A pivotal challenge for companies is to differentiate themselves from competitors. While different isn’t always better, better is always different! A business model describes how an organization designs and delivers value by providing stakeholders a shared understanding of how the business operates. A strong business model offers a competitive advantage by demonstrating that the firm does something different, more innovative and better than its rivals.
Herbert Kelleher and Rollin King sketched out the Southwest Airlines business model on a breakfast napkin in 1967. Recognizing a need for a service-oriented low cost airline, the “Texas triangle” meant that Southwest would fly dozens of daily flights between Dallas, Houston and San Antonio. In 2000, David Neeleman, a former Southwest manager, launched JetBlue Airways by adding quality to the service/value mix.
In steps the digital era
The digital era has driven many recent business model transformations. Apple’s iTunes is a great example of the changing music industry. In the past, record companies, distributors and retailers controlled channels and profits; now the artist and platform (iTunes) has the market power.
Newspapers have struggled to become information providers as their readers aged and defected to other media. The Wall Street Journal, The New York Times, and USA Today have stellar reputations and large/loyal customer bases. They can charge fees for online content. In contrast, most metropolitan newspapers are a less viable option as free alternatives (websites, smart- phones, community magazines and television) abound.
Google, Facebook, Apple, and Salesforce.com are examples of shapers since they open platforms for third-parties and create new market space. Participants embrace and enhance shapers’ platforms and may include applications (apps) developers, service firms or online e-tailers.
Zynga, a Silicon Valley social-gaming company, has generated hundreds of millions of dollars in revenues through Farmville. Millions of users manage virtual plots of land, grow crops, raise animals, and use online tools such as tractors. It has been estimated that there are more than 20 times more people playing Farmville than there are actual farms in the U.S. Other examples of strong business models are listed in the table below.
Take apart your business model
Consider these questions as your management team assesses your business model. Can you clearly explain your business model? What is unique about your strategy? How does it compare with your direct and indirect competitors?
Have you broken any industry rules lately? Can you develop a more innovative and interesting business model? Will your business model win in the market? Does your organization truly deliver superior value for customers?
ArtWeinstein, Ph.D., is professor and chair of marketing at Nova Southeastern University and author of “Superior Customer Value — Strategies for Winning and Retaining Customers.” He may be reached at email@example.com or (954) 262-5097. Visit his website www.artweinstein.com.