Business Model Innovation

There’s a shift in the way businesses make and spend money – not just in the tech industries, but across the board – The cost structures for advertising spend, distribution, accounting PR and customer touchpoints are shifting in response to new technology. Budgeting and forecasting become more uncertain – will your product go viral? how much?

There’s an implication here for credit – in the UK there are low interest rates, political pressure and strong small-business demand for loans, yet few of these are offered, even to secure borrowers. The reason is not that banks are particularly malevolent, and yes banks are trying to deleverage, but there is a more secular issue in play – banks no longer understand some of the businesses they analyse for credit worthiness. This is because business models are undergoing radical shifts compared to times past.

The first of these is the phenomenon of ‘because, not with’ which i talked about previously. Basically this is the move towards free distribution + new ways of leveraging the value created by the free distribution.

For example offers most of its services for free, but leverages the data created by it’s users by selling it as business intelligence. Similarly newspapers moved online to take advantage of the lower cost of distribution, and put in ads, leveraging the higher readership base that comes with giving your commodity away for free (and the lower cost structures).

More interestingly, Pay With A Tweet allows you to ‘buy’ a digital commodity by spreading the word – you leverage your social network to promote their product, in effect you buy their product in exchange for your advertising services. It’s genius.

Secondly we have the business model mashup.

The mashup experiment on Board of Innovation’s LinkedIn group was very interesting – the mashups that came out of it weren’t particularly inspiring, but the idea behind it is great. it marks an openness of thought, a creativity, applied to something as conservative (traditionally) as the business model.

What happens when you mix SaaS with music – well you get Spotify, and what is Spotify doing? it is shifting the relation between the consumer and the commodity from ownership to access. and that’s a very powerful fracture.

Access, not ownership – how far can this idea be pushed? Well, it has application across two main verticals: digital commodities (zero marginal cost of production), and high-idling-capacity items (cars, lawnmowers, drills). Selling digital commodities that can be effortlessly copied and frictionlessly distributed between peers is not a good long term strategy – so instead you give them everything they ever wanted – all the music in the world – in exchange for control of the access.

What’s the significance? There’s an impact here on consumer-merchant relations – the consumer is dependent on the merchant, and continuously so.

Product (means of access) becomes the commodity as much as the commodity itself. 

The merchant continuously mediates the relationship between the consumer and the commodity, placing himself in the middle of the relationship. This has huge implications for how the merchant company needs to be run, where its priorities lie (emphasis on great product, ubiquity of access, instant customer service…)

The list goes on, and will evolve fast, the consumer will continue to be empowered, products will increasingly become cheaper, or free as companies figure out ways of leveraging the value of every aspect of the transaction, rather than just the actual sale.

And all this, incidentally, will have a very interesting deflationary effect at a macro level.

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and follow: @nickdemey


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