Do Some Business Models Perform Better
than Others? A Study of the 1000 Largest US
Firms

Authors:

Peter Weill,
Thomas W. Malone,
Victoria T. D’Urso,
George Herman,
Stephanie Woerner

Sloan School of Management
Massachusetts Institute of Technology

MIT Sloan School of Management Working Paper No.
MIT Center for Coordination Science Working Paper No. 226

Copyright © 2005 Peter Weill, Thomas W. Malone, Victoria T. D’Urso, George Herman, and Stephanie WoernerAbstract

Despite its common use by academics and managers, the concept of businessmodel remains seldom studied. This paper begins by defining a business model as what abusiness does and how a business makes money doing those things. Then the paper
defines four basic types of business models (Creators, Distributors, Landlords andBrokers). Next, by considering the type of asset involved (Financial, Physical, Intangible,or Human), 16 specialized variations of the four basic business models are defined. Using
this framework, we classify the revenue streams of the top 1000 firms in the US economy
in fiscal year 2000 and analyze their financial performance. The results show thatbusiness models are a better predictor of financial performance than industry
classifications and that some business models do, indeed, perform better than others.
Specifically, selling the right to use assets is more profitable and more highly valued by
the market than selling ownership of assets. Unlike well-known concepts such as industry
classification, therefore, this paper attempts to describe the deeper structure of what firms
do and thereby generate novel insights for researchers, managers and investors.

1 Draft: May 6, 2004

Draft: May 6, 2004

Do Some Business Models Perform Better than Others?
A Study of the 1000 Largest US Firms

Few concepts in business today are as widely discussed—and as seldom systematicallystudied—as the concept of business models. Many people attribute the success of companies
like eBay, Dell, and Amazon, for example, to the ways they used new technologies—not just to
make their operations more efficient—but to create new business models altogether. In spite of
all the talk about business models, however, there have been very few large-scale systematic
empirical studies of them. We do not even know, for instance, how common the different kindsof business models are in the economy and whether some business models have better financial
performance than others.
This paper provides a first attempt to answer these basic questions about business models.
To answer the questions, we first develop a comprehensive typology of four basic types ofbusiness models and 16 specialized variations of these basic types. We hypothesize that thistypology can be used to classify any for-profit enterprise that exists in today’s economy. As
partial confirmation of this hypothesis, we classify the business models of the 1000 largest US
enterprises. Finally, we analyze various kinds of financial performance data for the different
kinds of business models to determine whether some models perform better than others.
We find that some business models are much more common than others, and that somedo, indeed, perform better than others. For example, the most common business models for large
US companies involve selling ownership of assets to customers (e.g. manufacturers anddistributors). However, in the time period of our study (fiscal year 2000), these business models

2Draft: May 6, 2004
perform less well (in terms of both profitability and market value) than business models in whichcustomers use—but don’t buy—assets (e.g. landlords, lenders, publishers, and contractors).
This study does not answer other questions like why these differences exist, whether they
are changing over time, or how individual companies can exploit or modify their businessmodels to improve their performance. But we hope that the work described here will provide afoundation for future work on these questions.
Background
Even though the concept of business model is potentially relevant to all companies, oursearch of the organization, economic, and strategy literatures, found few articles on businessmodels, and no large-scale studies on the topic. Instead several authors have provided usefulframeworks for analyzing businesses, such as profit models (Slywotzky and Morrison, 1997) andstrategy maps (Kaplan and Norton, 2004). These approaches are based on a long tradition ofclassifying firms into “internally consistent sets of firms” referred to as strategic groups or
configurations (Ketchen, Thomas, and Snow 1993). These groups—typically conceived of, andorganized through the use of typologies and taxonomies (e.g., Miles and Snow, 1978; Galbraith
and Schendel, 1983; Miller and Friesen, 1978)—are then often used to explore the determinantsof performance.
Most of the academic research on business models was done in the context of ebusiness—new ways of doing business enabled by information technology. Research on ebusiness models has focused primarily on two complementary streams: taxonomies of businessmodels and definitions of components of business models (Hedman and Kalling, 2001). For
example, Timmers (1998) defines a business model as including an architecture for the product,
service, and information flows, a description of the benefits for the business actors involved, and3

Draft: May 6, 2004a description of the sources of revenue. While Timmer’s definition does not limit the notion of abusiness model to e-commerce, he applies business models to that domain, using two dimensions
1) functional integration (number of functions integrated) and 2) degree of innovation (ranging
from simply translating a traditional business to the Internet, to creating completely new ways of
doing business) resulting in eleven distinct Internet business models.
Business model definitions and descriptions have proliferated since Timmers.

For

example, Tapscott, Ticoll, and Lowy (2000) focus on the system of suppliers, distributors,commerce service providers, infrastructure providers, and customers, labeling this system thebusiness-web or “b-web.” They differentiate business webs along two dimensions: control(from self-control to hierarchical) and value integration (from high to low). Weill and Vitale(2001) include “roles and relationships among a firm’s customers, allies, and suppliers, major
flows of product, information, and money, and major benefits to participants” in their definitionof a business model. They describe eight atomic e-business models, each of which can be
implemented as a pure e-business model or combined to create a hybrid model. Rappa (2003)
defines a business model as “the method of doing business by which a company can sustain
itself” and notes that the business model is clear about how a company generates revenues andwhere it is positioned in the value chain. Rappa presents a taxonomy of business models
observed on the web, currently listing nine categories.
Other definitions of business models emphasize the design of the transactions of a firm increating value (Amit and Zott, 2001), the blend of the value stream for buyers and partners, therevenue stream, and the logical stream (the design of the supply chain) (Mahadevan, 2000), andthe firm’s core logic for creating value (Linder and Cantrell, 2000). In an attempt to integratethese definitions, Osterwalder, Lagha, and Pigneur (2002) propose an e-business framework with4

