Do Some Business Models Perform Better than Others?

37 Pages Posted: 27 Jul 2006  

Thomas W. Malone

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Peter Weill

Massachusetts Institute of Technology (MIT) - Center for Information Systems Research (CISR)

Richard K. Lai

The Wharton School, Univ. of Pennsylvania

Victoria T. D'Urso

Government of the United States of America - Environmental Sciences Division

George Herman

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Thomas G. Apel

Independent Author

Stephanie Woerner

Massachusetts Institute of Technology (MIT) - Center for Information Systems Research (CISR)

Date Written: May 2006

Abstract

This paper defines four basic business models based on what asset rights are sold (Creators, Distributors, Landlords and Brokers) and four variations of each based on what type of assets are involved (Financial, Physical, Intangible, and Human). Using this framework, we classified the business models of all 10,970 publicly traded firms in the US economy from 1998 through 2002. Some of these classifications were done manually, based on the firms' descriptions of sources of revenue in their financial reports; the rest were done automatically by a rule-based system using the same data. Based on this analysis, we first document important stylized facts about the distribution of business models in the U.S. economy. Then we analyze the firms' financial performance in three categories: market value, profitability, and operating efficiency. We find that no model outperforms others on all dimensions. Surprisingly, however, we find that some models do, indeed, have better financial performance than others. For instance, Physical Creators (which we call Manufacturers) and Physical Landlords have greater cash flow on assets, and Intellectual Landlords have poorer q's, than Physical Distributors (Wholesaler/Retailers). These findings are robust to a large number of robustness checks and alternative interpretations. We conclude with some hypotheses to explain our findings.

Keywords: business models, performance

Suggested Citation

Malone, Thomas W. and Weill, Peter and Lai, Richard K. and D'Urso, Victoria T. and Herman, George and Apel, Thomas G. and Woerner, Stephanie, Do Some Business Models Perform Better than Others? (May 2006). MIT Sloan Research Paper No. 4615-06. Available at SSRN: https://ssrn.com/abstract=920667 or http://dx.doi.org/10.2139/ssrn.920667

Thomas W. Malone (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E53-333
Cambridge, MA 02142
United States
617-253-6843 (Phone)
617-253-6843 (Fax)

Peter Weill

Massachusetts Institute of Technology (MIT) - Center for Information Systems Research (CISR) ( email )

Sloan School of Management
5 Cambridge Center, NE25-775
Cambridge, MA 02142
United States
617-253-2930 (Phone)
617-253-4424 (Fax)

Richard K. Lai

The Wharton School, Univ. of Pennsylvania ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215 898 1630 (Phone)

Victoria T. D'Urso

Government of the United States of America - Environmental Sciences Division ( email )

PO Box 2008
Mail Stop 6037
Oak Ridge, TN 37831-6037
United States

George Herman

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Thomas G. Apel

Independent Author ( email )

15624 Bald Cypress Cove
Edmond, OK 73013
405-341-2272 (Phone)

Stephanie Woerner

Massachusetts Institute of Technology (MIT) - Center for Information Systems Research (CISR) ( email )

Sloan School of Management
5 Cambridge Center, NE25-770
Cambridge, MA 02142
United States
617-452-3222 (Phone)
617-253-4424 (Fax)

Paper statistics

Downloads
12,725
Rank
192
Abstract Views
43,169