innovation is about increasing the success of an organization with existing products and technologies by creating a compelling able to allow an organization to scale up customers, with a better operating model.
At its coreinnovation is a subtle change, that as it becomes hard to dissect from the outside world (in many cases innovation is detected when an organization has achieved massive success), it is also hard to copy.
Thus, in a world where technology has become, in part a commodityinnovation can make a huge difference.
- Myth one: the best product wins
- Myth two: technology is what gives a competitive advantage
- Myth three: business modeling innovation is just about how you make money
- What kind of questions do you need to ask with business model innovation?
- Paths toward business model innovation
- Business model innovation examples
- Is business model innovation for anyone?
Myth one: the best product wins
When you get online, and want to look for something, but you’re not sure what is that chances are you’ll land on a white page with asearch box on it, that is search results page.
Why in the first place do you get there?
Well, you get there becauseis an incredible product, able to find you anything on the web at a super fast speed. Yet, is the best product out there? And how do we define best?
Well, is a great search engine able to give you relevant results to any question, but it also benefits from network effects. In short, one of the reasons why is good enough in intercepting search intents is the fact that billion people around the world use each day.
At the same time, rank a Latin Language site (a language used by ancient Romans, no longer in use) and guess what? It did that successfully.is a decent product for what it gives us back (and it is free), but it also has drawbacks. For instance, in an experiment, an SEO expert tried to
This is not to say that distribution strategy.is not a good search engine. today is the most widely used search engine on earth, and part of the reason why is thanks to its
Since its scale-up phase, Google aggressively acquired deals that made it the tech giant we know today. However, a few people realize it, and it is easy to think – especially in tech – that the best product wins.
A great product with a lack of distribution strategy won’t go far.
Myth two: technology is what gives a competitive advantage
Peter Thiel, former CEO of PayPal has shifted an important business paradigm. As the common business thinking goes “be the first and you’ll probably win over time.”
This is called in business jargon, first-mover advantage. Peter Thiel, instead pointed out an important paradigm, especially in the tech industry, which is the last-mover advantage.
In other words, companies that come later, especially in the tech industry, can win over existing organizations, even when those were the first movers. For instance, Google and Facebook were not the first movers to move in the search and social media space. They dominated it.
Myth three: business modeling innovation is just about how you make money
Whencame out of the Stanford dormitory where the two P.h.D. had invented it, it was a great search engine. Many argue it was 10x better than competitors.
Yet it wasn’t financially successful until it managed via a couple of years of trial and errors to design an innovative Google introduced an auction system for advertising, which aim was to remove the inefficiencies of how advertising had worked for decades.. In short,
That was not the primary innovation. Indeed, another search engine called Overture was already doing it successfully. Therefore, where innovated was the introduction of a few critical parameters to allow advertisers to show on top of text-based ads results.
In other words, it wasn’t enough to be offering a higher bidding rate on a keyword.crossed that with a few other parameters which allowed to show on top of the ads space on results, those that were most relevant and had a higher click-through rate.
Even though it might sound trivial now, as the whole web, after has been built on the premise of click-through-rate, it was not back then. That innovation was critical to economic hypergrowth, scale, and domination.
Business modeling isn’t a simple concept, and in the mind of most people, that is about how you make money. However, business modeling is way more than that. It is how you make a great product or service so that your customers keep coming back.
It is about how you make that product or service scalable. And how you keep making financial sense of your business over time. But also the you’re able to deliver to key partners, which are a crucial ingredient of your business success!
Thus, even thoughinnovation can be about changing the way you charge your customers and how you make money, it can also be about other critical aspects of the business that will allow you the scale up.
There isn’t a single path toinnovation, but there are a few critical questions to ask.
What kind of questions do you need to ask with business model innovation?
- How can I design a better value chain?
- Can I improve the existing cost structure?
- What is the distribution channel that can accelerate growth?
- Why is my company experiencing bottlenecks in certain areas?
- Is the organizational structure helping the company to grow as it should?
Paths toward business model innovation
There isn’t a single path towardinnovation. At times you can design a drawing from your previous experiences in that industry.
Engineer an innovative business model from scratch
As Reid Hoffman points out in his book Blitzscaling innovation is a key ingredient to success, especially in the digital space, where a countless number of companies offer innovative tools and solutions on the market.
That’s why in some casesinnovation can be engineered before
This is what happened when I cofounded LinkedIn. The key innovations for LinkedIn, including the two-way nature of the relationships and filling professionals’ need for a business-oriented online identity, didn’t just happen organically.
