{"id":24379,"date":"2022-04-14T18:21:00","date_gmt":"2022-04-14T18:21:00","guid":{"rendered":"https:\/\/prophet.com\/?p=24379"},"modified":"2024-02-29T17:00:15","modified_gmt":"2024-02-29T17:00:15","slug":"three-examples-of-successful-business-model-innovation","status":"publish","type":"post","link":"https:\/\/prophet.com\/2022\/04\/three-examples-of-successful-business-model-innovation\/","title":{"rendered":"Three Examples of Successful Business Model Innovation"},"content":{"rendered":"\n
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Three Examples of Successful Business Model Innovation<\/h1>\n<\/div>\n\n\n\n
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A business model is the backbone of how a company creates, delivers and captures value. When a company innovates on just the customer experience without considering the underlying business model, it not only reduces the value that can be delivered to customers but also fails to realize the full value that can be captured by the business. Over time, that reduces the business\u2019s ability to invest in creating experiences that will power the business of tomorrow. As Ben Thompson wrote in his analysis of Facebook<\/a>, \u201csucceeding on the Internet didn\u2019t simply mean making a digital product, but also finding a business model that was native as well.\u201d  <\/p>\n\n\n\n

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Business model innovation is the creation of outsized value \u2013 in the form of market share, margin and defensibility, by reconfiguring multiple elements of the business model. Here are three examples of business model innovation that created more value for customers while also increasing the amount of value available to be captured by the business: <\/p>\n\n\n\n

Amazon\u2019s Subscription Model Grows Customer Lifetime Value<\/h2>\n\n\n\n

Customers can automate the replenishment of household items through Amazon\u2019s Subscribe and Save program. Many parents struggle to equitably distribute the management and execution of tasks in their household, with the greater share often defaulting to women. <\/p>\n\n\n\n

For instance, before buying detergent, someone must remember that it needs to be bought and what type to buy in the first place. This idea leads to friction that forces customers to outsource tasks in order to better distribute the load. The Subscribe and Save program makes it easy to personalize recurring deliveries and gives members the benefit of saving more as they spend more. For the business, it creates a recurring revenue stream while decreasing customer motivation to shop around and price compare each month. And finally, sending multiple items in one box each month lowers the marginal cost of fulfillment. <\/p>\n\n\n\n

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Airbnb\u2019s Value Chain Grows the Total Addressable Market<\/h2>\n\n\n\n

Airbnb modularized the supply of short-term rentals available, making it easy for travelers to compare options, read reviews and book. By integrating the supply of rooms onto its platform and completely owning the customer relationship, it created the conditions necessary for guests and hosts to trust one another, even without Airbnb owning a single room. In digital businesses, the winner is often the company that can reconfigure the value chain<\/a> to modularize supply and own demand because it makes it difficult for suppliers to squeeze margins and it creates a virtuous cycle of new demand driving new supply. Airbnb is an example of disruptive innovation<\/a> because it began in the underserved, low-end part of the travel market by offering inexpensive room rentals outside of tourist districts. After building a great reputation based on customer experience and trust, the platform was able to move upstream to mid-tier, business and luxury segments of the market. <\/p>\n\n\n\n

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Microsoft\u2019s App Store Pushes the Industry Towards Open Marketplaces<\/h2>\n\n\n\n

During its acquisition of Activision Blizzard, Microsoft announced a set of open app store principles, just months after Epic Games accused Apple of anti-competitive practices in the iOS app ecosystem. Microsoft\u2019s leadership is seeking to create a \u201cuniversal store\u201d in direct contrast to Apple because it believes that outside developers must thrive in its ecosystem to deliver the best experience to customers, even if this means forgoing near term profits that could be gained by showing preference to its own apps, requiring its payment systems be used or acting as a gatekeeper between developers and customers.  <\/p>\n\n\n\n

An NFX assessment<\/a> recently found that 70% of value in tech is driven by network effects. By creating an open app store, Microsoft is betting that network effects will grow the overall value of the gaming industry enough to make up for leaving some value on the table in the near term. By focusing on overall value creation rather than just profit maximization, business model innovation prioritizes models that will create the most sustainable value for all stakeholders in the ecosystem.  <\/p>\n\n\n\n

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And When it Goes Wrong – Clubhouse’s Fatal Flaw<\/h2>\n\n\n\n

The goal of business model innovation is to configure business model components in a way that maximizes the total amount of value available to be created, delivered and captured. An offering that fails to solve a real customer problem will never gain traction in the market and a desirable value proposition without a mechanism to capture value for the business won’t last long.  <\/p>\n\n\n\n

For example, Clubhouse quickly attracted a sizeable user base by solving a unique problem presented by Covid 19 \u2013 the newfound difficulty of getting together. The audio-only, originally invite-only social media app allowed newly homebound people to gather for live conversations around common interests. Rather than commercializing components of the value proposition, such as through subscriptions, advertising or commission fees, the founders focused only on user growth.  <\/p>\n\n\n\n

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\u201cBusiness model innovation is the creation of outsized value \u2013 in the form of market share, margin and defensibility.\u201d<\/p>\n<\/blockquote>\n\n\n\n

However, the problem was that Clubhouse\u2019s value proposition was easy for tech giants to replicate. Twitter quickly rolled out Spaces, which solves the same user problem without requiring users to join a new platform. Additionally, due to network effects, these features are more valuable on a platform with a larger user base. Twitter also already had a mechanism in place to allow hosts to monetize, making it a more attractive platform for content creators, while also offering the capability of capturing value with commission fees, as well as growing a new offering that will be valuable for advertisers in the future. <\/p>\n<\/div>\n\n\n\n

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