Draft: May 6, 2004
four pillars: the products and services a firm offers, the infrastructure and network of partners,
the customer relationship capital, and the financial aspects.
Common to all of these definitions of business and e-business models is an emphasis on
how a firm makes money; some go beyond this and discuss creating value. Porter (2001)
described the emphasis in business models on generating revenues as “a far cry from creating
economic value”. In contrast, Magretta (2002) argued that the strength of a business model isthat it tells a story about the business, focusing attention on how pieces of the business fit
together - with the strategy describing how the firm differentiates itself and deals withcompetition. Business models have the added attraction of being potentially comparable acrossindustries.
Defining business models
For a systematic study of business models, we need to define business models anddistinguish their different types. We define a business model as consisting of two elements: (a)what the business does, and (b) how the business makes money doing these things.
To distinguish different types of business models we created a typology of how
companies differ in terms of these two elements. Of course, there is no single right way to
distinguish different types of business models. But some typologies are certainly better—ormore useful—than others. In developing our typology, we focused particularly on trying toachieve the following desirable characteristics (see Scott, 1981, for a related set of criteria fororganizational typologies):(1) The typology should be intuitively sensible. That is, it should capture the common
intuitive sense of what a business model means by grouping together businesses thatseem similar in their business models, and separating businesses that seem different.
5Draft: May 6, 2004
These similarities and differences should not just be at a superficial level (such asgrouping together all businesses in the same industry). Instead, the typology should
group together businesses at the deeper level of how their activities create value. The
names of different categories should also be self-explanatory.
(2) The typology should be comprehensive. That is, it should provide a systematic way ofclassifying all businesses, not just “e-businesses” or any other restricted subset ofcompanies.
(3) The typology should be clearly defined. That is, it should define systematic rules fordetermining the business model(s) of a given company in a way that does not depend on
highly subjective judgment.

While some amount of subjective judgment is always

needed in classifying real organizations, different people should, as much as possible,
classify the same company in the same way, if given the same information.
(4) The typology should be conceptually elegant.

Conceptual elegance is somewhat

subjective, but we were guided by the desire to use as few concepts as possible, with theadditional conditions that the concepts also had to be simple, and as self-evidently
complete as possible.

In developing the typology, we went through three major versions of our typology (andnumerous minor revisions) over the course of three years.

At first, we simply tested our

proposed typologies with obvious examples generated in discussion.

Later, we tested the

proposed typologies more systematically by classifying large numbers of companies. The last
major revision occurred after we had already classified almost 1000 companies and resulted in

6

Draft: May 6, 2004
reclassifying almost all the previously classified companies (often by moving an entire categoryof companies to a new category).
Our final typology is based on two fundamental dimensions of what a business does. The
first dimension—what types of rights are being sold—gives rise to four basic business models:Creator, Distributor, Landlord, and Broker. The second dimension—what type of assets are
involved—distinguishes among four important asset types: physical, financial, intangible, andhuman. This distinction leads to four subcategories within each of the four basic businessmodels for a total of 16 specialized business model types. Of these 16 possible business models,
only 7 are common among large companies in the U.S. today. Together, we call all of thesebusiness model types the MIT Business Model Archetypes (BMAs).
What rights are being sold? The four Basic Business Model Archetypes
The heart of any business is what it sells. And perhaps the most fundamental aspect ofwhat a business sells is what kind of legal rights they are selling. The first, and most obvious,
kind of right a business can sell is the right of ownership of an asset. Customers who buy theright of ownership of an asset have the continuing right to use the asset in (almost) any way theywant including selling, destroying, or disposing of it.
The second obvious kind of right a business can sell is the right to use an asset, such as a
car or a hotel room. Customers buy the right to use the asset in certain ways for a certain periodof time, but the owner of the asset retains ownership and can restrict the ways a customers use
the asset. And, at the end of the time period, all rights revert to the owner.
In addition to these two obvious kinds of rights, there is one other less obvious—butimportant—kind of right a business can sell. This is the right to be matched with potential

7

Draft: May 6, 2004
buyers or sellers of something. A real estate broker, for instance, sells the right to be matchedwith potential buyers or sellers of real estate.
As Figure 1 shows, each of these different kinds of rights corresponds to a different basic
business model. The figure also reflects one further distinction we found useful. For companies
that sell ownership of an asset, we distinguish between those that significantly transform theasset they are selling and those that don’t. This allows us to distinguish between companies thatmake what they sell (like manufacturers) and those that sell things other companies have made(like retailers).

(Insert Figure 1 here.)
We could have ignored this distinction and had only one basic business model (called, forexample, “Seller”) including all companies selling ownership rights. But if we had done so, thevast majority of all companies in the economy would have been in this category, and we would
have lost an important conceptual distinction between two very different kinds of businessmodels: manufacturers and distributors. Conversely, making this distinction in all the otherrows of the table would have divided intuitively sensible categories in ways that are of little
apparent intuitive value in business. For instance, people do not usually distinguish between
landlords that have created the assets they rent out and those that haven’t.
With these two distinctions—kind of rights sold and amount of transformation ofassets—we arrive at the four basic business models shown in Figure 1:(1) A Creator buys raw materials or components from suppliers and then transforms or
assembles them to create a product sold to buyers. This is the predominant business model in all
manufacturing industries. A key distinction between Creators and Distributors (the next model)

8

Draft: May 6, 2004
is that Creators design the products they sell. We classify a company as a Creator, even if it
outsources all the physical manufacturing of its product, as long as it does substantial design ofthe product.
(2) A Distributor buys a product and resells essentially the same product to someone else.
The Distributor may provide additional value by, for example, transporting or repackaging the
product, or by providing customer service. This business model is ubiquitous in wholesale andretail trade.
(3) A Landlord sells the right to use, but not own, an asset for a specified period of time.
Using the word “landlord” in a more general sense than its ordinary English meaning, we define
this basic business model to include not only physical landlords who provide temporary use ofphysical assets (like houses, airline seats and hotel rooms), but also lenders who provide
temporary use of financial assets (like money), and contractors and consultants who provide
services produced by temporary use of human assets.
This business model highlights a deep similarity among superficially different kinds ofbusiness: All these businesses—in very different industries—sell the right to make temporary
use of their assets.
(4) A Broker facilitates sales by matching potential buyers and sellers.

