Rasmussen, Bruce (2007) Business Models and the Theory of the Firm. Working Paper. Victoria University of Technology, Melbourne, Australia.

Abstract

The concept of a business model facilitates analysis of the way in which a firm derives economic value from a newly developed technology. Indeed Chesbrough and Rosenbloom (2002) have argued that it is the business model adopted, more so than the technology itself, which is critical to the success of the commercialisation of new technology. The concept is concerned with how the firm defines its competitive strategy through the design of the product or service it offers to its market, how it charges for it and what it costs to produce. How it differentiates itself from other firms by the nature of its value proposition. It also describes how the firm integrates its own value chain with that of other firms in the industry’s value networks. One of the difficulties of employing the business model concept is that it is still in its infancy in academic usage. It owes its origins largely to pragmatic development and use in the business sector. Chesbrough and Rosenbloom (2002) quote a May 2000 search of the Web which found 107,000 references to the term ‘business model’ in general use while a search of the academic literature (Econolit1) found only three references to the term. The purpose of this paper is to outline some of the business origins of the concept, define the business model as well as possible from the academic literature and finally, use the theories of the firm to enrich its predictive powers as to whether the model will create value.

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