As explained by Reid Hoffman he used his understanding of the social networking world (he had founded a social network called SocialNet) to design an innovative Microsoft for an astounding $26.2 billion.for LinkedIn, which got acquired in 2016 by
In short, what gives a competitive advantage isn’t any more technology alone but a combination of technology paired with an innovative.
Yet designing a isn’t always possible beforehand. In some cases, you need to experiment, reiterate and find it
Find an innovative business model along the way
When it finally, after a few trial and errors figure it out (was running out of investment money) it was a massive success. When had to show its numbers, when it got listed back in 2004 the company made already over three billion in revenues, a 155x growth in about four years!
In this scenario, you need to try and test many things before you can say to have athat makes you scale up sustainably and that it does make sense financially.
In the end, if you do find it, you’ve created a long-lasting competitive advantage!
Use business model innovation as a survival mechanism
Imagine if the next time you reserve an Uber ride, you’ll see coming to a self-driven car. Now stop imagining. Indeed Uber has been investing in self-driving cars since 2015.
Why would a company that is dominating an entire space make such a move? Well, a couple of reasons. First, if self-driving cars become mass adopted Uber would be out of business.
This implies that if Uber wants to thrive in the next era needs to be on top of this game. The second aspect is aboutinnovation. Among its key partners, Uber has drivers across the world.
Yet those drivers also pose a significant threat to Uber success. Even though Uber might be pulling the plug or spinning off its self-driving cars business, this example is to show how the company never stop experimenting with innovation.
Business units like Uber Eats, Express Pool, Freight are all an attempt to tweak an existing until it allows the company to become financially sustainable, also at a massive scale.
Business model innovation examples
I will repeat over and over again; a business model isn’t something static. Thus, even if in this article we’ll look at how Google business model looks today, it might be probable that in a few years time Google business model would have evolved as well.
Indeed, even though a business model does create a long-term competitive advantage, it does also require a continuous tweaking make sure all the pieces of it come well together.
Many argue that business model innovation is what makes a difference in a company’s success. Thus, even though many believe that product or technology is the most critical competitive advantages.
From a business standpoint, business modeling has proved to create a real edge, especially since digital businesses have taken over the business world. This is no exception for Google.
When the company started back in the late 1990s, it wasn’t the first search engine. It was a better product than many others on the market, yet it wasn’t just technological innovation that made Google successful.
It was when Google finally found its business model, that revenues took off. In 2004, Google’s had to reveal its numbers for the first time to the public. As the company was going public, when it opened its financials to the public everyone was astounded.
Google was among the first few companies that proved the internet wasn’t just a cool new thing. But instead what would give rise to new, disruptive business models.
Nonetheless, the dot-com bubble that would wipe out most of the companies that had a “.com” in their company’s name, the few that survived became also the basis for a technological revolution that would also spur a business revolution and vice-versa.
For instance, the so-called FAANG companies at the time of this writing represent the hottest companies on earth:
Why is it so? If we look at each of those companies, there are a few things to notice.
Netflix business model innovation (case study)
Netflix has been able for the first time to move the needle of “culture creation” from Hollywood to the Silicon Valley. While today Netflix invests billions in creating original content which is also what makes it so successful today.
Netflix main contribution is in its business model innovation. Where people hated so much Blockbuster’s late fees, Netflix introduced a new way of renting movies. Initially, Netflix had found its perfect medium of delivery of its new subscription business model via DVDs.
Where Netflix wasn’t able to compete with established Blockbuster, it needed to rethink the way it delivered its service. Thus, in exchange for a fixed monthly fee, people could rent as many movies as possible, with no late fees!
While the new technology of DVD allowed Netflix to deliver a better service. In the end, Netflix had to wait for more than a decade before streaming would pick up.
Therefore, Netflix’s CEO and founder set out to wait for Moore’s law to make streaming possible. Today streaming is the key delivery channel of Netflix service.
Amazon business model innovation (case study)
When Amazon started as internet store, its founder Jeff Bezos started from a niche, books. Rather than trying to sell everything to everyone (that would happen later on), Amazon began to form one relatively smaller market, dominated it and then moved on.
Once again, while Amazon invested from its early years in infrastructure and technology, it also shifted the conventional business model for publishing upside down.
On Amazon, you could find an extensive collection of books, at a lower price compared to physical bookstores. Thus, the initial value proposition was convenience.
Amazon cut off its margins by putting up a cash machine business model, or a model where the company lowers its profitability but generates a lot of short-term cash flows in return.