Unlike aDistributor, a Broker does not take ownership of the product being sold. Instead, the Broker
receives a fee (or commission) from the buyer, the seller, or both. This business model iscommon in real estate brokerage, stock brokerage, and insurance brokerage.
What assets are involved? The 16 detailed Business Model Archetypes
The other key distinction we use to classify business models is the type of asset involvedin the rights that are being sold. We consider four types of assets: physical, financial, intangible,
9Draft: May 6, 2004
and human. Physical assets include durable items (such as houses, computers, and machine
tools) as well as nondurable items (such as food, clothing, and paper). Financial assets include
cash and other assets like stocks, bonds, and insurance policies that give their owners rights topotential future cash flows. Intangible assets include legally protected intellectual property (suchas patents, copyrights, trademarks, and trade secrets), as well as other intangible assets likeknowledge, goodwill, and brand image. Human assets include people’s time and effort. Of
course, people are not “assets” in an accounting sense and cannot be bought and sold but theirtime (and knowledge) can be “rented out” for a fee.
As Figure 2 shows, each of the Basic Business Model Archetypes can be used (at least in
principle) with each of these different types of assets. This results in 16 detailed Business Model
Archetypes (BMAs). While all of the models are logically possible, some are quite rare, and two(Human Creator and Human Distributor) are illegal in most places today. Definitions andexamples of these BMAs follow:(Insert Figure 2 here.)(1) An Entrepreneur creates and sells financial assets. The most common case of thisbusiness model occurs in companies or individuals who create and sell other companies.
Examples: Serial entrepreneurs, “incubator” firms, other active investors in very early stage
companies. We use the term “entrepreneur” here in a more restricted sense than the ordinary
English meaning because we don’t include in this business model entrepreneurs who never sell
the companies they create.

10Draft: May 6, 2004
(2) A Manufacturer creates and sells physical assets. Manufacturer is the predominant
type of Creator. Examples: General Motors, Bethlehem Steel.
(3) An Inventor creates and then sells intangible assets such as patents and copyrights.
Companies using this business model exclusively are very rare, but some technology companies
generate part of their revenues this way.
patentsales.lucentssg.com).

Example:Lucent’s Bell Labs (seeFirms that license the use of their intangible assets while stillretaining ownership are not classified as Inventors; they are Intellectual Landlords (see below).
(4) A Human Creator creates and sells human assets. Since selling humans—whether
they were created naturally or artificially—is illegal in most places today, this business model is
included here for logical completeness, but it does not play an important role in the U.S.
economy.
(5) A Financial Trader buys and sells financial assets without significantly transforming(or designing) them. Banks, investment firms, and other financial institutions that invest for theirown account are included in this business model.

Examples: parts of Merrill Lynch andGoldman Sachs.
(6) A Wholesaler/Retailer buys and sells physical assets. This is the most common typeof Distributor. Examples: Wal*Mart, Amazon.
(7) An Intellectual property (IP) Trader buys and sells intangible assets. This businessmodel includes firms that buy and sell intellectual property such as copyrights, patents, domainnames, etc. Example: NTL Inc.
(8) A Human Distributor buys and sells human assets. Like Human Creators, thisbusiness model is illegal and rare in most places and is included here only for logicalcompleteness.

11

Draft: May 6, 2004
(9) A Financial Landlord lets others use cash (or other financial assets) under certain(often time-limited) conditions. There are two major subtypes of this business model:(9a) Lenders provide cash that their customers can use for a limited time in return for afee (usually called “interest”). Examples: Bank of America, Fannie Mae.
(9b) Insurers provide their customers financial reserves that the customers can use only ifthey experience losses. The fee for this service is usually called a “premium.” Examples: Aetna,
Chubb.
(10) A Physical Landlord sells the right to use a physical asset. The asset may, forexample, be a location (such as a hotel room or amusement park) or equipment (such as a rentalcar). Depending on the kind of asset, the payments by customers may be called “rent”, “lease”,“admission”, or other similar terms. This business model is common in industries like real estate
rental and leasing, accommodation, airlines and recreation. Examples: Marriott, Hertz division ofFord.
(11) An Intellectual Landlord licenses or otherwise gets paid for limited use ofintangible assets. There are three major subtypes of Intellectual Landlord:(11a) A Publisher provides limited use of information assets such as software,newspapers, or databases in return for a purchase price or other fee (often called a subscription or
license fee). When a Publisher sells a copy of an information asset, the customer receives certain
limited rights to use the information, but the publisher retains the right to make additional copies
and resell the information. Example: Microsoft. Many publishers also receive revenues fromadvertising that is bundled with the information assets, but this revenue is classified as part of the
Attractor business model (see below).

12

Draft: May 6, 2004(11b) A Brand Manager gets paid for the use of a trademark or other elements of a brand.
This includes franchise fees for businesses such as restaurant or hotel chains.

Example:Wendy’s.
(11c) An Attractor attracts people’s attention using, for example, television programs or
web content and then “sells” that attention (an intangible asset) to advertisers. The Attractor may
devote significant effort to creating or distributing the assets that attract attention, but the sourceof revenue is from the advertisers who pay to deliver a message to the audience that is attracted.
This business model is common in radio and television broadcasting, some forms of publishing,and some Internet-based businesses. Example: New York Times.
(12) A Contractor sells a service provided primarily by people, such as consulting,construction, education, personal care, package delivery, live entertainment or healthcare.
Payment is in the form of a fee for service, often (but not always) based on the amount of time
the service requires. Examples: Accenture, Federal Express.
In most cases, Contractors also require physical assets (such as tools and workspace), andPhysical Landlords also provide human services (such as cleaning hotel rooms and staffing
amusement parts) associated with their physical assets. In cases where substantial amounts ofboth human and physical assets are used to provide a service, we classify a company’s businessmodel (as Contractor or Physical Landlord) on the basis of which kind of asset is “essential” tothe nature of the service being provided.
For example, a passenger airline would generally be considered a Physical Landlord—even though it provides significant human services along with its airplanes—because the essenceof the service provided is to transport passengers from one place to another by airplane.
Conversely, a package delivery service (like Federal Express) would generally be classified as a

13

Draft: May 6, 2004
Contractor because the essence of the service provided is to have packages picked up anddelivered (usually by people) regardless of the physical transportation mode used (bicycle, truck,train, etc.).
(13) A Financial Broker matches buyers and sellers of financial assets. This includes
insurance brokers and stock brokerage functions in many large financial firms. Examples:e*Trade, Schwab.
(14) A Physical Broker matches buyers and sellers of physical assets. Examples: eBay,
Priceline, Century 21.
(15) An Intellectual property (IP) Broker matches buyers and sellers of intangible assets.
Example: Valassis(16) A Human Resources (HR) Broker matches buyers and sellers of human services.
Examples: Robert Half, EDS.
As the subtypes of Financial Landlord and Intellectual Landlord listed above illustrate, it
is certainly possible to subdivide these 16 detailed Business Model Archetypes even further. For
now, however, we have found that this level of granularity provides a useful level of analysis. In
fact, for many purposes, we find it useful to merge the cells in the rows where most of the cells
are sparsely populated.

This leads to the following 7 business models which we call the

Common Business Model Archetypes:

Creator, Distributor, Financial Landlord, PhysicalLandlord, Intellectual Landlord, Contractor, and Broker.
MethodTo answer our basic questions about business models, we needed to select a sample ofcompanies, classify their business models, and then analyze their financial performance.

