Around 10 years ago at the height of what we would now think of as the tost internet boom, I did a series of lectures internationally to the communications community, entitled somewhat grandiosely “Business models of the next 10 years.” Most of the time, audi- ences seemed to listen politely and attentively and to applaud appreciatively. But I am sure that most of the ideas expressed were interred (with other unnecessary roadkill) on the information superhighway. At that time, the industry was populated by content and conduit businesses and content was assumed (relatively loosely and more or less exclusively) to be provided by formal service providers. The emphasis was on delivery of the content through nascent broad- band networks and the number of eyeballs that would watch it. Times change but perhaps the need for explicit busi- ness models hasn’t. It’s arguably more pressing than ever in the face of social networking, user-generated content and other Web x.O ideas. Do these really have sustainable business models that will last the course of the present economic crisis?
A deep irony There is a deep irony here: the industry that has the most to offer in terms of new ideas – new media – is usually reduced to scratching round for old ones instead. Invariably, this has down to considerations of advertising and subscription-based models, and rather unimaginatively, with apologies to Mr Murdoch, usually just advertising. But this is most certainly a pie that can only be cut in so many ways. Social media initiatives suffer fundamentally in my view from regarding themselves as infrastructures for networked interaction – but these interactions are disparate and from the point of view of the need for a coherent business model, arguably just too fragmented. I say this as an enthusiastic user, and I think there are easier ways to create a community. I could after all get one by circling names in the phone book. So, new ideas would be good – even if we have to find them outside new media. My personal favourites are in the insurance, banking and airline industries, but
in turn they show – sometimes to the outright disad- vantage of the customer – just how possible it is to take money entirely legitimately from people. Insurance is a good example. I personally think driving-insurance-per-mile remains a good if largely undeveloped idea. And it could be sold with candy bars in motorway service stations, an idea I tried to pioneer (without any success). But auto insurance has developed highly elaborate business models which customers nevertheless seem to accept without rigorous academic analysis based on insurance, no-claims bonuses and even insurance to protect no-claims bonuses so maybe we are not thinking creatively enough. Staying with cars, Edward de Bono said he advised the Ford Motor Company (which at that time was seeking ways to increase sales in one of his lateral thinking seminars) to think differently. Specifically, he suggested the company should go out and buy a national network of car parks then up for sale in the UK with a strategy of only allowing drivers with Ford vehicles entry. For car owners, the ability to park a car comes a close second to owning one. I don’t think his sugges- tion has been taken up anywhere, any more than my suggestion to mobile phone executives (whilst waving around a fleece jacket emblazoned with the logo of their principal competitor) that merchandising a brand might be more important than making phones.
Getting provocative Some business model suggestions seem designed to provoke – but still require an answer. Michael O’Leary, famously outspoken CEO of Ryanair, a leading low cost UK airline, has proposed many such initiatives. Perhaps his most interesting one (not counting the possibility that one day passengers may be asked to stand rather than sit whilst they fly) remains his comments on average revenue per passenger directly (I think) to a group of financial analysts. Mr O’Leary suggested – to general consternation – such measures were inexorably trending down, perhaps even to zero at some point in the future. But by then, he said confidently, airlines like Ryanair might be
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making more money from “renting” their passengers, now customers, to airport malls. On the way to these suggestions, airlines like Ryanair have highly controversially deployed all sorts of other business models too including subsidy practices from the provincial airports they serve and a enduring willingness to charge passengers for any extras along the way. But these are more than gimmicks. Mature markets – and sadly most new media seems to exist in a mature market more or less as soon as it has been launched – need the whole context of customer behaviour to be considered. But it does require some out of the box thinking and a departure from organizational models that are also rather straight-jacketed, and insist the supplying of a particular good in a particular segment. Paradoxically, perhaps companies should be deliber- ately focussed on supplying that which is not their core business. More generally, fines and taxes seem to be useful and sustainable business models (as well as car parking fees of course). Someone has unearthed the fact that US banks are now earning USD 24 billion per year in charges merely on customers going a few dollars overdrawn on their debit cards, when these customers assumed for the most part that the transaction would not be authorized if this was going to be the case.
The tipping point Personally, I’m curious about something that happens everyday and we hardly notice. For millions of workers, tips are the sole business model for their pay checks. The tipping phenomenon to me illustrates important facts of economic life – it is both sustain- able and, even if voluntary, depends on the person- to-person expectations that good service will be rewarded. This type of habituation of human behav- iour deserves a lot more study. Open source move- ment and wikinomic devotees everywhere, take note. So the question remains: if such traditional indus- tries can innovate: why can’t new media? As Chris Anderson has already elegantly noted, the pervasive common factor of new media business models seems to be that they give everything away – for free – as the expected precondition for doing business with the customer. But free is not really nor usually a pre-condition in the world outside new media – a factor that continues to concern me. And much of the industry underlying new media – the telecom sector for example – remains baffled, confused and unable to reconcile capital expenditure requirements with those of free services. For the time being, no sure thing has emerged. But in the age of a trillion dollar ICT sector, the scope is surely there for someone, somewhere, to
By Stephen McClelland
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