happening in the entirespace that we’re playing in? And where do we play? A great example is Google. This is a snapshot of the Googlewebsite launched September 4, 1998. Isn’t that awesome? Has it changed very much? Think about it. How cool is that? That is elegant. How simple. Look at that. What is it up there? Index contains 25 millionpages, soon to be much bigger. How many trillions of pages doesGoogle have currently indexed? Think about that.But what’s also important thinkabout is this– Google could have state just like this. They could havestayed a simple what? AUDIENCE: Search engine. RICH KIVEL: That’s it. Search engine. It could have been agreat search engine. They could have been a bettersearch engine than anyone. That was what theywere promoting. We will find you what you’relooking for faster, better. We prioritize. We have complex algorithms. We have a whole bunchof smart people, probably from MIT,that are helping you find that weirdshit you’re looking for.Seriously. You’re looking for– youneed a pink doily that will be eight inchesthat is under a lamp for your grandmother’s house. Or you’re looking fora new hand-held device for something else. They’re going tofind it for you. I’m looking to booka trip to Paris. They’re going to help prioritizeit, best hotels Paris luxury. Put those in, boom. Boolean search, we all remember. Put in all the complex– theword plus this are in quotes. They have betteralgorithms than Yahoo. They have better algorithms thanAltaVista, better algorithms than NaviSite. The list goes on. They could have stoppedthere, and just continued to be the best searchengine in the world. And you know what? They’re still killing everybodyin search, killing them.People that like Bing orothers probably disagree. But I think they kill it. But what did theydo as a business? Or I should say,what didn’t they do since 1998 as a business? Look at what Google is today. Give me a few ideas, oneword from a bunch of you. Just what is Googletoday besides search? AUDIENCE: Brand. RICH KIVEL: It’s a brand. What? AUDIENCE: Maps. RICH KIVEL: Google Maps. Most of us live on Google Maps. What else? AUDIENCE: Mobile. RICH KIVEL: Mobile. Think about Google is themobile app in so many ways. What else? AUDIENCE: Browser. Email. RICH KIVEL: I missed that. AUDIENCE: Email. Browser. RICH KIVEL: Email. Browser. AUDIENCE: [INAUDIBLE] RICH KIVEL: Yep. What I haven’theard, maybe somebody did say is Google is data. What Google is,is Google is data. They have figured outways to capture, store, analyze everything we do. Google knows more aboutus than our families do. And because of that, they’reable to impact the world. Do you realize that GoogleHealth, as an example, actually provides data,completely anonymous data, to groups like the CDC? If there is an increasein the number of people in the Northeast, specificallyMaine, New Hampshire, Vermont that are in theincrease in searches around a particularseries of symptoms at a particular time of year,that data is actually given to groups like the CDC to helpthink about positioning cures, positioning vaccines,and positioning hospitals and support.Think about howpowerful that is. If there is all of a sudden,thousands of searches, because a bunch of moms in NewHampshire, Vermont, and Maine start Googling high temperature,all of these symptoms that might be relevant, orregular cough or these types of rashes, and that’s regularlyGoogled, all of a sudden Google has a data set where theycan see trends before anyone else can see them. They know everythingthat’s happening on a very, very globalscale, both micro and macro.And it really helpsmake the world better. Now people willget scared and say, you know it’s about privacyand all these other things. And I absolutely believe that. But there is goodthat can be created. This is a data companythat is changing the world. They know more about youbecause of what you search, how long you hover over aparticular part of a website, what you do on a regular basis,the time of day that you do it, the type of thingsthat you like, whether it be the type ofmusic, the type of concerts, the type of places youvacation, the type of hotels that you shop. All of those thingsare very powerful. So Google is a datacompany, different than what their original business modelwas, or at least appeared to be. And part of it isbecause of this. This is– AUDIENCE: [INAUDIBLE]accidental business model? Bt they weren’t going tomake any money. [INAUDIBLE] stumbling on [? ad words. ?] RICH KIVEL: I think so, yeah. AUDIENCE: –earned themthe money to do all this stuff. [INAUDIBLE] RICH KIVEL: Ithink you’re right.I think it may havebeen accidental. It might have been thegenius of Eric Schmidt, when he was put in there bythe venture capitalists. It might have been a lotof very smart board people. It might have beena lot of factors. But they harnessedthat opportunity that everyone else had. Any of the other searchgroups could have done this. No matter how good theGoogle algorithms are, they’re not thatmuch different, I’m sure, than some of thebest search out there. Are they muchdifferent than Bing? Are they much differentthan the other ones? I don’t know. Are those companies goingto ever become as important on a global basis as Google? Think about GoogleMaps is great.What about Google Earth? How many people here havenot used Google Earth? Will both of you stand up? Everybody’s used Google Earth. It’s the coolest thing. If I’m booking a hotel,and I’m booking a hotel in the north of Spain– we goevery year on vacation– if I’m booking a hotel and I’ve neverstayed at a hotel before, I will look at iton Google Earth because I don’t believethe website