If we look at business models in the last century then the major innovation was the introduction by the Ford Motor Company of the assembly line. The approach created competitive advantage through efficiency and since this breakthrough in Detroit which began operation on 1st December 1913 many people have embellished and adapted it to further refine it.
For most of the last century the focus was on efficiency in terms of producing physical products and there was a relentless need to be more efficient than your competitors to retain position.
As we came to towards the end of the twentieth century and with increased use of computers, and wider information technology, customers have been able to leverage the access that it has given them to a global market and commoditise products that were previously value adding to suppliers. There are many examples, for example, who amongst us thinks about where the app that we just bought was produced or gives a second thought when we buy a ticket from New York to Mumbai on say Emirates. We increasingly take for granted the connected world that we live in.
With this increasing pace at which offerings are commoditised businesses are often left with a dilemma as to how they can sustain competitive advantage, as efficiency alone may not be enough. What we have seen to date is a continuum of approaches from the free model at one end, through the ‘freemium model’, the low cost model, the premium model, to name but a few, to the bespoke model at the other end. With all of the models, commoditisation creates a natural drift towards the free model for most products and services and therefore companies are being forced to consider not only where do they position their business model on day 1 but how will they manage the natural drift towards ‘free’ over time to create a though life value profile. The more pragmatic players in this space actively manage their portfolio to accelerate elements of it towards free as a way of expanding market adoption and take up of premium offerings. After all the balancing of yield and load factor is something that airlines have been used to doing for decades.
Such an approach is never simple as it requires multiple, often complex, trade-offs to be made and there will inevitably be more than one option. For those who get it right, whether by luck or judgement, they will create a window of success. Those who get it wrong will likely find themselves failing to unlock the true value of their products or services and will be constantly having to fight a rearguard action.
Only recently we saw in an conference speech, AT&T CEO, Randall Stephenson, saying that he regretted that they made available unlimited data plans at the launch of the iPhone. Hindsight is a wonderful thing, but the feeling is that they got the some of the trade-offs wrong (http://on.mash.to/Itupwu). In this case it didn’t kill the company but in many cases it may well have done or at very least affected the future.
The important learning is that companies need to rebalance the amount of resources that they invest in the ‘business’ solution vs. the ‘technical’ solution. They need to architect an overall solution that ensures coherency, alignment and synchronisation between them and in a way that fits with the external environment of now and the future. In doing this they will tame the inevitable drift of commoditisation and turn it to their advantage.
Fail to do this and they will be constantly tormented by others who have got the balance closer to the optimal.