Yesterday freelance writer Clint Witchalls interviewed me on business models. The chat was quite fun and Clint asked some good questions. Among many other things we came across the following topics:
- Product/service innovation vs. business model innovation: While the former is - no doubt - important, I believe the latter is much more powerful. Take (once again) Apple's iPod as an example. The reason why that thing is so competitive is because it's not just built on a product. It is also grounded in a powerful business model (at least to date), which includes their iTunes software & shop. Some of Apple's competitors are lining up terribly impressive products and are still staying miles behind...
- Why has the business model concept and business model innovation become so important: I believe business executives have much more choice than 10-15 years ago in designing their business model. Each business model building block allows for a wide range of choices. An executive can design various distribution channel strategies, he can opt for many different types of customer relationships, he can build many diverse revenue streams, he can enrich physical products with information services and, and, and. Much of this was more limited just some years ago.
- Wich people should join the group leading a firm's effort on business model innovation: In my opinion the selection should be as a large as possible. The people should definitely come from different areas of a company. The business model concept is an overarching construction and can help overcome the still dominant silo-thinking that has many companies in its grip. In order for innovative business model building blocks to become reinforcing people must work together from various company backgrounds.
- The different evolution of technological disruption and business model disruptions: I pointed Clint to an article from Constantinos Markides which compares the former to the latter (ref: Disruptive Innovation: In Need of Better Theory). While I don't think the article is very good, it does make one particularly interesting observation: Disruptive technologies tend to replace incumbent technologies, whereas disruptive business models tend to co-exist with incumbent business models. Examples are numerous: airline industry, computer sales, etc. This leads to another interesting point: Various economic areas are increasingly characterised by multiple (innovative) business models.
A last thing I believe is terribly important to understand, but which we haven't discussed in the interview, is the difficulty to classify certain business models among an industry sector. In which industry would you say does Apple's iPod/iTunes initiative operate? Should we classify Apple's business model in the hardware industry, software industry, music industry or even design industry?
What is disturbing is not so much the fact that we can't classify their business model, but that analysts and consultants still largely use methods referring to "industry", while the concept is becoming outdated... Michael Porter's five forces model is such an example. I predict that in the future we will see more and more business models that will be impossible to be classified in specific industries. This means that methods of industry analysis will be of less and less value.