that says across thestreet from the beach.It might mean across thestreet from the beach. And by the way, thestreet is also referred to as an eight-lane highway. I’m not going to besuper happy with that when I show up for vacation. So I’ll Google Earth it. I’ll see where it is. And I’ll be able tosee what’s happening. It’s incredibly powerful,these little things. And they know I’msearching that. So it goes backto the data piece. And a lot of it is drivenaround this– the fact that the change in priceof storage has dropped so dramatically has transformedevery bit of technology, whether it be the ability forNetflix to download movies or store them, the abilityfor you to get on an airplane right now, and whileyou’re on that airplane, instead of watching oneterribly chosen movie coming out of a ceiling projector, youhave a seat in front of you that has a screen in it.And you can pick from 30 movies. That’s just storage. That plane has enoughstorage that we can pick from 30 differentmovies at each seat. If you’re on JetBlue,you can actually watch streaming TV as well. So because of this,everything’s changed. The rules of thegame have changed. So the question always is,what business model, and why? And if you think about eachof these different businesses on the surface, if youdidn’t know any better, you would think they werein the same business.Apple sells computers. So does Dell. Bentley sells cars. So does Cadillac. Vertu sells cell phones. And so does Nokia. But their distributionchannel and models are dramatically different. So I’m going to give youa few examples of what I consider reallyinnovative business models. Some of these companies wetouched upon already today I’ll touch upon a few of them again. And we can go intoany more detail you want or ask questions. But I think Amazon isprobably one of the greatest companies out there. Jeff Bezos is anabsolute genius. Might be why he’sworth over $20 billion. He has figured out acompany that he started, based on the concept of sellingbooks online and harnessing what was called usergroups or essentially peer-to-peer communicationin order to provide reviews.That was the initial concept. We’re going tosell books online. And we’re going to harness thepower of the internet, where people provide feedback aboutthe books they purchased. Were they happy with it? Was it good? Was it– et cetera. We take all this for grantednow, because since then we can pick movies that way. We can pickrestaurants that way. We can pick hotels that way. That user experience is there. But Amazon has gonefar bigger than that.So I look at theAmazon business model. I say basically it’s a businessmodel of leveraging assets. That’s the business model. How many of youhave been following what Amazon’s doing lately? A couple of bigannouncements at Amazon in the past 30 days,the 60 Minutes special. How cool is that? If anything, it could justbe a project of Bezos. But think about just the idea ofthe drone concept of delivering packages in a way thatactually reaches the consumer, essentially the goal beingthe same day that they order. So they’ve gotthis drone concept that is going to allow theserobotic drones to provide people packages. Now we all know there’slots of red tape there. You’ve got– you’ve gotthe approval of the FAA. You’ve got all theseother governmental issues. But the fact that theyare thinking that far out of the box– think about this. I’m going to use thatexample from before. Imagine if Jeff Bezos walkedinto his investors and said, yo dude. I need some moneybecause I got this idea. We’re going tosell books online. And people are goingto tell us whether they like the books ornot, which will then enforce whether wesell more books or not, whether we carrythat author anymore.And then soon, we’re going tohave drones delivering stuff. It’s crazy. What can’t you buyon Amazon right now? It’s amazing. I can buy tools on Amazon. I can buy anything on Amazon. The drones is one thing. The latest one that cameout this week was fantastic. What was the otherrelease that they were talking about thisweek regarding Amazon? I’m sorry. Say it louder. AUDIENCE: [INAUDIBLE] RICH KIVEL: Exactly. Did you hear the new wordthat came out for this? This is definitely going tobe one of those things that’s in the 2014 anticipatory–so it’s anticipatory consumer something or other.I don’t evenremember what it is. I just heard it this week. I loved it. This is going to beone of those things that next– at theend of this year, it’ll be the new word thatfalls in to the dictionary. The concept that theyknow so much about us that they can actually begin toanticipate what we might buy, very similar to how Googleis a data company– they can anticipate what we’re goingto click on next– Google can pretty much tellso much about you, just on what you’re clickingon next, and the speed at which you do it, and howlong you spend on a website. Amazon does exactlythe same thing.We all go on to Amazon now. And it will say, other peoplethat purchased that product also bought these eight. Or here is your last purchases. Here’s somerecommendations for you. It’s gotten so good thatit’s so much– I don’t even understand why peopledo junk male anymore. It blows my mind. I get stuff in junk mail forclearly not my demographic, stuff that might be perfectif I was a 17-year-old girl or an 88-year-old guy. I’m like, why are theyadvertising that to me? It’s amazing. It’s even when it justshows up, it’s in my mail. I’m talking about inbox. So this stuff comes in. You think, what a wackyway to make money. Amazon’s got it down. They recommend thingsthat make sense to me because they take a look.I’ve been an Amazonmember for