14

Draft: May 6, 2004
Sample of companies
We chose to use the largest 1000 publicly traded companies based in the United States,with size determined by gross revenues as reported in the COMPUSTAT database for fiscal year
2000.1 Together, these 1000 firms account for 76% of the US Gross Domestic Product. We
chose not to use the Fortune 1000 database because it includes non-publicly traded firms forwhich some of the data needed for our analysis were not available.
Classifying companies’ business models
We classified companies’ business models using the companies’ revenue as a guide(recall the second part of our definition of business models: “how a company makes money”).
We conjectured that many companies would have more than one business model so we classified
a company’s business models separately for each revenue stream the company reported; that acompany had multiple revenue streams, however, did not necessarily mean that a company had
multiple business models.
More specifically, we used: (a) the dollar amounts of the company’s revenue segments asreported by COMPUSTAT or the publicly filed SEC Form 10-K and (b) the textual descriptionsof the revenue segments as reported in the 10-Ks.2 In each case, we read the textual descriptionsof the revenue segments and then, using the definitions of the business models above, classified
the revenue according to which Business Model Archetype(s) it represented.
We faced two major issues in classification. First, we had to interpret the qualitative,
textual descriptions each company provided for its different business segments. Even though
there was, of necessity, some subjective judgment involved in this process, we trained a team ofraters to do this in a reliable and consistent way (see below).

15

Draft: May 6, 2004
Second, when the text indicated that multiple business models were included in a single
reported revenue segment, we had to somehow allocate revenues across the different businessmodels. To do this, we first used any detailed information in the 10-K to make a specific split of
the revenue. In the absence of any such details, we used our judgment to allocate revenue acrossmodels. However, we did not attempt to make arbitrarily fine-grained subjective allocations.
Instead, we either split the revenue evenly across all of the different models that were included in
the segment or, if the text implied that one model was much more important than the others, weassigned all the revenue to that model.
To illustrate these classifications, Figure 3 shows the classification for General Electric(GE). Note, for example, that the line item “Equipment Management (GE Capital Services)” isrepeated and assigned to two different business models (Lender and Contractor). The text of theForm 10-K implied that GE Capital Services both lent money and performed services for theEquipment Management line of business, but it gave no details as to how much of each wasdone. Therefore we split the revenue for the line item equally among the models.

(Insert Figure 3 here.)

In order to classify the large number of companies we needed to analyze, we trained ateam of eight MIT students to use the classification methodology just described.

Eachcompany’s business models were classified by at least one of these students and all theclassifications were also reviewed (and, if necessary, corrected) by a senior MIT research staff
member (Herman). We used an interactive online database to record all the classifications alongwith comments about how classifications were determined.

16

Draft: May 6, 2004
To assess consistency we tested inter-rater reliability among our eight raters for a random
sample of 49 companies. For the 173 revenue line items in these 49 companies, two raters
independently rated each line item. Of these ratings, 90% (156) were identical, and Cohen’s
Kappa statistic was 0.86 (significant at p < .01)3 confirming that the different raters applied theclassification methodology consistently.
Measuring financial performance
There is no universally or even commonly used set of measures for evaluating thefinancial performance of firms. Multiple measures covering investor and accounting returns are
typically recommended (e.g., Brealey and Myers, 2000; Cochran and Woods, 1984) including:
profitability, efficiency, and market value. A wide range of measures has been used in previous
research assessing strategic groups or other organizational factors against firm performance.
(e.g., Ketchen et al, 1993; Capon et al, 1990). For consistency with prior work to evaluate thefinancial performance of strategic groups we followed the lead of Ketchen et al who identified atable of 45 measures of performance in 6 categories: Sales, Equity and Investment, Assets,
Margin and Profit, Market share and Overall (perceptual measures). Like Ketchen et al we usedmeasures from each of these categories that were appropriate for our objective. We dropped theoverall perceptual category (e.g., respondent rating) as not objective and used the sales category
as a control rather than dependent variable as we were not interested in predicting size. We
combined the Equity and Investment and Assets categories and used market valuation rather thanMarket Share as we were more interested in predicting the investor’s view of future performance
rather than share. The result was a performance assessment using two metrics in each of threeclasses of performance: operating income and Economic Value Added4 (as measures of profit),
return on invested capital (ROIC) and return on assets (as a measures of rates of return and17

Draft: May 6, 2004
efficiency), and market capitalization and Tobin’s Q (as a measures of market value). All thesemeasures have been used in many studies of financial performance. For each of the three
performance constructs, the two measures gave very similar results and thus we only report thefirst measure listed.
All of these measures are based on data from the COMPUSTAT database for fiscal year
2000, including any restatements available up until September 30, 2003. To measure operating
income, we used Operating Income Before Depreciation (OIBD), which includes Sales minus
Cost of Goods Sold and Selling, General, and Administrative expenses before deducting
Depreciation, Depletion, and Amortization. We used Operating Income Before Depreciation
instead of Operating Income After Depreciation because depreciation charges can be
manipulated by management in ways that do not necessarily reflect the operating performance ofthe business model. Similarly, other measures of income (such as Net Income) include nonoperating expenses like taxes and interest, and they also include extraordinary items like buying
and selling other companies. While these other measures are useful for evaluating the overall
performance of a company and its management, they are not as direct a measure of the operating
performance of the business models themselves.
To measure ROIC, we used OIBD divided by Total Invested Capital. Total Invested
Capital is the sum of the following items: Total Long-Term Debt, Preferred Stock, Minority
Interest, and Total Common Equity5.

To measure market capitalization, we used the

COMPUSTAT variable by the same name, defined as the total number of shares of common
stock outstanding times the share price.
Since these measures of financial performance are reported only for the firm as a whole,
we use regression equations in which each business model gets “credit” for the performance of18

Draft: May 6, 2004
the whole firm in proportion to the amount of revenue from that business model.

Two of ourperformance measures (operating income and market capitalization) are measured in dollars,
while ROIC is a ratio. These two different kinds of measures require different kinds of statisticaltreatment.
Estimation for Dollar-Amount Performance Measures.

