So this new world, opportunities are on the rise.

So
a business model is important: it is the underlying logic whereby we create and
capture value for our stakeholders. There always have been opportunities to
create new and disruptive business models that change the ground rules of an
industry—like Kodak, like Zara. Today, however, technological progress,
globalization, deregulation, demographic shifts, and the behavioral changes
driven by technology enable us to do things in radically different ways. Not
just a little bit better, not just a little bit more efficiently: in a way that
is completely different. The opportunities for innovation in business models,
and the threats posed by innovations in our competitors’ business models, have
both increased exponentially. A revolution is under way.

Business Model Innovation

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Technological
change and its related developments allow for far-reaching innovation in
business models. The companies of the future will surprise us with novel and
original business models. In this new world, opportunities are on the rise. It
is by definition impossible to predict what will take us by surprise or what
will prove innovative. But we can to some extent cast our gaze over the
businesses that are now emerging—because, as we have said, the future starts
today.

One
strongly rising trend in business models might be dubbed “cost obsession.” The
paradigm is perhaps the low-cost airline, based on the scheme developed by Southwest
Airlines in the United States—the only American airline that has never failed
to turn a profit. Southwest decided to fly point-to-point using smaller, less
crowded airports, and used a range of operational measures to make sure its
aircraft spent more time in the air and carried more passengers on each flight.
Costs came down hugely, flights could be sold more cheaply, more passengers
became willing to buy—this made routes more profitable, and a virtuous circle
took care of the rest. With variations, this is the business model of Ryanair
in Europe, Air Asia in Asia, and any number of other carriers that operate this
same model today. Cost obsession has emerged in many other industries. It is
present in retail, for instance, Walmart being a prime example. The cost
obsession philosophy—developed with care by Sam Walton at Walmart—has spread to
an increasing number of sectors. The idea is to get rid of frills and make use
of economies of scale, scope, utilization, experience and other factors for the
benefit of consumers. Anything that does not create value for the consumer is
stripped out.

Another
business model category that is powerfully on the rise is the “platform.” This
term refers to a business model that supports two or more markets at the same
time. A conventional market attracts buyers by providing a venue that supports
the presence of sellers, and attracts sellers by the promise of the presence of
buyers, all for a specific domain of goods or services. Modern technology,
however, removes barriers of time (accessible 24 hours a day) and place
(accessible from almost anywhere). Platforms spring up in increasing numbers
and compete with one another. One fascinating feature of inter-platform
competition is that each platform seeks to achieve network externalities5
leading to a “winner takes all” outcome. Another feature is that competitors
put a lot of effort into raising the costs for the weaker party to switch
platforms in a bid to keep members captive. A well-known example is eBay. This
platform started out auctioning second-hand goods, then grew into a third-party
market where businesses of all kinds sold all sorts of products, creating a
huge online bazaar.

Other
examples of platforms include game consoles, operating systems, and
smartphones. The key variable is the “installed base.” If a video game
platform—Nintendo, say—makes big sales, it achieves a large installed base.
This makes it attractive to game developers, seeking to reach a wide range of
potential buyers. A continued influx of more and (one hopes) better games in
turn enhances the attractiveness of the platform, further aiding the growth of
the installed base. This entrenches the virtuous circle of this network
externality.

A
third category of business model is the “global business” that opens up to the
world in a brief lapse of time. Take Mango. Unlike Zara, Mango creates its own
fashions. The firm designs collections and places them on the market at
affordable prices, driven by manufacturing in low-cost countries and the
flexibility to produce goods that get sold rather than selling goods that get
produced. From the outset, Mango focused on urban, modern, professional,
relatively young women.6 So the target segment was not particularly large, and
required operating in fairly big cities. International growth was crucial to
achieving economies of scale and attaining the mass that would enable the firm
to develop and manage its production and logistics efficiently. Swift
globalization was key. An apposite supporting example is Desigual: though
targeting a different segment, its strategy is analogous to Mango’s, and its
inter-nationalization was even quicker.