years. They can say, listen theseare the kind of books this guy’s ordered. This is the kind ofmusic he’s ordered. This is the kind of other stuff. Hey, we have somerecommendations. They’re not recommendingto me silly things that just don’t make sense. So now Amazon going to this nextapproach, which is absolutely– it’s so MIT-ish, I loved it. It is algorithmically driven. It is anticipatory shopping,that anticipatory experience, where they actuallybelieve that they’re going to reach apoint where they have such familiarity with you, thatthey have an idea what you are likely to buy next, basedon prior purchasing habits, based on the time of day, thetime of year, you name it, that what they’re envisioningis that they will actually begin to ship those things to theclosest warehouse to you, and deliver to them to youthat day or the following day. It’s mind boggling. All-around data. Amazon’s incredible. They’re leveraging assets. Apple– we could talkabout them for years.Has anybody here seenthe Steve Jobs movie? I just watched that, comingback from California last week. That thing– whata fantastic movie. And Ashton Kutcher did afantastic job as Steve Jobs. But the genius ofthis guy really spoke about why Apple succeeded. And it was a great storyabout how he started, and got kicked out, and came back. But it’s really providingconvenient solutions. Apple is about quality design. And stuff betterwork the first time. When you plug itin, it better sync.When you go to the appstore, it better be there. It better download. If it doesn’t– it’sincredible how good they are. It’s all about convenience. That is a totallydifferent model than virtually every othercomputer company out there. Dell’s a great company,has a different model. We’re going to build it custom. You tell us what you want in it. We’re going to modify itany which way you wish. And we’re goingto ship it to you. It’s not the Apple model. Who would have thoughtyears ago– many of you may not even remember,but years ago there was no such thingas Apple stores.How do you buy anApple computer? Well you bought itprimarily online. There were very fewdistributors of Apple computers. Apple started off sellingto large school systems and others. And now the Apple Store is ascommon in cities in the United States and towns as a Starbucks. What a different model thatis– totally mind boggling. When most people were movingaway from retail box stores– those expensive locations–and moving to everything being internet, Applesaid no, no, no. We want to be closerto the consumer. We want the experienceto be superb. We want them to be partof this experience. They’ve then opened stores. And they’re makingtremendous money doing that. Who knows Etsy? These guys arecool, aren’t they? What a neat idea. Doing good on a global basis,something that could never been done years ago–a business model where they basicallyfigured out ways to harness thepower of creativity, the power of different partsof the world, people living in small villages buildingbeautiful things that would never be seen outsideof probably a 500-mile radius of their village,if that, are now part of this veryspecial network where they can build things.And you can go online. And you can purchase them. And a very smallpiece is kept by Etsy. And most of it goes back tothe artist, to the individual. It’s phenomenal, the thoughtthat somebody sitting in Peru or Uganda, or somebodysitting in a far part of Russia that builds beautifulthings is actually selling them to peoplesitting in Japan or in Paris or in Boston. It’s absolutely incredible. Other innovative models Zarais probably my favorite.Everybody here knowsZara at this point. I love Spain. And I love Zara. They’re an absolutelymind boggling story. Who thought one company couldinnovate an industry that has been stagnant andwithout innovation as the fashion industry? The fashion industry hasoperated the same way for about 100 years. They have models. They have designers. They have magazines. The only innovation,the only innovation that’s actually hitthe fashion industry is they sell some stuff online. They outsource manufacturing. They’ve been doingthat for 75 years. They have expensivehigh-paid designers. And they basically havea distribution channel through retail. It’s been exactly the same way. The challenge is that manypeople who want high fashion can’t afford high fashion. These guys came in andrevolutionized the market. And their business modelwas harnessed and built around time-to-market. That is the business model. They put people at everyfashion show that’s important. They’re in New York,Paris, Milan, everywhere.And those people arethere taking sketches, taking digital photos, andthose things they believe the Zara consumer would want. Those things are imaged, sentback instantly to the factory. 50% of all Zara productsare made in Spain. They’re sent back. They’re built. And they’resent to the stores. Virtually none of theproducts you find in the Zara last in the storemore than four weeks. And they will not continueto replenish them. They’ve created this conceptof scarcity, this concept that what you’rebuying is high fashion and it’s in a limited supply. That is fantastic, comparedto you go to Macy’s. And there’s 800 ofthe same sweaters. And there’s 8,000 ofthe same men’s shirts. And if I go to a differentMacy’s, it’s exactly the same.There’s no senseof scarcity there. Very low design,very high volume. However, if I walkinto the Armani shop on Newbury Street or the Fendishop, and look at the bags, there’s a sense of scarcity–high price, limited resource. This is this year’s bag. This year’s jacket. Zara basically turned it on itshead and