A business strategy is a deliberate plan that helps a business to achieve a long-term vision and mission by drafting a business model to execute that business strategy. A business strategy, in most cases, doesn’t follow a linear path, and execution will help shape it along the way.
What is a business strategy?
At this stage, it is important to clarify a few critical aspects.
Put succinctly, business model refers to the logic of the firm, the way it operates and how it creates value for its stakeholders. Strategy refers to the choice of business model through which the firm will compete in the marketplace. Tactics refers to the residual choices open to a firm by virtue of the business model that it employs.
Personally, I have a controversial relationship with the concept of “strategy.” I feel it’s too easy to make it foggy and empty of practical meaning.
Yet strategy and vision matter in business.
A strategy isn’t just a calculated path, but often a philosophical choice about how the world works.
Usually, it takes years and, at times, also decades for a strategy to become viable. And once it does become viable, it seems obvious only in hindsight.
In this guide, we see what that means.
In the real world, the difficult part is understanding the problem
In the real world, a lot of time and resources are spent on defining the problem.
Classic case studies at business school assume in most scenarios that the problem is known and the solution needs to be found.
In the real world, the problem is unknown, the situation is highly ambiguous, and the most difficult part is making the decision that might solve that same problem you’re trying to figure out.
How do you execute a strategy in that context? Business modeling can help!
Is a business strategy the same thing as a business model?
As the business world started to change dramatically, again, by the early 2000s, also the concept of strategy changed with it.
In the previous era, the strategy was primarily made of locking in the supply chain to guarantee a strong distribution toward the marketplace.
And yet, the web enabled new companies to form with a bottom-up approach.
Where most of the processes before the digital age, were physical in nature. As the web took off, most of the processes became digital.
In short, the software would become the core enhancer of hardware.
We’ve seen how in cases like Apple’s iPhone, it wasn’t just the hardware that made the difference.
But it was the development ecosystem and the applications that enhanced the capabilities of the device.
Thus, from a product standpoint, hardware has been enhanced more and more with the software side.
At the same time, the way companies developed products in the first place changed.
Software and digits-based companies could gather feedback early on, thus enabling the customers’ feedback as a key element of the whole product development cycle.
Therefore, wherein the previous era, companies spent billions of budgets to release markets, and products, with little customer feedback.
In the digital era, customer feedback became built into the product development loop.
That led to frameworks with faster and faster product releases, which also changed the way we do marketing.
In a classic MVP approach, the loop (build, measure, learn) has to be very quick, and it has to lead to the so-called product/market fit.
As the web made the ability to gather customers’ feedback early on, and as the whole process becomes less and less expensive, also lean approaches evolved, to gain feedback from customers as early as possible.
From build > demo > sell, to demo > sell > build, lean approaches got leaner.
And the era of customer-centrism and customer obsession developed:
This whole change flipped the strategy world upside down.
In a customer-centered business world, business models have become effective thinking tools, to represent a business and a business strategy on a single page, which helped the whole execution process.
Where most digital business models learned to gather customers’ feedback in multiple ways.
The business strategy formed in the digital era, therefore, developed its own customer-centered view of the world, and the business theory world followed.
The mindset shift flipped from distribution and optimization on the supply side.
To optimize on the demand side, or how to build products that people want, in the first place. This is the new mantra.
No more grandiose business plans, just substantial testing, iteration, and experimentation.
In this new context, we can understand the strategy developed by several players and how business modeling has become the most important strategy tool.
And the interesting part is, whether you want to scale to become a tech giant, or you just want to build a small, viable business, it all starts from the same place!
Is business strategy a science?
Business strategy is more of an art than a science.
In short, a business strategy starts with a series of assumptions about how the business world looks in a certain period of time and for a certain target of people.
Whether those assumptions will turn out to be successful will highly depend on several factors.
For instance, back in the late 1990s when the web took over, new startups came up with the idea of revolutionizing many services.
While those ideas seemed to make sense, they turned out to be completely off, and many of those startups failed in what would be recognized as a dot-com bubble.
While in hindsight certain aspects of that bubble came up (like frauds, or schemes).
For instance, some startups tried to bring on-demand streaming to the web (which today we call Netflix). Those ideas proved to be too early.
They made sense but from the commercial standpoint, they didn’t.
Thus, if we were to use the scientific method, once those assumptions would have proved wrong in the real world, we would have discarded them.
However, those assumptions proved to be wrong, in that time period, given the current circumstances.
While we can use the scientific inquiry process in business strategy, it’s hard to say that it is a scientific discipline.
So what’s the use of business strategy?
In my opinion, business strategy is useful for three main reasons:
- Focus: chose one path over another.
- Vision: have a long-term strategic goal.
- Commercial viability: create a self-sustainable business.
As a practitioner, someone who tries to build successful businesses, I don’t need to be “scientific.”
I need to make sure not to be completely off track. For that matter, I aim at creating businesses.
Thus, I need to understand where to focus my attention in a relatively long period of time (3-5 years at least) and make sure that those ideas I pursue are able to generate profits, which – in my opinion – might be a valid indicator that those ideas are correct for the time being.
If those conditions are met, I’ll call it a “successful business.”
Those ideas will become a business model, that executes a business strategy.
This doesn’t mean those ideas, turned into a business model, pushed into the world will always be successful (profitable).
