Thinking Managers

Robert Heller of considers the ways in which businesses need to innovate and change if they are to survive in a rapidly changing world.

Business Models and the Internet

Business commentators once viewed Amazon with scepticism. Much was made of the firm’s failure to make money. But the financial significance of the business model was overlooked.

Amazon’s book-selling method was convenient, speedy and boasted pricing advantages over traditional marketing conventions. Founder-CEO Jeff Bezos was convinced the company could close the gap between costs and revenues as the marketing proposition of delivering higher value at a lower price won an increasing number of converts.

For quite some time, as the online business models gathered strength, I would warn businesspeople that they faced a deadly enemy. Three propositions were offered by the old, time-honoured marketing choice: a premium price yielding bigger profits at higher costs than the competition; me-too prices exploiting greater efficiencies on the supply side; at the bottom, a cut-price platform that relies on inferior production and supply for its viability, but which is inherently weak.

The key words were: best, same and worse. But business listeners also now had to learn that most powerful of words: FREE.

Internet users soon discovered that their needs in plenty of markets could be met at no cost. In this way, the new suppliers could build customer acceptance fast, based entirely on the relative success of a literally priceless marketing platform.

The first Big Bang was delivered by Netscape, then an unknown start-up. Non-paying users enjoyed the browser innovators’ services, but the company never found the answer to the problem of Priceless Profit, except in the most extreme of solutions: AOL bought Netscape for $4.2 billion in 1999. Microsoft countered the pioneers by bundling its own browser with other ‘FREE’ necessities, and the carpet was pulled from beneath Netscape’s feet.

That was easy to do albeit expensive, even for Bill Gates, whose strengths lay more in the basics of business than in high technology. Those business strengths were, and still are, fundamental. But the wealthiest man in the world stayed that way by fully recognising the force of the simple process that created his riches.

Every Midas encounters the same difficulty; the success of the new idea is bound to attract competitors, some new in every aspect, others established in other market sectors. But history shows clearly that all good things eventually come to an end, unless you can identify, exploit and lead the next stage of change in the market. The negative question is obvious: what changes to the business model are needed to sustain the company and serve its markets? The positive question is much harder: how can we build a new company that will be devoted to the new markets and the opportunities they hold?

About the author
Robert Heller is one of the world’s best selling authors on business management.

  Robert Heller