Both operating income andmarket capitalization are highly correlated with revenue (correlations of .75 and .64,
respectively). To control for firm size, therefore, we include total firm revenues as one of thecontrol variables in the equation:

P = α + β1(BM1) + β2(BM2) + . . . + βn-1(BMn-1) + γ1R + γ2ln(E) + δ1I1 + δ2I2 +. . .+ δ20I20 + ε

where P is firm performance, the explanatory variables BMi denote the dollar amount revenues
from each business model in the firm, R is total firm revenue, and ε is the normally distributed
error term. Two other types of controls are also used: E is the number of employees in the firm,and Ii is 1 if the firm is classified in industry group i, 0 otherwise.

For these industry

classifications, we use the two-digit NAICS6 code of the main industry group into which thecompany is classified in COMPUSTAT. Each firm is classified into a single industry group even
if it actually participates in multiple industries. The firms in our sample were classified into a
total of 20 industry groups.
Since the total of the revenues from all business models (∑BMi) is the same as R, there isa potential problem with multi-collinearity in the regression. To avoid this problem, we omit oneof the types of business model and use it as a baseline reference for the performance of the19Draft: May 6, 2004
remaining models. In each case, we (arbitrarily) pick the most common business model in theset of business models being compared as the baseline.
Estimation for Return on Invested Capital. When using the ROIC to measure firm
performance, we use ratios (instead of dollar amounts) for business model participation:

ROIC = α + β1(bm1) + β2(bm2) + . . . + βn-1(bmn-1) + γ1R + γ2ln(E) + δ1I1 + δ2I2 +. . .+ δ20I20 + ε

where bmi stands for the percentage of total firm revenue attributable to business model i, and all
the other variables are the same as above. In this case, the total of contributions from all thebusiness models is 1, so we again exclude one of the business model categories.
Results
Distribution of Business Models
Figure 4 shows the distribution of different business models in our sample of large US
firms. By far the most common basic business model in our sample is Creator, with 46% of total
revenues of the firms in our sample falling within this category. Landlord type models accountfor 34% of total revenues, followed by Distributors with 18% of total revenues, and Brokers with
2%. In addition, an overwhelming portion (70%) of the business of large-revenue, publicly
traded firms still involves physical assets. Financial and Human assets account for 12% and13%, respectively, and Intangible assets are only 4% of the revenues of large firms. Figure 4 also
shows the numbers of firms generating revenues with each model and asset type.

(Insert Figure 4 here.)20

Draft: May 6, 2004
The distribution of asset types among the different basic business models also presents an
intriguing pattern. Two of the basic business models have almost all their revenues concentrated
in only one or two types of asset (physical assets for Creators, physical and financial assets forDistributors), while the other two basic business models (Landlords and Brokers) have theirrevenues spread fairly evenly across all asset types.
Financial performance of Business Models
Figure 5 shows sample regression results for predicting one of our measures—Operating
Income Before Depreciation—with and without business models as predictors. In the regression
without business models as predictors, only one variable is significant, total firm revenue, andthe total variance explained is only 59% (as measured by the adjusted R2). In the regression withbusiness models as predictors, all three of the business models included are significant
predictors, and the total variance (adjusted R Square) explained increases to 83%.

(Insert Figure 5 here.)This means, first of all, that a company’s business models are substantially better
predictors of its operating income than its industry classification and other control variables
alone. Second, we can interpret the business model coefficients as follows: Increases in acompany’s revenue from the Broker or Landlord business models are associated withsignificantly greater increases in the company’s operating income than an equal increase in theirCreator or Distributor revenue. Figures 6, 7, and 8, summarize similar regressions for the three
performance measures Operating Income, Return on Investment, and Market Capitalization,
respectively. Each table summarizes three regressions: one regression comparing the four Basic21

Draft: May 6, 2004
Business Model Archetypes (rows); one comparing the four asset types (columns), and one
comparing the 12 detailed Business Model Archetypes (interior cells) with non-zero
representation in our sample. In each regression, a baseline model is used: Creator for the row
comparisons, Physical assets for the column comparisons, and Manufacturer for the interior cellcomparisons. The significance tests shown are tests of difference from the relevant baselinemodel in each case.

(Insert Figures 6, 7, and 8 here.)

The coefficients in these three Figures have been scaled to be interpretable as changes per$1M of revenue (for Operating Income and Market Capitalization) and per 1% change in revenue(for ROIC). For instance, the coefficient of -0.074 for Distributor revenue in Figure 5 is shown
as -$74,000 in Figure 6. This means that $1M in Distributor revenue (instead of Creator
revenue) is associated with a decrease of $74,000 in Operating Income.
The most important results shown in these three figures involve the row and column
comparisons. Both Brokers and Landlords have significantly higher Operating Income thanCreators and Distributors.7

Brokers and Landlords also have significantly higher Market

Capitalization than Creators, but we don’t know whether the differences are significant forDistributors.

Similarly, business models based on the three non-physical types of assets(Financial, Intangible, and Human) all have significantly higher Operating Income and Market
Capitalization than those based on Physical assets. The interior cell comparisons are also
qualitatively quite consistent with these row and column results.

22

Draft: May 6, 2004
Interestingly, there are essentially no significant differences among any of the businessmodels for ROIC. Only 1 of the 17 tests shown in the table for Return on Investment issignificant, and that is only at the 5% level.8 This result is quite consistent with an efficient
markets hypothesis:

If some business models consistently generated higher returns on

investment than others, then we should expect to see investment capital migrate to those businessmodels until that was no longer the case. The efficient markets hypothesis, however, would notnecessarily lead to the same prediction about our other measures. Even in an efficient market,
some business models could generate higher incomes or market capitalization than others, evenafter adjusting for revenue and industry.
For instance, one possible explanation for the result that Landlords have higher Operating
Income and Market Capitalization than Creators and Distributors could be the following:
Creators and Distributors need only enough capital to create or acquire the assets they sell, andthen their customers take over financing ownership of the assets. Landlords, on the other hand,need enough capital to finance ownership of the assets throughout their useful lives. This means,
first of all, that Landlords should have higher depreciation charges, and thus that the effect might
disappear if we were to use Operating Income After Depreciation (OIAD) instead of Operating
Income Before Depreciation (OIBD). Second, this need for additional capital could lead to aneed for higher Market Capitalization (controlling for revenue).

To compensate investors forthis additional capital requirement, Operating Income (controlling for Revenue) would also need
to be higher.
To test these possible explanations for our results, we first ran the same regression withOIAD instead of OIBD. This changed the absolute values of the coefficients, but both Brokers
and Landlords still had significantly higher Operating Income than Creators and Distributors.