As the marketplace evolves I will need to adjust, and tweak a business model to fit with the new evolving scenarios, and I’ll need to be able to “bet” on new possible business models.
Survivorship bias is a phenomenon where what’s not visible (because extinct) isn’t taken into account when analyzing the past.
In short, we analyze the past based on what’s visible.
This error happens in any field, and in business, we might get fooled by that as well.
In short, when we analyze the past we do that in hindsight.
That makes us cherry-pick the things that survived and assume that those carry the successful characteristics we’re looking for.
For instance, for each Google that survived there were hundreds if not thousands of companies that failed, with the same kind of “successful features” as or Google.or
So why do we analyze successful companies in the first place? In my opinion, there are several reasons:
- Those successful companies have turned into Super Gatekeepers to billions of people: as I showed in the gatekeeping hypothesis, and in the surfer’s model, a go-to-market strategy for startups will need to be able to leverage existing digital pipelines to reach key customers.
- Modeling and experimentation: another key point is about modeling what’s working for other businesses and borrowing parts of those models, to see what works for our business. By borrowing parts you can build your own business model, yet that requires a lot of testing.
- Skin in the game testing: therefore business models become key tools for experimentation, where we can use real customers’ feedback (not a survey, or opinions but actions) and test our hypotheses and assumptions. When we’re able to sell our products, when people keep getting back to our platform, or service, there is no best way to test our assumptions that measure those actions.
Lindy effect and aging in reverse
In very simple terms the Lindy Effect states that in technology (like any other field where the object of discussion is non-perishable) things age in reverse.
Thus, life expectancy, rather than diminishing with age, has a longer life expectancy.
Therefore, a technology that has lived for two thousand years, has a life expectancy of another thousand years.
That is a probabilistic rule of thumb that works on averages.
Thus, if a technology (say the Internet) has stayed with us for twenty years, it doesn’t mean we can expect only to live for another twenty years at least.
But as the Internet has proved successful already, the Lindy Effect might not apply.
In short, as we have additional information about a phenomenon the Lindy Effect might lose relevance.
For instance, if I know a person is twenty, yet sick of a terminal disease, I can’t expect to use normal life expectancy tables.
So I’ll have to apply that information to understand the future.
Strategies take years to fully roll out
It was 2006, when Tesla, with his co-founder Martin Eberhard, launched a sports car that broke down the trade-off between high performance and fuel efficiency.
Tesla, which for a few years had been building up an electric sports car ready to be marketed, finally pulled it off.
As Elon Musk would explain Back in 2012:
In 2006 our plan was to build an electric sports car followed by an affordable electric sedan, and reduce our dependence on oil…delivering Model S is a key part of that plan and represents Tesla’s transition to a mass-production automaker and the most compelling car company of the 21st century.
The beauty of a strategy that turns into a successful company, is that it might take years to roll out and seem obvious only in hindsight.
This connects to what I like to call the transitional business model.
Or the idea, that many companies, before getting into a fully rolled out business strategy, transition through a period of low scalability and low market size, which will help them gain initial traction.
As a transitional business model proves viable, it helps the company shape its long-term vision, while its built-in strategy is different from the long-term strategy.
The transitional business model will guarantee survival. It will help further refine the long-term strategy and it will also work as a reality check.
As the transitional business model proves viable, the company moves to its long-term strategy execution.
As the business strategy gets rolled out, over the years, it becomes evident and obvious, and yet none managed to pull it off.
When Netflix moved from DVD rental to streaming. DVD rental was the transitional business model that helped Netflix stay in business in the first place.
And yet, when Netflix moved from DVD to streaming it had to apparently change its strategy.
When, in reality, it was rolling out its long-term strategy, shaped by the transitional business model.
Caveat: Frameworks work until suddenly they don’t
When you stumbled upon a “business formula,” you can’t stop there.
That business formula, if you’re lucky, will allow you to succeed in the long term. Yet as more and more people will find that out, that will lose relevance.
And the matter is, the reality is a villain. Things work for years until they suddenly don’t work anymore.
We’ll see some frameworks, but the real deal is not a framework but the inquiry process that makes us discover those frameworks.
In short, the value is in the repeatable process of discovery and not in the discovery itself. A discovery, once spread, loses value.
Master a business strategy process
There isn’t a size-fits-all business playbook that you can apply to all the scenarios.
Some of the business case studies we’ll see throughout this article will show companies that have dominated the tech space in the last decade and more.
While the playbook executed by those companies worked for the time being.
That doesn’t mean you should play according to their playbook. If at all you’ll need to figure out your own.
Thus, what matters is the process behind finding your business playbook and my hope is that this guide will inspire you and give you some good ideas on how to develop your own business strategy process!
Business strategy case studies
We’ll look now at a few case studies of companies that, at the time of this writing, are playing an important role in the business world.
- Alibaba Business Strategy.
- Amazon Business Strategy.
- Apple Business Strategy.
- Airbnb Business Strategy.
- Baidu Business Strategy.
- Booking Business Strategy.
- DuckDuckGo Business Strategy.
- Google (Alphabet) Business Strategy.
What is a business model’s essence?
Keeping in mind the distinction between business strategy and business models is critical.
The other element used in this guide is a business model essence.
