COMPETING THROUGH BUSINESS MODELS Business model innovation is becoming one of the main forces driving strategic renewal efforts of businesses around the world. IBM,s 2006 "Global CEo Study, for example, shows that top management in a broad range of industries are actively seeking guidance on how to innovate in their business models to improve their ability to both create and capture value. While the expression"business model"has been a part of business jargon for a long time, there is no widely accepted definition of what it really means. Its origins can be traced back to the writings of Peter Drucker (1954), but the notion has only gained prominence among both academics and practitioners in the last decade or so. This is not to say that organizations did not have or use business models prior to this recent wave of interest, but rather that, because business models of industry players were for the most part similar, the business model did not receive the attention that it does today. Advances in information and communication technologies have driven the recent interest in business model design and business model innovation. Many of the so-called"e-businesses constitute new business models(Evans and Wurster, 1997; Varian and Shapiro, 1999). Shafer Smith, and Linder(2005) present twelve recent definitions of business model and find that eight are related to e-business of course, not all business model innovations are It-driven; other forces such as globalization and deregulation have also resulted in new business models and fuelled the interest in this area New strategies for the bottom of the pyramid in emerging markets (Ricart et al., 2004)have also steered researchers and practitioners towards the systematic study of business models. Most academics working in this area agree that, for companies to be effective in such "different environments, they need to develop novel business models(Prahalad and Hart, 2002; London and Hart, 2003). In fact, socially motivated enterprises that aim to reach the bottom of th pyramid constitute an important source of business model innovations(Hart and Christensen, 2002; Prahalad, 2005) It is certainly not controversial to state that, in order for organizations to thrive, managers must have a good understanding of how business models work. Nevertheless, the academic community has so far offered little insight on this issue. In truth little is understood about what constitutes a superior business model, or even what a business model really is. This chapter attempts to remedy this state of affairs. We thank Giambattista Dagnino, Pankaj Ghemawat, Costas Markides, Jan Rivkin, and seminar participants at IESE's "Brown Bag"Seminar series and the 2007 Meetings of the Academy of Management (Philadelphia). Casadesus-Masanell is grateful to the HBs Division of Research and IESe Business Schools Public-Private Sector Research CenterIESE Business School-University of Navarra COMPETING THROUGH BUSINESS MODELS∗ Business model innovation is becoming one of the main forces driving strategic renewal efforts of businesses around the world. IBM’s 2006 “Global CEO Study,” for example, shows that top management in a broad range of industries are actively seeking guidance on how to innovate in their business models to improve their ability to both create and capture value. While the expression “business model” has been a part of business jargon for a long time, there is no widely accepted definition of what it really means. Its origins can be traced back to the writings of Peter Drucker (1954), but the notion has only gained prominence among both academics and practitioners in the last decade or so. This is not to say that organizations did not have or use business models prior to this recent wave of interest, but rather that, because business models of industry players were for the most part similar, the business model did not receive the attention that it does today. Advances in information and communication technologies have driven the recent interest in business model design and business model innovation. Many of the so-called “e-businesses” constitute new business models (Evans and Wurster, 1997; Varian and Shapiro, 1999). Shafer, Smith, and Linder (2005) present twelve recent definitions of business model and find that eight are related to e-business. Of course, not all business model innovations are IT-driven; other forces such as globalization and deregulation have also resulted in new business models and fuelled the interest in this area. New strategies for the bottom of the pyramid in emerging markets (Ricart et al., 2004) have also steered researchers and practitioners towards the systematic study of business models. Most academics working in this area agree that, for companies to be effective in such “different” environments, they need to develop novel business models (Prahalad and Hart, 2002; London and Hart, 2003). In fact, socially motivated enterprises that aim to reach the bottom of the pyramid constitute an important source of business model innovations (Hart and Christensen, 2002; Prahalad, 2005). It is certainly not controversial to state that, in order for organizations to thrive, managers must have a good understanding of how business models work. Nevertheless, the academic community has so far offered little insight on this issue. In truth little is understood about what constitutes a superior business model, or even what a business model really is. This chapter attempts to remedy this state of affairs. ∗ We thank Giambattista Dagnino, Pankaj Ghemawat, Costas Markides, Jan Rivkin, and seminar participants at IESE’s “Brown Bag” Seminar series and the 2007 Meetings of the Academy of Management (Philadelphia). Casadesus-Masanell is grateful to the HBS Division of Research and IESE Business School's Public-Private Sector Research Center