1 The emergence of the business model idea
In Video 1, Professor Baden-Fuller talks about the reason why business model literature has become so popular, and not just among academics. He also introduces you to the different possible definitions of business models.
![](https://www.open.edu/openlearn/pluginfile.php/2929723/mod_oucontent/oucontent/102845/4604c8a7/79e61cbc/b302_2019j_vid317_640x360_still.jpg)
Transcript: Video 1 Definition of business models
The term ‘business model’ is equally applicable to private and public limited companies, but it is possible to see how most of the concepts associated with business models are applicable to organisations in the public and third sectors, as will be seen in the sections that follow.
Activity 1 Conceptualising business models
a.
A business model shows how a company makes money.
b.
A business model reflects how a company creates value for its customers.
c.
A business model shows how a company makes money AND a business model reflects how a company creates value for its customers.
The correct answer is c.
c.
Business models reflect how a company generates revenues. They also indicate how the company creates value for its customers.
According to an extensive literature review of 216 academic papers published between 1995 and 2016, three interpretations of the meaning and function of ‘business models’ have emerged from the management literature (Massa et al., 2017, p. 76):
- business models as attributes of real firms having a direct real impact on business operations
- business models as cognitive/linguistic schema
- business models as conceptual representations/descriptions of how an organisation functions.
You will look at each of these in more detail in the following sections.