Shortly, I’ve been looking for a way to summarize the key elements of any business in a couple of lines of text:
Therefore, for the sake of this discussion, you’ll find each company’s business strategy, a business model essence that will help us navigate through the noisy business world.
From there, we’ll see the business strategy of a company.
Alibaba Business Strategy
Business Model Essence: Online Stores Leveraging On An E-Commerce/Marketplace Distribution And Monetization Strategy
As pointed out in Alibaba’s annual report for 2017:
We derive revenue from our four business segments: core commerce, cloud computing, digital media and entertainment, and innovation initiatives and others. We derive most of our revenue from our core commerce segment, which accounted for 85% of our total revenue in fiscal year 2017, while cloud computing, digital media and entertainment, and innovation initiatives and others contributed 4%, 9% and 2%, respectively. We derive a substantial majority of our core commerce revenue from online marketing services.
Alibaba, like, became an “everything store” in China.
It leveraged its success to build also other media platforms (Youku Todou and UCWeb). The e-commerce, marketplace business model has become quite common since the dawn of the web.
From that business model tech giants like , eBay and Alibaba have raised.
Alibaba’s vision, mission, and core principles
Alibaba’s Business Strategy starts from its core values defined in its annual report:
- Customer First: “The interests of our community of consumers, merchants, and enterprises must be our first”
- Teamwork: “We believe teamwork enables ordinary people to achieve extraordinary things.”
- Embrace Change I”n this fast-changing world, we must be flexible, innovative, and ready to adapt to new business conditions in order to maintain sustainability and vitality in our business.”
- Integrity “We expect our people to uphold the highest standards of honesty and to deliver on their commitments.”
- Passion “We expect our people to approach everything with fire in their belly and never give up on doing what they believe is right.”
- Commitment “Employees who demonstrate perseverance and excellence are richly rewarded. Nothing should be taken for granted as we encourage our people to “work happily and live seriously.”
Alibaba’s mission is “to make it easy to do business anywhere,” and its vision is “to build the future infrastructure of commerce… a company that would last at least 102 years.”
For that vision to be executed it has three major stakeholders: users, consumers, and merchants.
The focus on the “at least 102 years” might seem fluffy words, yet those are important as this kind of goal helps you keep a long-term vision while executing short-term plans.
It isn’t unusual for founders to set such visions, as they help keep the company on track in the long run.
And this is where a business strategy starts.
All the business models designed by Alibaba will follow its vision, mission, and values they aim to create in the long run.
Read: Alibaba Business Model
Alibaba ecosystem and value proposition
These elements gave rise to an ecosystem made of “consumers, merchants, brands, retailers, other businesses, third-party service providers and strategic alliance partners.”
As Alibaba points out in its annual report “our ecosystem has strong self-reinforcing network effects benefitting its various participants, who are in turn invested in our ecosystem’s growth and success.”
Network effects are a critical ingredient for marketplaces’ success.
To give you an idea, the more buyers join the platform, the more Alibaba’s recommendation engine will be able to suggest relevant items to buy for other customers, and at the same time the more merchants will join in, given the larger and larger business opportunities.
Keeping these network effects going is a vital element of long-term success but also among the greatest challenge of any marketplace that wants to be relevant.
Even though Alibaba’s essence is in online commerce, the company has several business models running and a business strategy that at its core is evolving quickly.
Thus, the core commerce has made it possible for Alibaba to build a whole new set of “companies within a company.”
From digital entertainment and media, logistics services, payment, financial services, and cloud services with Alibaba Cloud.
Thus, from a successful existing online business model, Alibaba has expanded in many other areas.
And its future business strategy focuses on developing, nurturing, and growing its ecosystem.
More precisely, its strategic long-term goal is to “serve two billion consumers around the world and support ten million businesses to operate profitably on its platforms”
To achieve that Alibaba is focusing on three key activities:
- Rural expansion.
- And big data and cloud computing.
For its core commerce activities, Alibaba has designed a value proposition that moves around a few pillars:
- Broad selection: over 1.5 billion listings as of March 31, 2018.
- Convenience: seamless experience anytime, anywhere from online and offline.
- Engaging, personalized experience: personalized shopping recommendations and opportunities for social engagement.
- Value for money: competitive prices offered via a marketplace business model.
- Merchant quality: review and rating system to keep merchants’ quality high.
- Authentic products: merchant quality ratings, clear refund, and return policies, and the Alipay escrow system.
From that value proposition, Alibaba has been able to grow its customer base and offer wider and broader products, until it expanded in the service and cloud business.
Amazon Business Strategy
Business Model Essence: E-Commerce/Marketplace Distribution And Monetization Model Leveraging On Proprietary Infrastructure To Offer Third-Party Services
Starting in 1994 as a bookstore, soon expanded and became the everything store.
While the company’s core business model is based on its online store.
revenues in 2017. launched its physical stores, which generated already over five billion dollars in
business model, as it makes customers spend more and be more loyal to the platform. Prime (a subscription service) also plays a crucial role in overall
Besides, the company also has its cloud infrastructure called AWS, which is a world leader and a business with high margins. also has an advertising business worth a few billion dollars.
Thus, the business model mix looks like many companies in one. measures its success via a customer experience obsession, lowering prices, stable tech infrastructure, and free cash flow generation.
Therefore, even though in the minds of most peopleis the “everything store.”
