From Industry Analysis to Business Model Analysis

Almost 20 years ago Michael Porter defined the way industry forces shape the way companies do business. In his book "How information gives you competitive advantage" he talkes about the five forces that define the way a firm will compete. However, 20 years is a long time ago and I believe it is high noon to come up with more adequate models. The business environment has changed and so must the tools we use to analyze the companies we work in!

I propose to use the business model concept as one of the tools to analyse the way a company does business because the industry perspective is out-dated.

The reason I believe this is not because I missed or oversaw the dotcom-bubble birst. The reason is simple: look at industries today and you will find either several different business models co-existing (e.g. transport/airline industry) or you will find it impossible to define the industry (e.g. Apple's iPod/iTunes business model).

Case 1: Same industry & several business models
In the transportation/airline industry we can currently see different business models co-exist. We have the traditional airlines (e.g. flag carriers) and we have the low-cost airlines (e.g. no frills). We might also want to include jet-sharing companies where former first-class customers of traditional airlines migrate to companies that offer co-ownership of private jets.

Case 2: No more clear industry borders
Take Apple to illustrate a company that maintains a business model that does not fit into traditional industry borders. Besides its traditional business of making and selling computers (e.g. iMacs, Power Books, etc.) it sells music over the internet in order to increase its sales of iPods, which is a sort of digital walkman. In terms of industries this business model includes hardware (the iPod), software (iTunes, which is the software to download the music) and entertainement (music).

More on business models in my PhD dissertation.