Two authors that I enjoy reading are talking today about Business Model innovation – a subject that I’m passionate about and often write about. Idris Mootee wrote What Do You Know About Business Model Innovation?, and Stefan Lindegaard wrote about Business Model Innovation – Big Risk, Big Rewards.
Both articles note the confusion that people have when trying to define “business model” in the context of innovation and whether it is different from your “strategy”. In my experience, if you disagree with someone’s definition of “business model”, the disagreement will typically come down to a question of scope – how narrow or broad you definition is. I personally take a very broad view and am partial to this more “fun” definition:
“How to do I separate my customers from their money?”
For me, this definition excludes product or service innovation, but includes most everything else in the goal of getting customers to pay me for that product or service. Apple’s iPad is a product innovation; AT&T’s 3G iPad service, where you can sign-up directly on the iPad and pay month-to-month with no long-term contract, is for me a business model innovation designed to lower the barriers for the customer to pay AT&T for their service.
But my definition also includes innovations that help to drive new customers to a business. Not everyone would include these as “business model innovations”, but I do. Starbucks’ recent announcement that it will offer not only free Wi-Fi access to their customers, but also offer free access to otherwise paid online content from sources like the Wall Street Journal to me is a business model innovation. While it doesn’t change Starbucks’ sales channels, or pricing models, or payment options for buying coffee, they still built financial models of the cost versus expected revenue increase for this decision. To me, that is a business model innovation.
I took five minutes to write down some business model innovations that I’ve either read about it or have interacted with recently.
- GE sends me a new water filter replacement for my refrigerator every six months – I signed up in advance, got a discount to do so, and now they ship automatically and charge my credit card. Great model for them, since I don’t need to make the conscious decision every six months to make the purchase.
- Amazon prime provides 2-day free shipping for a flat annual fee. Psychologically, this encourages me to buy items on Amazon whenever I can in order to “justify” my prime investment.
- A number of iPhone games are free to start using, but then you need to pay to unlock new levels.
- Ann Taylor Loft has just announced that they will be offering discounts to their frequent customers via Foursquare check-ins.
- A scuba diving operation that I use recently switched their check-in process from the boat to their store – where I’ll end up browsing and be more likely to buy new equipment.
- The airport newsstand’s “read and return” policy on new books attracts customers twice – once to buy the book, and then again to return the book. Even if they break even or lose a little money on the return (selling the used book through another channel), I’ll probably make up for that by making a new purchase while I’m in the store.
Each one of these examples is an innovation that the company developed to try and separate me from more of my money. I wouldn’t call any of these a “strategy”, but presumably each one is being executed according to the company’s strategy. One could argue that these are just marketing actions – but I think it is more helpful to include consider these as business model innovations.
Rocco Tarasi was an accountant, investment banker, and CFO before becoming a technology entrepreneur.