In reality, its revenue generation shows us that it has become a way more complex organization, that also has a good chunk of advertising revenue and third-party services.
For instance,is also a key player with its AWS in the cloud space.
And is well a key player in the digital advertising space, together with Google and Facebook:
business model.has been widely investing in its technological infrastructure since the 2000s, which eventually turned into a key component of its
Read: Amazon Business Model
Amazon’s vision, mission, and core values
Jeff Bezos is obsessed with being in “day one,” which as he puts it, “day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.“
- Customer obsession.
- Resist proxies.
- Embrace external trends.
- High-velocity decision-making.
As pointed out by Amazon, “when Amazon.com launched in 1995, it was with the mission “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.”
This goal continues today, but ’s customers are worldwide now and have grown to include millions of Consumers, Sellers, Content Creators, and Developers & Enterprises.
Each of these groups has different needs, and we always work to meet those needs, innovating new solutions to make things easier, faster, better, and more cost-effective.”
In this case,‘s mission also sounds like a vision statement.
Whatever you want to call it, this input is what makes a company look for long-term goals that keep them on track.
Of course, that doesn’t mean a well-crafted vision and mission statement is all that matters for business success.
Yet, it is what keeps you going when things seem to go awry.
moved from an online book store to the A-to-Z store it kept its mission almost intact while scaling up.
Start from a proof of concept, then scale up
It is interesting to notice how businesses evolve based on their commercial ability to scale up.
Whenstarted up as a bookstore, it made sense for several reasons, that spanned from logistics to pricing modes and industry specifics.
Yet, whenfinally proved that the whole web thing could be commercially viable, it didn’t wait, it grew rapidly.
From music to anything else it didn’t happen overnight, but it did happen quickly.
Thus, this is howmission shifted from “any book in the world” to “anything from A-Z.”
This isn’t a size-fits-all strategy. blitzscaling process as aggressive growth was a way to preserve itself.chose rapid growth, similar to a
Hadn’tgrown so quickly, it could have been killed.
The opposite approach to this kind of strategy is a bootstrapped business, which is profitable right away and self-sustainable.
Decentralized and distributed value creation: the era of platforms and ecosystems
Before we move forward, I want to highlight a few key elements to have a deeper understanding of both business models and their strategies.and Alibaba’s
Before digitalization would show its use and commercial viability, most of the value creation processes were internalized.
That meant companies had to employ massive resources to generate value along that chain.
That changed when digitalization allowed the value creation process to be distributed, and we moved from centralized to grassroots content creation.
This is even clearer in the case of platforms, and marketplaces likeand Alibaba.
For instance, where in the past the review process and quality insurance would be done centrally by making sure that the supply complied with the company’s quality guidelines.
Introducing distributed review systems, where the end-users checked against the quality compliance, allowed companies like Alibaba and platform could become valuable.to generate network effects, where the more users enriched the platforms with those reviews the more the
For that matter though, the main platform’s role will be to fight spam and attempt to trick the system.
Other than that (fighting spam is a challenging task) all the rest is managed at the decentralized level, and the value creation happens when more and more users review products and services on those platforms.
We’re referring here to the review system, but it applies almost to any aspect of a platform.
for years allowed third-party to feature their stores on ‘s platform, while they kept the inventory.
This meant an outsourced and distributed inventory system, spread across the supply side.
Therefore, the supply side not only made the platform more valuable by creating compelling offerings.
But it also made it more valuable from the operational standpoint, by allowing a better inventory system, which could be turned quickly.
Therefore, the critical aspect to understand in the digital era is decentralized value creation, which makes the value creation process less expensive for an organization, more valuable to its end users, and more scalable as it benefits from network effects.
How do decentralize value creation?
Many platform-like business models have leveraged a few aspects:
- User-generated content (Quora, Facebook, Instagram).
- Distributed inventory systems ( , Alibaba).
- Peer-to-peer networks ( , Uber).
This implies a paradigm shift.
When you start thinking in terms of platforms, no longer you’ll need a plethora of people taking care of each aspect of it.
Rather you’ll need to understand how the value creation can be outsourced to a community of people and make sure the platform is on top of its game in a few aspects.
For instance,and Alibaba have to make sure their review system isn’t gamed. has to make sure to be able to guarantee safety in the interactions from host to guests and vice-versa.
Quora has to make sure to keep its question machine to keep generating relevant questions for users to answer (the supply-side).
If you grasp this element of a platform, you’re on a good track to understanding how to build a successful platform or marketplace.
Apple Business Strategy
Business Model Label: Product-Based Company Leveraging On Locked-In Ecosystems With A Reversed Razor And Blade Business Strategy
Apple sells its products and resells third-party products in most of its major markets directly to consumers and small and mid-sized businesses through its retail and online stores and its direct sales force.
The Company also employs a variety of indirect distribution channels, such as third-party cellular network carriers, wholesalers, retailers, and value-added resellers.
During 2017, the Company’s net sales through its direct and indirect distribution channels accounted for 28% and 72%, respectively, of total net sales.
Many people look at the iPhone, or the previous products Apple has launched successfully in the last decade and assume that their success is due to those products.
In reality, Apple has followed throughout the years a strategy that focused on five key elements:
- Strong branding.
- Beautifully crafted products.
- Technological innovation.
