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It is not the technology that provides excellence in this digital era but the business models that are built to leverage this technology as the backbone.Uber, Netflix and Airbnb are successful examples of technology-backed business models that have gone far beyond the initial excitement, have become highly sustainable, and have sprung an environment of highly competitive and similar disruptive organizations!
The startup arena is filled with examples of sustainable excellence, and over the decade, some models have proved to be so successful that they have defied the status quo and everything we know about how business is conducted.
This has encouraged greater openness in large corporate and global giants to embed these models within their business structure.These models will no longer be niche but will have much more widespread adoption in the business ecosystem in future.
For an inspiring enterpreneur, it is not about ideas, rather about comprehending and exploring current organizations that have not innovated their products or services, and have a large consumer or installed base. Netflix, Amazon, Uber, and Airbnb did not create anything new in terms of products but they are clearly game-changers in an industry that was not being innovative, and was ripe for disruption. In other words, they focused on a strategy known as Blue Ocean, conceived and supported by Management thought-leaders.
The Blue Ocean Strategy challenges everything one thought one knew about the formula for entrepreneurial success. It says that the best way to defeat the competition is to make it irrelevant. Imagine that the marketplace is comprised of red and blue oceans. To discover an elusive blue ocean, it is recommend that businesses consider what they term as the “Four Actions Framework” to reconstruct buyer-value elements in creating an innovation wave. The framework poses four key questions:
∙ Raise: What aspects should be elevated well above the industry standard?
∙ Reduce: What facets were outcome of competing against other industries, and can be reduced?
∙ Eliminate: What parameters should be eliminated, which the industry has long competed on?
∙ Create: What value should be created that the business has never offered?
Let us inspect what these once-outliers and now market-leaders did, with the Blue Ocean Strategy in mind. Amazon did not build brick and mortar bookstores, instead provided access to a million book titles and competed well with Borders and Barnes & Noble.
Netflix did not use stores in its business model to compete with Blockbuster; instead they focused on customer service. Uber focused on creating a mobile app instead of buying cars or competing with taxi companies.AirBnb does not own homes or hotels , but still transformed the travel experience by onboarding existing property owners onto a common easy-to-use platform.
Existing marketplaces with a large number of competitors live in crowded, shark-infested red oceans. They are characterized by multiple organizations offering similar products competing mostly on price. Home Depot versus Lowes, LG versus Samsung and so on. Meanwhile, blue oceans are characterized by unaddressed market space, demand creation, and the opportunity for highly profitable growth!
An entrepreneur needs to examine large industries or product lines to see if customers are happy with their current choices. In case customers are not ecstatic, one needs to dig deeper.Dollar Shave Club with razors or MailChimp with email marketing automation did not create a completely new and previously unheard of product. But rather innovated the existing product in the marketplace, or they offered a simple innovation or twist to the business model. In almost every case, the customer is happier with the new company or product.
Freemium is the 21st-century answer to show and tell. Companies develop mobile apps and Software As A Service (SaaS) tools but don’t make all the features freely available to users. Instead, advanced features are offered at an extra charge or ‘subscription’ cost. The idea is to provide product demonstration and build customer loyalty. This concept generates significant traffic and it gets easier to influence these hot leads to convert to paid customers.
The key to success with this model is carefully selecting which features to offer as free, and which to keep gated. Many popular apps, such as Dropbox and Spotify, are using this business model.Dropbox provided 2 GB of free storage to 500 million users and then offered them an upgrade. In 2017, the company was able to convert 11 million users into paid customers, generating a revenue of $1B. Spotify, a digital music service that offers users the option of making a ‘Spotify Premium’ account to get access to certain features, has earned $1.67 billion so far from sales in 2019.
MOOC was crafted on the concept of connecting universities and students through a technology platform to take learning to the global level.While most of the courses are free, only specialization or certification courses are charged.
Udemy, Coursera, EdX, Udacity, and Udemy – the Masters of MOOC learning – had together collected revenues of $100 million in 2017 by offering over 6850 courses from over 700 universities through their online platforms. Udemy has 30 million subscribers, Coursera has 23 million, edX 10 million, and Udacity 4 million. And the subscriber base is only growing, making way for more business!
Traditional business models pedaled products that were standardized for the masses. But with new age technologies offering flexibilities in production, what we’re observing now is democratization and customization for the masses. It’s all about shifting power control to customers by allowing them to ‘choose how they use’ one’s product or service. Customization is done either in product features, in its presentation or both, while the approach could be collaborative, transparent, adaptive or cosmetic. Volkswagen/Volvo have done at-scale customized car manufacturing.
Collaborative customization: This is done by direct interaction with customers to get familiarity with their needs and then matching them by embedding custom features in the final products. Dell configuring personal computers based on individual request has been a long-standing examples of this strategy.
Adaptive customization: Standard product is offered to customers but with some customization options. Tesla is a shining example of Adaptive customization offering customers, add-on bells and whistles, software upgrades to their standard automobile features.
Cosmetic customization: It involves selling the same product with packaging and presentation that differs for different customer segments. Car rental firms, such as Hertz, offer a gold status to its customers based on loyalty points, allowing them to bypass check-in counters.
Transparent customization: Products are designed or produced exclusively for specific segments, but customers are not made aware of that. ChemStation, for example, is a soap manufacturer that analyzes customer needs and accordingly offers a customized mixture.
Mass customization is the only way businesses can future-proof their success. Enterprises can use technologies like analytics, IoT, Big Data, and CRM to understand their customers and tailor their products and services to provide customers a truly personalized experience. Some Decentralized models have begun to take shape as well, with the advent of Blockchain technologies.
The spine, anchoring these innovative business models, is the transformational technology that offers solutions for new-age business problems – technologies that entrepreneurs can utilize to design new products and services. The success of a business, however, depends on the skills of an enterprise to understand its customers and create a model that is sustainable in the long term.
Business model changes are bound to happen, but the level of disruption is driven primarily by the role of the customer as the fulcrum. Innovation and improvement can occur anywhere within an organization, and one cannot look at one’s enterprise in black & white, of being either efficient or flexible. Functions need to be identified for both efficiency and adaptability, and more importantly, the realization that how one’s customers engage with you today may not be how they will engage tomorrow.