Competing with the help of the product is becoming more and more difficult. There are two major reasons for that. First, the competition itself is intensifying. In 2008, the smartphone market was dominated by the iPhone, followed by Samsung. And now, there are dozens of brands in various price categories on the shelves. In the global FMCG market, over the period from 2016 to 2019, the total number of product categories remained the same, and the number of brands grew from 267 to 305, which is 14%. At the same time, the number of customers did not change.
Secondly, the majority of existing products and services in many markets already meet the customer expectations. Companies have been forced to take risks and try to form new customer needs, which is always risky. Therefore, 70% of failed startups in the U.S. are closing down precisely because their product, perhaps quite innovative, is not in demand.
But many of the successful cases of the past decades are related not to a new product, but to a new business model. That is, the product itself does not change, or changes slightly, but the way the company interacts with the consumer changes dramatically. Uber and similar projects have built a business model based on the platform concept. Amazon started as an online store, and now it is a marketplace through which smaller retailers sell their products.
Apple clearly understands that in the future, the devices will inevitably equal in quality and functionality, and there will be nothing to surprise the consumer. And then, the devices will only turn into a means of delivering content to the consumer. So now in its strategy, Apple relies on a new business model: services, in particular, an updated Apple TV, already with its own content (e.g., the “Morning Show” series), and gaming service. In terms of TV series, Apple is surprisingly left behind, trying to catch-up and overtake, and Netflix, which began as a video rental service, then growing into the one of the world’s largest content producers, is the leader of the streaming video service market. The Irishman received 10 Oscar Academy award nominations, even though it was released only on the Netflix streaming service.
World retailers say goodbye to the format of hypermarkets because the consumer was disappointed in them. A shopping in the hypermarket seems like a waste of time to consumers around the world. Retailers have yet to find an effective business model, but it is already clear that this will be a hybrid of the next-door stores and online sales. IKEA opens mini-design studios in Moscow, realizing that sooner or later, the famous IKEA hypermarkets will face the outflow of customers, so they change in advance.
Not all business models are profitable. It is known that most Internet projects in the world are unprofitable (trade does not bring profit even to Amazon, so they earn on cloud service). Uber, Deliveroo and Twitter are unprofitable, too. In Russia, several services for the delivery of products closed recently, although they had a lot of investments. But the investors have lost faith in the financial success of projects.
When developing strategies or conducting strategic sessions, we use a simple methodology for evaluating the business model. It consists in answering 4 main questions: who our client is, what value we create for him or her, how exactly it is created (value chain) and how we earn on it all. In the literature on business models, it is written that in order to create an innovative business model, it is necessary to change two elements out of four. The exercise of discussing possible variants of business models is very useful. It can boost generation of good ideas, especially if participants additionally study different variants of business models that have appeared on the market recently, in order to replicate the most interesting and relevant solutions. The main thing to remember is that a business model should clearly answer to all four questions, including the last one which is “How it will generate income?”