23

Draft: May 6, 2004
Next, we added Total Invested Capital as a control variable in the regressions for OIBD andMarket Capitalization. Surprisingly, adding this control variable also made almost no differencein the qualitative results.9 There must, therefore, be some other—less obvious—explanation forour results.
Figure 9 summarizes our key results with the rank orderings of the 7 most common
business models in the largest U.S firms. The four cells in the Landlord row are broken out
separately, and the other three rows have their interior cells merged. Again, it’s clear that
Brokers and all four types of Landlords have both higher Operating Income and higher Market
Capitalization than Creators and Distributors (with uncertainty about whether the difference inMarket Capitalization is significant for Distributors). For both these measures, it is striking that
all four types of Landlords cluster together in the rank orderings, even though they are in very
different types of industries.

These results also show, again, very weak or nonexistentdifferences among the different business models in Return on Investment.

(Insert Figure 9 here.)
Discussion
Our results have answered—in the affirmative—the question posed by the title of ourpaper. For at least two broad measures of financial performance—profit and market value —some business models do, indeed, perform better than others. Furthermore, business model
classifications are better predictors of these measures of financial performance than two-digit
industry codes. Why should this be so? One possible explanation is simply that our businessmodel classifications are much more precise than COMPUSTAT's industry classifications. We
classified each of a company’s revenue streams individually and used a percentage weighting of24

Draft: May 6, 2004
these classifications to explain performance rather than using a single industry classification for
the entire company.
Another possible explanation—more consistent with our conceptual approach—is thatour business models capture the essence of what a company does more accurately than its
industry. In some cases, our models make finer distinctions than industry classifications. For
instance, NAICS industry code 53 (Real Estate and Rental and Leasing) lumps together three
types of businesses (real estate lessors, real estate brokers, and real estate property managers)which we would classify in three different business models (Physical Landlord, Physical Broker,
and Contractor, respectively). In other cases, our models group together industries that seemvery different on the surface but that actually have deep similarities. For instance, we include all
the following industries in our Landlord business model: real estate leasing (NAICS 5311),
transportation (NAICS 48), accommodation (NAICS 721), and publishing (NAICS 511).
Perhaps most intriguing is that—at least during fiscal year 2000—selling use of assets tocustomers was more profitable, and more highly valued by the market, than selling ownership ofassets. Our conceptual model distinguishes sellers of assets (Creators and Distributors) fromsellers of use (Landlords and Brokers). Landlords sell the use of their financial, physical,
intangible or human assets. Brokers sell use of their expertise and contacts to provide a match
between buyers and sellers of any of the four types of assets. These conceptual differences may
provide some insight to help explain the performance differentials.
Sellers of use, like providers of service tend to have capabilities “derived fromidiosyncratic assets (such as investments in training and knowledge)” (Brouthers and Brouthers,2003) with a greater involvement of the end consumer in the transaction. Sellers of ownership,
like manufacturers, are more dependent on the capital and associated skills required to produce

25Draft: May 6, 2004
and distribute the physical assets typically with less direct involvement of the consumer. In
addition to the use-ownership differences, we found that business models based on non-physicalassets were more profitable (and associated with higher market capitalization) than those basedon physical assets. These benefits of idiosyncratic and non-physical assets (e.g. knowledge,
customer relationships) may have been particularly significant (especially for market valuation
measures) in the year 2000 when the value of online and intangible assets was at a peak.
However, the trend toward selling services and use with a reliance on non-physical assets andrelationships appears to be continuing today in the U.S. economy if at a more modest andrealistic pace. In future work, we intend to investigate whether this performance difference isevident in a longitudinal analysis.

Conclusion
In this paper, we have taken a first step toward the systematic study of business models.
We have defined a reliable and practical classification framework for business models, and wehave classified the 1000 largest public US companies using this framework.

Using thisframework, we found that some business models do, indeed, perform better than others on key
measures of financial performance.
We hope that our results so far will be useful to several different kinds of readers. First,
we hope they can help researchers systematically analyze changes over time in the businessmodels of individual companies and whole populations of companies.

We are especiallyinterested, for example, in how this can shed light on the changes in our economy due to theincreasing use of information technology. Second, we hope that managers can use our businessmodel concepts to understand at a deeper level the structural choices they have to make about
26

Draft: May 6, 2004
their own companies’ business models and how to manage these different business models
effectively. Finally, we hope that our framework can provide investors with a useful lens foranalyzing potential investments. Unlike well-known concepts such as industry classification,
this perspective focuses on the deep structure of what companies actually do. And, since thisperspective is not yet well-known, it may lead to novel insights about which investment
opportunities are most attractive.
In any case, we believe that the work we have done so far is only the beginning of thesystematic study of business models. We believe it raises more questions than it answers, andwe hope it will provide a foundation for future work on these important questions
Acknowledgements
We would especially like to thank Tom Apel for his insights and exemplary software
support for this project and the extensive datasets it involved. In a future paper, we hope toreport on his even more impressive work on automatic classification of business models. We are
grateful for the insightful comments of Erik Brynjolffson, S.P. Kothari, Wanda Orlikowski and
JoAnne Yates on earlier versions of this paper. We would also like to thank Rani Bhuva, Preeti
Chadha, Armando Herrera, J B. Hohm, Sonia E. Koshy, Kelsey Presson, Kristen Quinn, Elisa
Rah, Alice Takajan, Isaac Taylor, and Jason Yeung for their work on coding business models,and Aaron Johnson and Jon Scott for their work on selecting financial performance measures.
This research was funded by the National Science Foundation under grant number IIS-0085725.

27

Draft: May 6, 2004
References
Amit, Raphael and Christoph Zott. “Value Creation in e-Business,” Strategic Management
Journal, 22: 493-520 (2001).
Brealey, Richard A. and Stewart C. Myers. Principles of Corporate Finance, 6th ed. Irwin
McGraw-Hill: Boston (2000).
Brewer, Peter C., Gyan Chandra, and Clayton A. Hock. “Economic Value Added (EVA): Its
Uses and Limitations,” Advanced Management Journal, Spring, (1999); 64, 2, pg. 4.
Brouthers, Keith D. and Lance Eliot Brouthers. “Why Service and Manufacturing Entry Mode
Choices Differ: The Influence of Transaction Cost Factors, Risk and Trust,” The Journalof Management Studies, (July 2003), Vol. 40, Iss. 5; pg. 1179.
Capon, Noel, John U. Farley, and Scott Hoenig. “Competitive Strategy: Determinants ofFinancial Performance: A Meta-Analysis,” Management Science, Vol. 36, No. 10, (Oct.
1990), pp. 1143-1159.
Cohen, J. “A Coefficient of Agreement for Nominal Scales,” Educational and Psychological
Measurement, 20:37-46 (1960).
Cochran P.L. and R.A. Woods. “Social Responsibility and Financial Performance,” Academy ofManagement, Journal Vol. 27, No. 1, 42-56, (1984).
Galbraith, C. and D. Schendel. “An Empirical Analysis of Strategy Types,” Strategy
Management Journal, (1983) 4: 153-173.
Hedman, Jonas and Thomas Kalling. “The Business Model: A Means to Understand theBusiness Context of Information and Communication Technology, Institute of Economic
Research Working Paper Series, School of Economics and Management, Lund
University (2001).