People could pay for a book right away, Amazon would have delivered, and would pay its vendors later on. The model worked because people could get any book they wanted at a lower price.
Vendors could have higher exposure and visibility through Amazon store, and Amazon, in turn, would use all the additional short-term cash to invest in the growth of the organization.
This process performed many times over, for over two decades Amazon has expanded to sell anything. It also allowed the company to create a few other businesses (AWS, Prime and Physical Stores) that run at high profitability compared to the online store!
Once again, it all starts from business model innovation. Technology is an enhancer of this process but not necessarily what makes the real difference in the outcome.
Apple business model innovation (case study)
When Steve Jobs went back to Apple the company needed to be rebuilt from its ashes. Sales were plummeting, too many unsuccessful products had been introduced.
As soon as Jobs joined Apple again, it made sure to cut and simplify the product offering, but most importantly it started to create the infrastructures that would make its products successful: iTunes for the iPod and the App Store for the iPhones.
Those devices are great, but without an environment made of developers willing to create interesting applications for the iPhone, or if people had to pay for entire albums to listen to in the iPod.
Apple changed the way music was consumed, and it created a whole new industry with its smartphone. Also here, sales didn’t pick off because of great devices, powered by a suitable software (that of course contributed) but the business model crafted by Jobs and his team created commercial viability of those products and a massive amount of traction!
Google business model innovation (case study)
When Google launched its search algorithm proved to be quite good compared to other search engines. For one thing, Google didn’t look spammy with all the ads other search engines provided, and it was quite fast.
The tool was free, and it made it scale quickly. However, it wasn’t until Google figured out a new business model for advertising that revenues took off. Indeed, at the time Google combined its technology with a business model first crafted by a – at the time – Google’s competitor, called Overture.
Overture for the first time had introduced a system of auctions for advertising, which had proved quite successful. Yet Google took that model and improved on it with its seamless advertising machine (Google AdWords, now Google Ads).
When Google introduced a mechanism of ads based on auctions and introduced a quality score. This is a 1/10 scale rating comprised of components like expected clickthrough rate, ad relevance, and landing page experience.
This means that ads weren’t only judged on the price paid by the business but also if that ad was relevant. In 2017 Google had generated over a hundred billion dollars in revenues from advertising!
Also here, a great technological product without a proper business model would have been doomed.
Facebook business model innovation (case study)
When Mark Zuckerberg came up with Facebook in its dorm room, it wasn’t the first social media network. Yet it grew exponentially over the years. While Facebook managed to grow very fast thanks to investments and a free model initially.
It then transformed its social network in targeted ads money-making machine. Facebook at the time of this writing is among the most profitable companies in the world, and still among the most popular apps.
Other social media applications, like TikTok, are trying to disrupt it. Facebook has managed over the years to build a strong brand, and it figured how to monetize the so-called “social currency.” In short, companies and marketers pay Facebook to gain visibility on the platform.
That visibility is sold in the form of impressions, clicks or other actions people can take on a targeted ad! Facebook hidden revenues business model has proved the only worthy competitor to Google advertising business.
Is business model innovation for anyone?
Yet instead of keeping to do that theconsulting business starts only to charge a retainer and a success fee. This kind of model might be not financially viable at the beginning, but it might wipe out competitors over time.
Indeed, with a larger customer base, the retainer becomes an essential base for the company’s revenues. And the success fees the scalable part of the business.
That pace might be attractive for investors looking for high returns on their investments, while it might also burn a lot of cash!
Do you have business model innovation examples you want to share with us? Comment below or send us an email at email@example.com
Other resources for your business:
- What Is a Business Model? 30 Successful Types of Business Models You Need to Know
- What Is a Business Model Canvas? Business Model Canvas Explained
- Blitzscaling Business Model Innovation Canvas In A Nutshell
- What Is a Value Proposition? Value Proposition Canvas Explained
- What Is a Lean Startup Canvas? Lean Startup Canvas Explained
- How to Write a One-Page Business Plan
- The Rise of the Subscription Economy
- How to Build a Great Business Plan According to Peter Thiel
- What Is Blitzscaling And Why It Matters
Learn how tech companieswork and the lessons you can learn to scale up your own company:
- How Does Facebook Make Money? Facebook Hidden Revenue Business Model Explained
- How Amazon Makes Money: Amazon Business Model in a Nutshell
- The Trillion Dollar Company: Apple Business Model In A Nutshell
- How Does Netflix Make Money? Netflix Business Model Explained
- How Does Google Make Money? It’s Not Just Advertising!