There are times in history when economic sensibility has headed out the window. Do you remember the dotcom bubble? Concepts such as value, supply and demand, and profitability were temporarily considered old fashioned.
Those of us who have witnessed a bubble or two know better. The law of business economics is to maximize profitability. This takes the form of:f
- Ensuring the factory runs smoothly.
- Squeezing the suppliers until they scream.
- Cultivating a strong desire in the market.
- Upping the price to the point just short of causing the customer to walk away.
But this factory model only works for industrial era businesses. Today, smart suppliers must be willing to constantly innovate. If they don’t act fast, their bolder and more creative competitors will over take them. Customers are becoming increasingly savvy. And like the workers, they know the power sits with them.
Let’s take a look at some of the emerging business models. They may provide food for thought in helping your organization become the disruptor, not the disrupted. Consider these models as you move from the industrial era into the digital era:
1. Collaborative Consumption
The Web has accelerated the growth of an exchange model. You have a spare bedroom; I need somewhere to sleep. You have a dog and no time to walk it. I love dogs, but am not allowed to have pets in my apartment. You have a spare seat in your car, I don’t think buying an expensive fast depreciated ‘asset’ is a smart move.
Exchanges have been around forever, but such social exchanges have accelerated with the arrival of the Web. However collaborative consumption is usually more of a service than product driven model. One party owns the asset. The other utilizes that asset without taking ownership of it.
Collaborative consumption has a social feel to it. Some might argue that the collapse of Lehman Brothers stimulated the growth of this model as people looked for innovative ways to sweat their existing yet underutilized assets.
You may wonder how this consumer-to-consumer model might fit in with your business-to-business or business-to-consumer model. It may well be that you apply this model as part of your marketing or corporate and social responsibility initiatives. The aim may not be to make a profit but to deliver extra value by enabling the people in your market to collaborate via your infrastructure.
When you take a flight with a low cost carrier, in the extreme, you are glowing with the knowledge that everyone else on the flight has subsidized your five-dollar ticket, or fuming because you are so desperate to get to your destination as soon as possible that you have in effect subsidized everyone else.
This is an example of an asymmetric business model. Not all customers pay the same amount. Google largely gives away its services for free on the basis that a very small subset will pay enough to commercially offset this seeming beneficence.
Imagine a world where your high-value, high-price product or service is given away for free. It’s difficult when you are a car manufacturer (unless you give away the hardware and make your money on the apps. Some of which, such as steering, are mandatory).
You need to be smart to get your pricing model to still yield a profit. But if you do, then you have created a business model with a built-in, highly infectious, viral-marketing model. Free, or near free, in respect of high value goods or services generates wildfire like chatter on the social networks.
3. Povertized Capitalism
Enterprises that have emerged in povertized economies will, having made a profit locally, extend their reach globally. At that point, it will be your lunch they are eating. Pre-empt this by capitalizing on these povertized economies. Set up an office in the back streets of, say, Calcutta to establish how your offering could be tuned to a market with little to spend.
You may help the local economy prosper as a result. You will also learn the art of frugal innovation from the experts, where the cost of failure is much more than just a stern talking too from a VC. Once you have that mastered, you are in a position to let your offering loose on your home market. Yes, you will be cannibalizing your own business, but you will also be cannibalizing the business of your competitors, who are in any case out having long lunches in Silicon Valley hoping to spot the next big thing.
4. Social Enterprise
Business models that are not primarily driven by profit, but keep profit in mind are very attractive to those who consume the output and those that are part of the model. The idea that I am buying something, or working for an organization that cares about society is uplifting. For millennials, in particular, this could be an important element of their personal brand.
5. Dark Assets
We touched on unused assets when we covered collaborative consumption. But now we are looking primarily at assets that currently have no potential to yield value, but with a little bit of software could become the defining element of your proposition.
Imagine you have a restaurant. Nothing unique there. What if you integrated it with a health app such as myfitnessspal.com? That’s an app for those who take calorie counting very seriously. Imagine that you add some technology to the cutlery and it measures the calories each diner consumes. If the diner hits his or her limit for the day, either the app sets off a klaxon-like alarm on the phone, or, the magnetic plates on which the utensils sit kick in, thus rendering the cutlery unusable.
That’s a somewhat extreme example, but it’s a big market. Now think what you could do with a smart bed or smart shopping cart. The Internet of Things (IoT) is changing business models. The question is how will it change yours?
The next wave of technology advancements, including IoT, is disrupting everything and creating new ways to do business. Only those organizations willing to transform themselves into a digital business will survive.
You need to be the first to turn the unthinkable into the inevitable.
Ade McCormack is a near futurist, digital strategist, keynote speaker and author. He is a columnist focusing on digital leadership. He has written a number of books, including one on the future of work, (Beyond Nine to Five – Your Career Guide for the Digital Age). He has also lectured at MIT Sloan School of Management on digital leadership.
For more information on Ade, please visit www.ademccormack.com.
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