Do Business models matter? 1. INTRODUCTION A central question in strategic management is: what explains the difference in performance amon firms? Different theories have been proposed, many of which are aligned with one of two views. The first is the" industry view. It suggests that industry factors, such as market size and barriers to entry form the most important explanation for performance heterogeneity. Industrial organization in economics and industry analysis in the strategy field are examples of this view (e. g, (Porter, 1980)). The second is the firm view. It argues that firms' endowments and capabilities, and the difficulty of replicating these are why firms exhibit different performance. The resource-based perspective is one example of this view (e.g,(Wernerfelt, 1984)). A large empirical literature is based on testing which of these two views better explain differences in firm performance. We review this literature in section 2 Yet, among business practitioners and in the trade literature, a very different explanation, in the form of business model, is commonly offered for why some firms do better than others(e. g,( Kaplan et al. 2004),(Slywotzky et al, 1997),(Timmers, 1998),(Tapscott et al, 2000)). Many people corporate executives and especially venture capitalists- attribute the success of firms like Amway, eBay, Dell, and Wal*Mart, for example, not only to their industry or to their firm-specific capabilities, but also to their innovative business models. And among executives, innovation in products, services, and business models" is the single factor contributing the most to the accelerating pace of change in the global business environment, outranking other factors related to information and the Internet, talent, trade barriers, greater access to cheaper labor and capital(McKinsey, 2006)) In this paper, we provide one definition of"business model" that captures the similarities among the definitions provided by others, and relies on two fundamental intellectual traditions. The main question is how much business model, even in the simple way defined, matters to performance Our definition of business model is a typological one. In section 3, we describe this definition in the form of sixteen business models, such as Manufacturer and Wholesaler/Retailer. This typology is built1 Do Business Models Matter? 1. INTRODUCTION A central question in strategic management is: what explains the difference in performance among firms? Different theories have been proposed, many of which are aligned with one of two views. The first is the “industry view.” It suggests that industry factors, such as market size and barriers to entry, form the most important explanation for performance heterogeneity. Industrial organization in economics and industry analysis in the strategy field are examples of this view (e.g., (Porter, 1980)). The second is the “firm view.” It argues that firms’ endowments and capabilities, and the difficulty of replicating these, are why firms exhibit different performance. The resource-based perspective is one example of this view (e.g., (Wernerfelt, 1984)). A large empirical literature is based on testing which of these two views better explain differences in firm performance. We review this literature in section 2. Yet, among business practitioners and in the trade literature, a very different explanation, in the form of “business model,” is commonly offered for why some firms do better than others (e.g., (Kaplan et al., 2004), (Slywotzky et al., 1997), (Timmers, 1998), (Tapscott et al., 2000)). Many people – corporate executives and especially venture capitalists – attribute the success of firms like Amway, eBay, Dell, and Wal*Mart, for example, not only to their industry or to their firm-specific capabilities, but also to their innovative business models. And among executives, “innovation in products, services, and business models” is the single factor contributing the most to the accelerating pace of change in the global business environment, outranking other factors related to information and the Internet, talent, trade barriers, greater access to cheaper labor and capital ((McKinsey, 2006)). In this paper, we provide one definition of “business model” that captures the similarities among the definitions provided by others, and relies on two fundamental intellectual traditions. The main question is how much business model, even in the simple way defined, matters to performance. Our definition of business model is a typological one. In section 3, we describe this definition in the form of sixteen business models, such as Manufacturer and Wholesaler/Retailer. This typology is built