Five Business Model Patterns
In short Osterwalder and Pigneur describe five patterns: recurring arrangements of the Business Model Canvas building blocks that appear across unrelated industries. Use them as lenses to question an existing business model, not as ready-made answers.
Based on: A. Osterwalder, Y. Pigneur, Business Model Generation, ch. 2 “Patterns”.
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Key ideas#
A business model describes how an organization creates, delivers and captures value. The Business Model Canvas splits it into nine building blocks: customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships and cost structure. A pattern is a recognizable configuration of those blocks.
1. Unbundling#
Drawing on John Hagel and Marc Singer, the authors argue that a company often contains three different businesses: customer relationships (finding and keeping customers), product innovation (developing new products and services) and infrastructure (running platforms for high-volume, repetitive work). Each has its own economics, competition and culture. Bundled together, they create conflicts and trade-offs. Unbundling separates them into focused units or hands some to partners. The book’s example is the mobile operator Bharti Airtel, which outsourced network operations to equipment makers and IT to IBM to concentrate on customers.
2. The long tail#
Based on Chris Anderson’s idea: sell many niche items in small quantities instead of a few bestsellers. Together, the niches can earn as much as a bestseller model. The pattern needs a low cost of carrying each item and a strong platform that connects niche buyers with niche products. The book’s examples include Netflix, eBay, YouTube, Facebook and Lulu.com.
3. Multi-sided platforms#
A platform brings together two or more distinct but interdependent customer groups. It is valuable to one group only if the others are present, and it creates value by enabling their interaction. Its value grows as more users join, which is called the network effect. Examples in the book: Visa, Google, eBay, Microsoft Windows and the Financial Times.
4. Free#
At least one important customer segment benefits from a free offer over the long term, paid for by another part of the model or another segment. Free is less a separate model than a dimension you can combine with any pattern. Examples include the free Metro newspaper, Flickr, open source software, Skype and free mobile phones.
5. Open business models#
Based on Henry Chesbrough’s work: create and capture value by collaborating with outside partners. Outside-in means using external ideas alongside or instead of your own research. Inside-out means offering your unused ideas or assets to others, for example licensing patents you will not use yourself. Examples include Procter & Gamble’s Connect + Develop, GlaxoSmithKline and InnoCentive.
The examples reflect the market when the book was written; what matters is the pattern, not the company.
How to apply it#
- Draw the current canvas with business stakeholders.
- Walk through each pattern and ask its question: - Unbundling: are we mixing customer, innovation and infrastructure businesses that pull in different directions? - Long tail: is there value in many small niches we ignore today? - Multi-sided: do we connect groups who need each other, or could we? - Free: could a free offer to one segment be paid for by another? - Open: which outside ideas could we use, and which of our idle assets could others use?
- Sketch an alternative canvas for each promising answer and note which blocks change.
- Test the alternatives with strategy and financial analysis before turning them into requirements.
Template#
| Pattern | Question for us | Idea | Canvas blocks affected | Explore further? |
|-------------|-----------------|------|------------------------|------------------|
| Unbundling | | | | |
| Long tail | | | | |
| Multi-sided | | | | |
| Free | | | | |
| Open | | | | |
Example#
The Workshop, a fictional chain of bike-repair workshops, reviews its canvas. - Unbundling: it runs a customer business (repairs, booking) and an infrastructure business (parts stock). The team asks whether the parts supplier could hold stock and deliver on demand, so the workshops can focus on customers. - Long tail: parts for older bikes are hard to find. A searchable catalog shared with the supplier could serve those niche customers. - Multi-sided: a booking platform could connect customers with independent mechanics. The owner judges this too far from the core business and drops it. - Free: a free safety check for commuters might bring in repair work. Two workshops will trial it. - Open: the booking module built by the outside development team could be licensed to non-competing workshops elsewhere.
Two ideas go forward to a business case. The patterns did their job: they widened the discussion before it narrowed.
Pitfalls#
- Copying a famous company → use the pattern to ask questions about your own context.
- A free offer with no paying side → name who funds it before going further.
- Redesigning the model on intuition → test ideas with numbers and small pilots.
Sources and further reading#
- A. Osterwalder, Y. Pigneur. Business Model Generation. Wiley, 2010, ch. 2 “Patterns”.
- Original ideas behind three of the patterns, as credited in the book: J. Hagel and M. Singer (unbundling), C. Anderson (the long tail), H. Chesbrough (open business models).