Business Model: What it is and What it is Not

Abstract

The term “business model” has been misinterpreted and misused over the years, resulting in it being inadequately understood and applied by both practitioners and scholars. It is frequently confused with other popular terms in the management literature such as strategy, business concept, revenue model, economic model or even business process modeling. Our findings suggest that while business model describes what an organization currently is, it needs to be complemented with a strategy and capabilities in order to face upcoming changes. Besides clarifying the meaning and use of the business model terminology, we theorize about its roots through a combination of the resource-based view and transaction cost economics. Finally, we identify new avenues for further research such as the investigation of path dependency in a business model and the meaning of business model innovation. “The definition of a business model is murky at best. Most often, it seems to refer to a loose conception of how a company does business and generates revenue... The business model approach to management becomes an invitation for faulty thinking and self-delusion” (Porter, 2001, p. 73).“While the term ‘business model’ has gained widespread use in the practice community, the academic literature on this topic is fragmented and confounded by inconsistent definitions and construct boundaries” (George & Bock, 2011, p. 83).