Designing Innovative Business Models
While everyone in the tech industry focuses on innovation of their product, one great way to create value is considering innovation of your business model. In past few years, we've witnessed a number of technology companies creating or completely transforming entire industries. Some examples include Amazon Kindle, Apple iPhone, Google Android and NetFlix. If we see in all these cases, their success was not the result of new or disruptive technology advancement, but rather a unique technology application based on a business model innovation that was disruptive in some way. An innovative business model can create a new market or allow you to exploit new opportunities in existing markets. Your business model can make the difference between world-leading success and dismal failure.
• Just ask the people behind the Xerox 914. In 1959, the first dry-process, plain-paper copier was a potential game-changer — but it cost six times the price of alternatives. Potential partners wouldn’t touch it. So the company developed a new business model. Rather than selling the machine, they leased it for $95 a month and charged a few cents per copy for copies in excess of 2000 a month. Thanks to the 914′s speed and convenience, customers soon were making tens of thousands of copies in the same period, and the copier that couldn’t be sold suddenly became a huge revenue generator.
• Apple's iTunes, like iPod, was not the first product of its type on the market for purchasing music online, but innovated the business model to sell more iPods by enabling single song downloads for 99 cents and removing all of the listening restrictions that had existed before then (except for DRM). They innovated again with iPhone and the App Store, not by having these products first, but by creating an app ecosystem that was managed outside of the mobile operators. • Dell disrupted the computer industry by making computers to order exemplifies this opportunity.
• Taco Bell, which did not create a large-scale disruption but innovated business model design by sending food in precooked bags to restaurants. This allowed them to price their food less than competitors.
Multiple ways companies can innovate their business models:
• Add innovative activities through forward or backward integration. This is referred to as new activity system content. • Link activities in cutting-edge ways; this form of business model innovation is new activity structure. • Change one or more parties that perform any activities, or new activity system governance.
The Power of Business Model Innovation
As companies become successful with a business model and as they mature, they refine and hone their skills and processes to optimize their model. This helps them to achieve scale and high growth and profits. It becomes corporate DNA. Industries tend to be dominated by a single business model, and the market leader will continue to enjoy leadership as long as the business model satisfies the majority of the segment needs. This is why a new entrant attempting to attack a market leader head on using the same business model will likely always lose, regardless of a few interesting feature enhancements.