- Strong distribution.
- Locked-in ecosystems.
In short, Apple can sell an iPhone at a premium price because it employs a reversed razor and blade strategy.
This strategy implies free access to Apple’s Ecosystem (ex. iTunes, and Apple Store).
That makes the whole experience through Apple’s devices extremely valuable.
Thanks to that experience, the perception of high-end (luxury-like) products, together with a reliable distribution, justifies Apple’s premium prices.
Apple’s managed to build a business platform on top of the iPhone, thus creating a strong competitive moat, which lasts to these days:
Therefore, Apple’s future success can’t be measured with the same lenses as the last decade.
The real question is: what product will Apple be able to launch successfully?
And keep in mind it’s not just about the product. Apple’s formula summarized above can be replicated over and over again.
But it isn’t a simple formula. And as locked-in ecosystems, in which Apple controls as much as possible, the experience of its users has proved quite successful in the last decade.
That might not be so in the next, given the rise of more decentralized infrastructure.
For that matter,might be well moving from a reversed razor and blade model:
To a service-based model:
This isn’t surprising, as a service business has a few compelling advantages:
- High margins.
- A relatively stable revenue stream.
As Apple has relied on home runs with its products, from the new Mac to the iPod, iPhone, and iPhones, that kind of success isn’t easy to replicate, and it makes the company relies on a continuous stream of fresh sales to keep the business growing.
A service business would balance things out.
It is important to remark this isn’t something new to Apple:
When Apple introduced the iPhone, it isn’t like it was an overnight success. It was successful, but it had to create a whole ecosystem to make the iPhone a continuous source of growth for the company!
When it comes to business strategy, as pointed out in Apple’s annual reports:
The Company is committed to bringing the best user experience to its customers through its innovative hardware, software and services. The Company’s business strategy leverages its unique ability to design and develop its own operating systems, hardware, application software and services to provide its customers products and solutions with innovative design, superior ease-of-use and seamless integration.
Understanding this part is critical. As I explained above, at the time of this writing many think of Apple as the “iPhone company.”
Yet Apple is way more than that, and its business strategy is a mixture of creating ecosystems by leveraging on these pillars:
- Operating systems.
- Applications software.
- Innovative design.
- Seamless Integration.
Those elements together make Apple‘s products successful. As Apple further explained:
As part of its strategy, the Company continues to expand its platform for the discovery and delivery of digital content and applications through its Digital Content and Services, which allows customers to discover and download or stream digital content, iOS, Mac, Apple Watch and Apple TV applications, and books through either a Mac or Windows personal computer or through iPhone, iPad and iPod touch® devices (“iOS devices”), Apple TV, Apple Watch and HomePod.
Once again, it isn’t anymore about creating a product, but about generating self-serve ecosystems.
How do you support those ecosystems?
It depends on what’s your target. A media company will primarily need an ecosystem made of content creators (take Quora or Facebook or ).
In many cases, a digital media company over time has to be able to nurture several communities to create a thriving ecosystem.
For instance, large tech companies or startups, often rely on several communities:
- Programmers and developers (Google, Apple).
- Content creators and publishers (Google, Quora, YouTube).
- Artists and creative talents (Apple, ).
In Apple‘s case though, the first ecosystem is the community of developers building third-party software products that complement the company’s offering:
The Company also supports a community for the development of third-party software and hardware products and digital content that complement the Company’s offerings.
When you combine that with a high-touch strategy (where skilled and knowledgeable salespeople interact with customers) you create a flywheel, where customers are retained for longer, the brand grows as a result of this high-touch activity which creates a better post-sale experience and triggers word of mouth and referral from existing customers:
The Company believes a high-quality buying experience with knowledgeable salespersons who can convey the value of the Company’s products and services greatly enhances its ability to attract and retain customers.Therefore, the Company’s strategy also includes building and expanding its own retail and online stores and its third-party distribution network to effectively reach more customers and provide them with a high-quality sales and post-sales support experience.The Company believes ongoing investment in research and development (“R&D”), marketing and advertising is critical to the development and sale of innovative products, services and technologies.
Read: Apple Business Model
Airbnb Business Strategy
Business Model Essence: Peer-To-Peer House-Sharing Network With Fee-Based Monetization Strategy
As a peer-to-peer network, allows individuals to rent from private owners for a fee.
charges guests a service fee between 5% and 15% of the reservation subtotal; While the commission from hosts is generally 3%.
also charges hosts who offer experiences a 20% service fee on the total price.
The digitalization that happened in the last two decades has facilitated the creation of peer-to-peer platforms in which business models disrupted the hospitality model created in the previous century by hotel chains like Marriott, Holiday Inn, and Hilton.
is quickly branching out toward offering more experiences. We can call the “marketplace of experiences.”
In short, just likestarted from books, has started from house-sharing.
But that is the starting point, which gives the innovative company enough traction to validate its whole business model and expand to other areas.
The principal aim of process.is to control the whole experience for its users. This means creating an end-to-end travel experience that embraces the entire
Thus, it’s not surprising that we’ll see bundled travel packages.expanding its marketplace to more and more areas. This is also shown by the fact that Airbnb might soon offer
Just as we’ve seen in the case of Alibaba and, follows a marketplace logic, where it needs to make the interactions between its key users (hosts and guests) as smooth as possible, with an emphasis on safety.