said, no, no, no no. We’re going to have scarcityand volume and price. And they nailed iton all of those. You don’t ever see the Zarastuff of at Marshalls and T.J. Maxx, do you? Because they don’thave excess inventory. The reason you can walkinto Marshalls and T.J. Maxx and pick up Burberry and Cartierand all these other brands is because Bloomingdale’sand Macy’s and all of them overstocked on them.The season changed. They don’t know whatto do with the stuff. So they slash price 60% off, 70%off, 80% off, then boom, it’s off to Marshalls. And those companies have createdan entirely different business model of getting high-qualitygoods to consumers. Zara said, no, no, no. We’re not playing that game. Let me ask you this. When’s the last time you sawa Zara advertisement on TV? It doesn’t exist.When’s the last time you sawa Macy’s one-day sale on TV? Once a day. Entirely different businessmodel, same industry. Zara is amazing. I want to finish offthese with Gillette who’s absolutely just fantastic. Gillette, right herein Massachusetts. You see them on yourway to the airport. This is the company that createdthe concept– they created the first ever disposablerazor, which is a fantastic concept, back in the ’20s. They then decidedthat they were going to stay at the cuttingedge of technology. Gillette has over 1,000 patentsjust around the Mach3 razor. They have thousands of patentswithin their entire portfolio. And they will not startcreating a new razor until almost a patent lifehas expired on the existing razors on the market. They do not want tocompete against themselves. They’ve created this mechanism. It’s absolutely mind boggling. We get the Mach3razor as a [? base ?]. It comes off the assemblyline in the United States. If you go to other countries,especially developing countries, they’regetting the razor that was hot here five yearsago because they realize that they can sell itfor a third of the price in large quantities.Those countries can’tafford the Mach3. But they can afford the onethat was five years ago, eight years ago. And they’re buyingthem by the millions. And in addition to that,they created that concept of the razor-blade concept. It’s essentially,you’ve got the razor. All you have to do is justkeep buying the blades and buying the blades. And they can charge whateverthey want for the blades. Or you have to start freshwith Schick or somebody else. So it’s a fantastic conceptof high quality, patents there in order tomaintain their position within the marketplace, andalso customer stickiness. We gave them this pretty razor. It’s beautiful. It’s got metal on it. It’s got nice colors. They’re just going tokeep buying the blades, buying the blades,and buying the blades.So it’s a fantastic seriesof different business models within one. Other ones we’reall familiar with are great groupslike Kickstarter, PayPal are really leveragingthe whole P2P revolution. It’s absolutelyamazing what you see. Craig’s List is afantastic example of that. Their website is about assexy as the Google page. There’s really nothingattractive about it. But it’s an incrediblysuccessful business. We talked about Dell. They built theirentire success around the just-in-time concept. We’re going to build a computerexactly the way you want it. In addition to that, you’ve gotthe one day, one deal business model.We’re all familiarwith our inboxes full of Living Socialand Groupon and all these other groups. In addition to that,you’ve got other groups like Priceline, which I think isa phenomenal model, and really unique advertising too. They’ve taken an approach,unlike a lot of these groups here who you never see on TV. Priceline has taken the approachof using somebody like Shatner or other people that basicallyget them excited about– you set your price,you’re in control. And some of us love that. Some people love Priceline. I have friends that usePriceline all of the time. Some of us just jump on. And we just go to expedia.com. And we book our hotel. Or we go to the newone, Hotel Tonight, which is my favoriteapp, especially when I’m going to different cities. You jump onto Hotel Tonight,entirely different model.They only list hotels after12:00 in the afternoon. They cut these special dealswith the hotels for that night. So you wind up stayingat fantastic places because they knew at 11:55they had availability. They released therooms to Hotel Tonight. Hotel Tonight kills hotels.com,another one, that day. It might not be the way tobook a seven-day vacation. But if you’re looking fortwo nights in New York City, it’s phenomenal. It’s all on your app,not on the website. You can’t even doit on the website. Uber’s another fantasticexample of that. Instant gratification,car-service quality, not a taxi cab, allweb-based, all app-based.So to summarize, valueproposition, market segment and value chain are reallyunderstandings that you have to have in this area ofdeveloping a business model. Where do you sit in the network? Exactly where areyou on the field? And revenue generationand margins– those are two different things. You have to think aboutwhat’s important to you. Are you going to be ahigh-margin business, low volume? Are you going to be ahigh-revenue business and low margin? Or are you going to tryto do what Apple does, which is a combination of both? Where do you fit withinthe competitive landscape? And of course, the stage ofdevelopment of your company is critical. Where are you within thatparticular growth cycle? And always rememberthat success consists from going fromfailure to failure without a loss of enthusiasm. And I’ll close there. Thank you all. [APPLAUSE] .
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