Have you ever heard or studied about the type of business models that companies like Netflix, Google and Skype work with? I’m no pro in this subject but I would like to discuss it with you guys because it really caught my attention!
What are business models and why they had to innovate through time?
A business model is a structure that presents the “big picture” of the company or product. It is by a Business Model that entrepreneurs base their activities, like:
- the way their company is going to generate profit
- , who is the main segment of clients that they are trying to reach
- , how they are going to operate and manage our operation
- and what are their goals.
It is important to say that, just like everything in life changes, business models are no different as well: they change. Companies have to innovate the way they think about their own operation to remain in the market!! Do you know what is the main thing that those three companies had to apply on their organizations in order to keep up with market speed? Let’s think about it by looking at these 3 business models that were able to transform their way of work through time and what were their strategies to do it.
The first one is: THE LONG TAIL
The long tail, created by Chris Anderson, is a type of business model that previously focused on a few segments of clients and only one part of the market., Iin another words, it was a strategy that didn’t vary the source of revenue. By doing that, only one value offer was necessary. However, if you have a small group of clients, and your revenue rely only on them, what would you do when those clients decide to move away?? How your business would survive?!
Looking at these questions is the reason why the Long Tail Business Model evolved. Companies started to develop more value offers to achieve a bigger segment of less lucrative clients less lucrative, that once aggregate, they became a lucrative source of revenue.
That is one example An example of this is of how Netflix market strategy works. When their market competitors started to get stronger in the streaming business with best seller movies, Netflix had to innovate itshis strategy. Therefore, it started to offer a bigger number of niche products., Iin another words, Netflix begin to create movies and Tv series that focused in the unusual market consumer desirers, like producing original movies and tv series in different language, for example. Awesome, right?
What Netflix gain by doing that? A huge number of subscribers and a bigger and unique portfolio in their platform. Summing up, Netflix’s Long Tail market strategy connected people who were trying to find less successful media content in the internet to your platform alongside the people who liked the successful media ones, reaching almost all of the general public.
The second one is: Multi – Sided Platforms
Multi – Sided Platforms are actually not new in the market. Journals used it in the past and companies still use this master strategy. However, with the advance of technology, this model proliferated in an unimaginable way. And now let me explain what this model is really about..
A platform is a business model that creates value to two or more independent groups of people (usually consumers and producers) by intermediating their connection. Its main goal is to facilitate exchanges between the parts involved and allow them to interact and transact through the platform.
Before the innovation of this business model, its value proposal was directed to only one segment of clients, and companies had a hard time to attract new customers that were interested in looking just for the client base that already existed in the system. What they did to improve their strategy? They put it together a new value proposal for another segment of clients. Summing up, the companies became an intermediary between two or more groups of people that are benefited by each other.
Any similarity to one of Googles business models? YES! Do you know Google Adwords? The Google Company wanted to attract more users to its search engine, and theyhe knew that entrepreneurs and business people wanted to advertise their products or services in the internet, and people wanted to see these advertisements in the internet as well. Therefore, Google Adwords put this two groups of consumers together! Meanwhile Google’s profit was being generated from the advertisements and contents, it was also attracting more users to the search engine and increasing sales for those who were advertising. IT’S a WIN– WIN!
The third and last one is: The Free Pattern
This type of business model was created as a way to provide cheaper services to a larger network of consumers. A few years ago, before the advance of technology, some types of services like watching movies, listening to music and making calls, for example, were too expensive, because the cost of production was too high.
Nowadays, with the help of technology, the cost of those services decreased dramatically, being able for businessman to provide a part of their business model for free, or with a very low paying cost. By doing that, they reached a bigger network of clients.
Now you ask me “How this business model could survive by providing their services for free? Even though in the digital world things could become cheaper, the business still needs money to pay for their employees and escalate in the market.” CORRECT!
The Free pattern main goal is to deliver a value proposal so good for their clients that they would beg for more, and if they want more premium advantages in the system, they will have to pay for those advantages. Consequently, the group of paying clients subsidize the non-paying ones.
Have you ever heard about Skype? Skype is a software that provides free calling services in the internet between users. Besides that, it’s also possible to videocall other users or make a group call, all for free. This free service, however, is just for people that have already registered in the software. By paying a little bit, you can call phones and send SMS to everybody, and that is where the money comes from! Even though the paying users represent only 10% of all users, they are more than enough to revenue and profit for the company because of their low operation cost.
Going back to a question that I asked you guys in the beginning of this article… “Do you know what is the main thing that those three companies had to apply on their organizations in order to keep up with market speed?”. By now, you probably realized what is the answer.
It’s simple! DELIVERING TRUE AND MEANINGFUL VALUEABLE SERVICES TO YOUR CLIENTS! Innovation comes when you solve someone’s problem with aggregated value, and to do that you have to really understand your clients, their problems, aspirations and environment. Empathy is the key!!
The market is always changing and sometimes, even with a lot of studies and predictions about the future, we can’t be fully prepared to what is about to come. Problems and worries come and go constantly and companies need to have the ability to quickly adapt in order to remain in business.
Well, hope you have enjoyed this readying. Any feedbacks are welcome!