As a platform,initially used a strategy of improving the quality of its supply by employing freelance photographers that could take pictures of host homes.
This, in turn, made those homes more interesting for guests, as they could appreciate those homes more.
As many people in real estate might know, the quality of the pictures is critical.
Although this might sound trivial, this is what improved thesupply side.
Indeed with better and professionally taken images,improved its reach via search engines (yes, search engines are thirsty for fresh and original content, images comprised).
And it enhanced the experience of its potential customers.
Now Airbnb is converting its business model to digital experiences. In addition to changing the whole strategy.
Whereas Airbnb focused in the past on covering major cities across the world.
Changing travel habits made Airbnb focus on digital experiences and local, extra-metropolitan areas throughout the pandemic.
While, post-pandemic, as people travel for longer stays, the whole platform has been structured around these.
Read: Airbnb Business Model
Baidu Business Strategy
Business Model Essence: Online Marketing Free Services Advertising-Supported Revenue Model
marketing services (advertising). In fact, in 2017, made about $11.24 in online marketing services and a remaining almost $1.8 billion through other sources. According to Statista, makes money primarily via online
revenues comprise membership services of iQIYI (an innovative market-leading online entertainment service provider in China) and financial services. has an overall search market share of 73.8% of the Chinese market. Other sources of
At first sight, Google, but in China.might seem the mirror image of
However, this is a superficial view. While Google, it did take advantage of the fact that Google wasn’t available there, to build its dominant position.has followed in China a similar path to
Google. It had also introduced innovations in its search products (like voice search devices for kids) at a time when Google wasn’t there yet.also has a more efficient cost structure than
Read: Baidu Business Model
Baidu mission: two-pillar business strategy and value propositions acting as a glue for its key users/customers
In the past years, business model.has followed an expansion business strategy focused on acquiring assets and companies that complemented its core
As the leading Chinese search provider, in 2017,updated its mission to “ aims to make a complex world simpler through technology.”
This mission is achieved via a two-pillar strategy:
- Strengthening the mobile foundation (similar to Google’s mobile-first).
- And leading in artificial intelligence.
key partners comprise users, customers, union members, and content providers.
For each of those critical segments, value proposition.has drafted a fundamental
Thus, to generate a value chain that works for these stakeholders, value proposition:has to balance it with a diversified
- Users: enjoying search experience want a search engine that gives them relevant results.
- Customers: with 775,000 active online marketing customers in 2017, consisting of SMEs, large domestic businesses, and multinational companies, distributed across retail and e-commerce, network service, medical and healthcare, franchise investment, financial services, education, online games, transportation, construction and decoration, and business services. Those businesses look for a trackable, and sustainable ROI for their paid advertising campaigns. By bidding on keywords, they can target specific audiences.
- revenues with Baidy by displaying banner ads on their sites in relevant spaces filled by the search algorithm (think of it as Google’s AdSense Network). Those publishers and sites can generate additional revenues and monetize their content without relying on complex infrastructure, that instead is employed by Union Member: share
- Content Providers: video copyright holders, app owners who list their apps on the revenues. app store, users who contribute their valuable and copyrighted content to products, and publishers. Those users get visibility or money in exchange for this content. has to make sure to allow those content providers to get in exchange for their work and creativity visibility and
Understanding how the value proposition for each player comes together is critical to understanding the business decisions a company like makes over time.
For instance, as Google) moves more and more toward AI, the need to balance the value proposition for Union Members might fickle.(like
Booking Business Strategy
Business Model Essence: House-Sharing Platform Leveraging On A Two-Sided Marketplace With A Commission-Based Revenue Model
Booking Holdings is the company that controls six main brands that comprise Booking.com, priceline.com, KAYAK, agoda.com, Rentalcars.com, and OpenTable.
Over 76% of the company’s revenues in 2017 came primarily via travel reservations commissions and travel insurance fees.
Almost 17% came from merchant fees, and the remaining revenues came from advertising earned via KAYAK.
As a distribution strategy, the company spent over $4.5 billion on performance-based and brand advertising.
Read: Booking Business Model
Booking mission, value proposition, and key players
Booking’s mission is to “help people experience the world.” Booking does that via a few primary brands:
The mission of helping people experience the world is executed via three primary value propositions delivered to consumers, travelers, and business partners:
- Consumers are provided what Booking calls “the best choices and prices at any time, in any place, on any device.”
- People and travelers can easily find, book, and experience their travel desires.
- Business partners (like Hotels featured on Booking.com) are provided with platforms, tools, and insights in exchange.
Boomedium-term term strategy is focused on:
- Leveraging technology to provide the best experience.
- Growing partnerships with travel service providers and restaurants.
- Investing in profitable and sustainable growth.
DuckDuckGo Business Strategy
Business Model Essence: Privacy-based Search Engine Built On Google’s Weakness With An affiliate-based Revenue Model
makes money in two simple ways: Advertising and Affiliate Marketing.
Advertising is shown based on the keywords typed into the search box. Affiliate revenues come from and eBay affiliate programs.
When users buy after getting on those sites through the company collects a small commission.