28

Draft: May 6, 2004
Kaplan Robert S. and David P. Norton. Strategy Maps: Converting Intangible Assets in to
Tangible Outcomes, Harvard Business School Press: Boston, MA. (2004).
Ketchen, David J. Jr., James B. Thomas, and Charles C. Snow. “Configurational Approaches toOrganization Organizational Configurations and Performance: A Comparison ofTheoretical Approaches (Special Research Forum)” Academy of Management Journal,
Vol. 36, No. 6. (Dec.1993), pp. 1278-1313.
Lang, Larry H. P. and Stulz, Rene, “Tobin’s q, Corporate Diversification and Firm
Performance,” The Journal of Political Economy, Vol. 102, Issue 6 (Dec. 1994), 12481280.
Linder, Jane and Susan Cantrell. “Changing Business Models: Surveying the Landscape,”
Working Paper, Accenture Institute for Strategic Change (2000).
Magretta, Joan. “Why Business Models Matter,” Harvard Business Review, pp. 3-8 (May 2002).
Mahadevan, B. “Business Models for Internet-Based E-Commerce,” California Management
Review, Vol. 42, No. 4 (Summer 2000).
Miles, G. E., and C. C. Snow. Organizational Strategy, Structure and Process, New York:
McGraw-Hill (1978).
Miller, D., and P. H. Friesen. “Archetypes of Strategy Formulation,” Management Science, 24:
921-933 (1978).
Osterwalder, Alexander, Sarra Ben Lagha, and Yves Pigneur. “An Ontology for Developing eBusiness Models,” Proceedings of the International Conference on Decision Making and
Decision Support in the Internet Age (IFIP), Cork, Ireland (2002).
Porter, Michael. “Strategy and the Internet,” Harvard Business Review, pp. 62-78 (March 2001).

29

Draft: May 6, 2004
Rappa, Michael. Managing the Digital Enterprise: Business Models on the Web,http://digitalenterprise.org/models/models.html (retrieved 5 April 2003).
Scott, W. Richard. Organizations: Rational, Natural, and Open Systems (1st edition), PrenticeHall, Inc.: Englewood Cliffs, NJ (1981).
Slywotzky, Adrian J., and David J. The Profit Zone, Times Books: New York, NY (1997).
Tapscott, Don, David Ticoll, and Alex Lowy. Digital Capital: Harnessing the Power ofBusiness Webs, Harvard Business School Press: Boston, MA (2000).
Timmers, Paul. “Business Models for Electronic Markets,” Electronic Markets, Vol. 8, No. 2,
pp. 3-8 (1998).
Weill, Peter and Michael R. Vitale. Place to Space: Migrating to eBusiness Models. Harvard
Business School Press: Boston, MA. (2001).

30

Draft: May 6, 2004
Figure 1. The Four Basic Business Model Archetypes

What rights are being sold?
Ownership of Asset

How much does the business transform the asset?
Significant

LimitedCreatorDistributor

Use of Asset

Landlord

Matching of buyer and seller

BrokerFigure 2. The Sixteen Detailed Business Model Archetypes

Basic Business
Model Archetype

What type of asset is involved?
Financial

PhysicalIntangible

Human

Creator

Entrepreneur

Manufacturer

Inventor

Human
Creator*Distributor

Financial
TraderWholesaler/
Retailer

IP Trader

Human
Distributor*

Landlord

Financial
Landlord

PhysicalLandlord

Intellectual
Landlord

Contractor

Financial
BrokerPhysical Broker

IP Broker

HR Broker

Broker* These models are illegal in the US and most places today because they involve selling humanbeings. They are included here for logical completeness.

31

Draft: May 6, 2004
Figure 3. Classification of General Electric Revenue for FY2000
Company Segment

Revenue in % of$000
Revenue

Business Model
Archetype

Split

Aircraft Engines

10,779

8.16

Manufacturer

All Other(GE Capital Services)

4,582

3.47

Distributor

Appliances

5,887

4.46

Manufacturer

Consumer Services(GE Capital Services)

23,893

18.09

Financial Landlord(Lender)

Equipment Management(GE Capital Services)

7,374

5.58

Financial Landlord(Lender)50%

Equipment Management(GE Capital Services)

7,374

5.58

Contractor

50%

Industrial Products &Systems

11,8488.97

Manufacturer

Mid-Market Financing(GE Capital Services)

5,483

4.15

Financial Landlord(Lender)

NBC

6,797

5.15

IP landlord

Plastics

7,776

5.89

Manufacturer

Power Systems

14,861

11.25

Manufacturer

Specialized Financing(GE Capital Services)

5,648

4.28

Financial Landlord(Lender)

Specialty Insurance(GE Capital Services)

11,878

8.99

Financial Landlord(Insurer)

Technical Products &Services

7,915

5.99

Manufacturer

Total Revenue$132,094

32

Draft: May 6, 2004
Figure 4. Distribution of Business Model Archetypes
Percent = Percent of total sample revenue in Business Model Archetype
Number = Number of firms with any revenue in Business Model Archetype

What type of asset is involved?
Basic Business Model
Archetype
Creator

What rights are being sold?

(ownership of asset
with significant
transformation)

Distributor

Financial

PhysicalIntangible

Human

Entrepreneur

Manufacturer

Inventor

Human Creator(0%; 0)(46%; 565)

(0%; 0)(0%; 0)IP Trader

Human
Distributor(ownership of asset
with limited
transformation)

Financial
TraderWholesaler/
Retailer(~0%; 34)

(18%; 258)

Landlord

Financial
Landlord

PhysicalLandlord

Intellectual
Landlord(10%; 187)

(6%; 132)(5%; 85)

Financial
BrokerPhysical Broker

IP Broker

HR Broker(~0%; 15)(~0%; 1)(~0%; 5)(71%; 774)

(5%; 86)(13%; 308)

(use of asset)

Broker(matching of buyer
and seller)

Total byAsset Type(2%; 55)(12%; 205)(~0%; 2)

Total byAsset Right(46%; 565)

(18%; 288)

(0%; 0)Contractor(13%; 308)

(34%; 516)

(2%; 75)

100%; NA

Note: All the non-negligible revenues from the entire sample are included in the 7 highlighted
cells.

