Tuesday, June 23, 2009

A battle of business models.

A BD’M client noted recently that they were engaged in a battle of business models. This is a clarifying thought – a competition between the fundamental strategy employed by each competitor for creating and delivering customer value.

This point of view implies that each company competes through a single, overarching business model. But can a company compete by spreading its bets across multiple business models?

This was on my mind when I read an article in yesterday’s New York Times about how Amazon will employ three different business models to sell books. As we all know, Amazon’s core business is selling pulp books direct to consumers. And, with Kindle, Amazon is now in the business of selling digital downloads of e-books. But Amazon has decided to also sell its e-books on competitive services, such as iTunes, for the same $9.99 price it charges Kindle owners.

Jeff Bezos and company have created three different models, a move primarily designed to follow the customer and preempt competitors, and also produce a healthy side-effect – greater internal competition to drive ongoing innovation and greater focus.

Strategy guru Michael Porter has long said that alignment is the test of a great business strategy – i.e., a unique value proposition, delivered through a differentiated value chain, with all activities aligned, and all connected back to the balance sheet. Porter’s litmus test doesn’t go away, rather companies will have to apply this thinking across several business models simultaneously – a game of three-dimensional strategic chess.

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