While this model might not sound that exciting. Google’s primary weakness: users’ privacy. Where Google’s primary asset is made of users’ data. throws that data away on the fly:managed to grow quickly by leveraging
It is important to remark that business model that can make it sustainable in the long term.is still figuring out a
Indeed, the company got a venture round of $10 million back in August 2018.
business model in the coming years, to reach a “business model/market fit.”will be tweaking its
Read: DuckDuckGo Story
Google (Alphabet) Business Strategy
Business Model Essence: Free Search Engine Distributed Across Hardware, Browsers, And Members’ Websites With An Hidden Revenue Generation Model
As of 2017, over ninety billion dollars, which consisted of 86% of Google’s revenues came from advertising networks.
The remaining fraction (about 13%) came from Apps, Google Cloud, and Hardware. While a bit more than 1% came from bets like Access, Calico, CapitalG, GV, Nest, Verily, Waymo, and X.
Google business model is changing over the years.
Even though advertising is still its cash cow, Google has been diversifying its revenues in other areas.
While in 2015 90% of Google’s revenues came from advertising, in 2017, advertising revenues represented 86%.
Other revenues grew from about 10% in 2015 to almost 13% in 2017.
Why did Google get there? And where is Google going next? To understand that you need to understand the “moonshot thinking.”
Read: Google Business Model
Read: Google Cost Structure
Read: Baidu vs. Google
Understanding Google’s moonshot thinking and a breakthrough approach to business
As highlighted in the Alphabet annual report for 2018:
Many companies get comfortable doing what they have always done, making only incremental changes. This incrementalism leads to irrelevance over time, especially in technology, where change tends to be revolutionary, not evolutionary. People thought we were crazy when we acquired YouTube and Android and when we launched Chrome, but those efforts have matured into major platforms for digital video and mobile devices and a safer, popular browser. We continue to look toward the future and continue to invest for the long-term. As we said in the original founders’ letter, we will not shy away from high-risk, high-reward projects that we believe in because they are the key to our long-term success.
Understanding the moonshot approach to business is critical to understanding where Google (now Alphabet) got where it is today, and where it’s headed next.
Since the first shareholders’ letter from Google’s founders, Brin and Page they highlighted that “Google is not a conventional company. We do not intend to become one.”
Google has successfully built ecosystems that today drive
To understand where Google is going next, you need to look at the AI Economy, in which the tech giant is trying to lead the pack.
Whether or not it will be successful will highly depend on its ability to keep creating successful ecosystems, just as Google has done with Google Maps (you might not realize but Google Maps powers up quite a large number of applications) and Android.
At the time of this writing, Google is widely investing in other areas, such as:
- Voice search.
- AI and machine learning applications.
- Self-driving cars.
- And other bets.
If that is not sufficient Google has made several moves in different spaces, to keep its dominance on mobile, while moving toward voice search, like the investment in KaiOS, which business model is interesting as it finally allows an ecosystem to be built on top of cheap mobile devices in developing countries:
That is why Google keeps making “smaller bets in areas that might seem very speculative or even strange when compared to its current businesses.”
Those other bets made “just” $595 million to Google in 2018.
This represented 0.4% of Google‘s overall revenues, compared to the over $136 billion coming from the other segments.
Google‘s North Star is its mission of “organizing the world’s information and making it universally accessible and useful.”
Read: KaiOS Business Model
A few tips
Let’s go through a few other tips for a successful business strategy.
The customer-problem quadrant by LEANSTACK’s Ash Maurya is a great starting point to define and understand the problem, that as an entrepreneur you will going to solve.
Indeed, a successful business is such, based on the market’s rewards for the entrepreneur’s ability to solve a problem.
Keep in mind that defining and understanding problems in the real world is one of the most difficult things (that is why entrepreneurship is so hard).
To properly stumble on the right definition of the problem you’re solving, there might be some fine-tuning going on, which in the business world we like to call product-market fit.
Business engineering skills
Another key element is not to lose sight of the context you’re operating.
As such, analyzing that properly might require some business engineering skills.
To simplify your life you can use the FourWeekMBA business analysis framework.
Don’t strategize on a piece of paper
Strategies always work well on a piece of paper.
Yet when execution comes suddenly we can realize all the drawbacks of that.
In very few, rare cases, a designed strategy will work as expected.
However, the reason we plan and strategize isn’t just to make things work as we’d like them to.
But to communicate a vision we have to those people (employees, customers, stakeholders) who will help us get there.
That is why when we strategize it’s important not to lose sight of the essence of our strategy, which is the long-term vision we have for our business.
The rest is execution, practice, and a lot of experimentation!
The innovation loop
Innovation starts by tweaking, testing, and experimenting also in unexpected ways.
Often though, as a business strategy is documented after the fact, it seems as if it was all part of a plan.
In most cases, the innovation loop starts by stumbling upon that thing that will have a great impact on your business.
Therefore, as an entrepreneur, you need to keep pushing on those models that worked out.
But also to be on the lookout for new ways of doing things.
In a barbel approach we want to have a clear distinction between two domains:
- Core business: on the core business side, where you have a consolidated strategy, and a business model that has proved to work, it’s important to be structured. This means having a clear culture, following given processes, and slowly evolving your business model.
- New bets: as your business model will become outdated over time, and that might happen also very quickly, you need to be on the lookout for new opportunities emerging, also in new, completely unrelated business fields.
For instance, a tech giant like Google, has a part of its business skewed toward a few bets it placed on industries that are completely unrelated to its core business (search).