33

Draft: May 6, 2004

Figure 5. Regression Coefficients for Predicting Operating Income Before Depreciation withand without Business Models

Without business models

With business models

Creator Revenue (Baseline)——

Distributor Revenue—-0.074**Landlord Revenue—

0.231**

Broker Revenue—

0.801**

Total Firm Revenue

0.19**

0.143**Ln (Employees)

73.1

-106*

Industry control for Postal
Service, Couriers, Warehousing
and Storage-455-2976**

Other 19 industry controls not
significant and not shown…

…

…

Adjusted R-squared

0.59

0.83

N

983

983

* p < .05** p < .01
Note: N is less than 1000 because 17 firms have either an industry classification or number of
employees missing in the COMPUSTAT database.

34

Draft: May 6, 2004
Figure 6. Performance of Different Business Model Archetypes on Operating Income
What type of asset is involved?
Basic Business
Model
Archetype

Financial

PhysicalIntangible

Human

Performance by
Basic Business
Model Archetype

Creator--Baseline----

Baseline

Distributor$525,000**-$79,000**$10,448,000---$74,000**

Landlord$238,000**$263,000**$269,000**$60,000**$231,000**Broker$871,000**-$568,000**-$11,745,000-$180,000$801,000**

Performance byasset type$36,000**

Baseline$20,000**$9,000**** p < .01
Cells represent predicted changes in Operating Income per $1M increase of revenue.
Figure 7. Performance of Different Business Model Archetypes on ROIC
What type of asset is involved?

Performance by
Basic Business
Model
Archetype

Basic Business
Model
Archetype

Financial

PhysicalIntangible

Human

Creator--Baseline----

Baseline

Distributor

-2.4%

-0.2%

-447%

--

-1.5%

Landlord

-26%

-22%*

-9.2%

-10%

-14.3%

Broker

1.6%

-25%

1960%

-56%

-0.04%

Performance byasset type-11.1%

Baseline

5.1%

-1.0%

* p < .05
Cells represent predicted changes in ROIC per 1% increase of revenue but are not interpretable
as the coefficients are not significant.
35

Draft: May 6, 2004

Figure 8. Performance of Different Business Model Archetypes on Market Capitalization
What type of asset is involved?

Performance by
Basic Business
Model
Archetype

Basic Business
Model
Archetype

Financial

PhysicalIntangible

Human

Creator--Baseline----

Baseline

Distributor-$985,000$413,000**-$98,867,000--$380,000**

Landlord$1,989,000**$1,034,000**$7,880,000**$1,817,000**$1,899,000**Broker$709,000$3,138,000$71,220,000-$2,718,000$666,000**

Baseline$7,500,000**$1,300,000**

Performance by$1,400,000**
asset type** p < .01
Cells represent predicted changes in Market Cap per $1M increase of revenue.

36

Draft: May 6, 2004

Figure 9. Rank Orderings of the Seven Common Business Models on Three Performance
Measures

Operating Income

Market Capitalization

Broker$819,000**Intellectual Landlord$7,910,000**

Physical Landlord$269,000**Financial Landlord$1,965,000**Intellectual Landlord$266,000**

Contractor$1,742,000**Financial Landlord$253,000**

Physical Landlord$1,042,000**

Contractor$81,000**

Broker$731,000

Creator

BASELINE

Distributor$401,000**

Distributor-$73,000**

Creator

BASELINE

Return on Investment
Creator

BASELINE

Distributor-0.38%

Broker

-8.6%

Intellectual Landlord-9.3%

Contractor-10.8%

Physical Landlord-22.3%*

Financial Landlord-27.9%** p < .05** p < .0137

Draft: May 6, 2004
Notes
1

For information on the COMPUSTAT database, see http://www.compustat.com. Other

studies have used the top gross revenue firms from the COMPUSTAT database as the sample foranalysis (e.g., Lang & Stulz, 1994), but there is no commonly used name for this sample. We
informally call our sample the “SeeIT 1000”, where “SeeIT” stands for “Social and Economic
Explorations of Information Technology,” the name of the NSF project funding this research.
See http://seeit.mit.edu.
2

The US Securities and Exchange Commission (SEC) Form 10-K filings are available at

http://www.sec.gov/edgar/aboutedgar.htm.

We used the versions available from Thomson

Research (formerly Global Access) at http://research.thomsonib.com. We classified companies’
business models during the period September 2001 to September 2003, and we used the mostrecent 10-K available for a company at the time of the analysis. All analysis, however, wasbased on revenue reported for FY 2000.
3

Cohen's Kappa is useful to demonstrate inter-rater reliability for nominal data adjusting

for agreement due to chance. (see Cohen, 1960).
4

Economic Value Added (EVA) refers to a financial performance measure that is basedon operating income after taxes, the investment in assets used to generate that income, and theweighted average cost of capital (Brewer, Chandra, and Hock, 1999).

Stern Stewart has

copyrighted the term EVA, though measures with similar conceptual underpinnings have beenused for years. For more information about EVA, see Stern Stewart’s website:
http://www.sternstewart.com/evaabout/whatis.php

38

Draft: May 6, 2004

5

Note that the standard COMPUSTAT definition of ROI uses Income Before

Extraordinary Items in the numerator, but we used OIBD instead for the reasons describedabove.
6

North American Industry Classification System. For a description see

www.census.gov/epcd/www/naics.html.
7

Even though not shown here, we also performed similar regressions for Economic

Value Added (EVA), a measure of income that subtracts out the cost of the capital used to
produce the income. The relative sizes of the coefficients and the significant differences in these
regressions were almost identical to the ones shown here for Operating Income.
8

Even though not shown here, we also performed similar regressions for Return on

Assets. Here, too, there were only four significant differences, all at only the 5% level.
9Adding Total Invested Capital as a control in the regressions for the four rows and fourcolumns leaves the rank ordering of coefficients and the significance levels unchanged with two
exceptions (both for Market Capitalization): (1) the comparison between the Broker and Creatorrows is not statistically significant, and (2) the rank ordering of the Human and Financial asset
columns is reversed.

39