Those bets are not contributing at all to its bottom line (only some of those bets are generating revenues but those are extremely marginal compared to the overall turnover of the company).
However, those might turn out widely successful (or huge failures) in the years to come.
Thus, with a barbell approach, we want to consolidate what we have. But also be open to what might be coming next!
Strategic analysis thinking tools
Strategic analysis is a process to understand the organization’s environment and competitive landscape to formulate informed business decisions, to plan for the organizational structure and long-term direction. Strategic planning is also useful to experiment with business model design and assess the fit with the long-term vision of the business.
so that you can make better business decisions.
In this article, I’ll focus on the Blitzscaling business model canvas. This is a model based on the concept of Blitzscaling.
That is a particular process of massive growth under uncertainty, and that prioritizes speed over efficiency. It focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.
Pretotyping is a mixture of the words “pretend” and “prototype,” and it is a methodology used to validate business ideas to improve the chances of building a product or service that people want.
The pretotyping methodology comes from Alberto Savoia’s work summarized in the book “The Right It: Why So Many Ideas Fail and How to Make Sure Yours Succeed.”
This framework is a mixture of the words “pretend” and “prototype,” and it helps to answer such questions (about the product or service to build) as: Would I use it? How, how often, and when would I use it?
Would other people buy it? How much would they be willing to pay for it? How, how often, and when would they use it?
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created.
At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken.
Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.
Growth hacking is a process of rapid experimentation, coupled with the understanding of the whole funnel, where marketing, product, data analysis, and engineering work together to achieve rapid growth.
The growth hacking process goes through four key stages analyzing, ideating, prioritizing, and testing.
Venture capitalist, Dave McClure, coined the acronym AARRR which is a simplified model that enables us to understand what metrics and channels to look at. At each stage of the users’ path toward becoming customers and referrers of a brand.
In the Lean Startup, Eric Ries defined the engine of growth as “the mechanism that startups use to achieve sustainable growth.”
He described sustainable growth as following a simple rule, “new customers come from the actions of past customers.”
The three engines of growth are the sticky engine, the viral engine, and the paid engine. Each of those can be measured and tracked by a few key metrics, and it helps plan your strategic moves.
The RTVN model is a straightforward framework that can help you design a business model when you’re at the very early stage of figuring out what you need to make it succeed.
A sales cycle is the process that your company takes to sell your services and products.
In simple words, it’s a series of steps that your sales reps need to go through with prospects that lead up to a closed sale.
Planning ahead of time the steps your sales team needs to take to close a big contract can help you grow the revenues for your business.
A comparable company analysis is a process that enables the identification of similar organizations to be used as a comparison to understand the business and financial performance of the target company.
To find comparables, you can look at two key profiles: the business and economic profiles.
From the comparable company analysis, it is possible to understand the competitive landscape of the target organization.
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition.
It was published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s.
The model breaks down industries and markets by analyzing them through five forces which you can use to have a first assessment of the market you’re in.
AIDA stands for attention, interest, desire, and action. This is a model that is used in marketing to describe the potential journey a customer might go through, before purchasing a product or service. The variation of the AIDA model is the CAB model and the AIDCAS model.
The PESTEL analysis is a framework that can help marketers assess whether macro-economic factors are affecting an organization.
This is a critical step that helps organizations identify potential threats and weaknesses. That can be used in other frameworks such as SWOT or to gain a broader and better understanding of the overall marketing environment.
The technology adoption curve is a model that goes through five stages. Each of those stages (innovators, early adopters, early majority, late majority, and laggard) has a specific psychographic that makes that group of people ready to adopt a tech product.
This simple concept can help you define the right target for your business strategy.
A Business Model Essence, according to FourWeekMBA, is a way to find the critical characteristics of any business to have a clear understanding of that business in a few sentences.
That can be used to analyze existing businesses. Or to draft your Business Model and keep a strategic and execution focus on the key elements to be implemented in the short-medium term.
An effective business model has to focus on two dimensions: the people dimension and the financial dimension. The people dimension will allow you to build a product or service that is 10X better than existing ones and a solid brand.
The financial dimension will help you develop proper distribution channels by identifying the people that are willing to pay for your product or service and make it financially sustainable in the long run.
Understanding your TAM, SAM and SOM can help you navigate the market you’re in and to have a laser focus on the market you can reach with your product and service.
I hope that in this guide you learned the critical aspects related to business strategy, with an emphasis on the entrepreneurial world. If business strategy would only be an academic discipline disjoined from reality, that would still be an interesting domain, yet purely speculative.
However, as a business strategy can be used as a useful tool to leverage on to build companies, hopefully, this guide will help you out in navigating through the seemingly noisy and confusing business world, dominated by technology. As a last but critical caveat, there isn’t a single way toward building a successful business.
And oftentimes the way you choose to build a business is really up to you, how you want to impact a community of people and your vision for the future!
- 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
- How to Build a Great Business Plan According to Peter Thiel
- How To Create A Business Model
- What Is Business Model Innovation And Why It Matters
- What Is Blitzscaling And Why It Matters
- Business Model Vs. Business Plan: When And How To Use Them
- The Five Key Factors That Lead To Successful Tech Startups
- Business Model Tools for Small Businesses and Startups