Business Model Is?

What is business model?

Are your customers (those who pay for your products)  and users (those who don’t pay) responsible to protect your business model?

If you chose not to monetize certain aspects of your offering but your customers (and users) did, is that fair to you?

As I wait for my iPhone to download and install the iOS 9 update – you know the version that supports Ad blocking on iOS devices – I want to raise these questions and point you to three news stories today that answer these questions.

snapchat-replayFirst the business model question. The story is about Snapchat, a messaging App that supposedly supports expiring messages, introduced a new option to its customers at a price. Those messages that were supposed to be fleeting? You can replay them at a price of 3 for 99 cents. It is of value to someone to resurrect and replay those fleeting messages. If it is of value then Snapchat wants a share of that.  That is simply the definition of business model – Value creation and value share. It may turn out to be not so sustainable model because not all customers may see value. But it helps to test the value hypothesis and explore new value creation models like

  1. Different prices for older messages
  2. Charging senders to prevent their messages from being replayed

All in all a good approach for Snapchat to start even though this revenue stream may not justify the $18 billion valuation. Nevertheless this is business model – value creation and value share.

adblock-ios1Second question is whether your customers and users owe it you to protect your business model from disruption. By definition your business model will always be disrupted. Like your costs are just your costs, defense of your business model is your responsibility and not your customers’.

The news today is the iOS 9 update by Apple that allows Apps to block Ads on Safari.  As some bemoan the fact that the Ad blocking only kills independent web publishers and we all owe it to them to keep their businesses alive, we should revisit the question of business model.
Were the content publishers creating value? Well, who were they creating value for? If it is to the content consumers, the publishers chose not to take a share of the value created. If it is to the advertisers then yes they captured a share of value created through attention. Now this business model is getting disrupted with Ad blockers. It is not consumer’s problem, it is not their responsibility and it is not ethics violation if they all choose to install Ad blockers.

If the publishers really think the content consumers are the customers they want to serve, believe they are delivering value through content and must get a fair share of it then the simplest of all business models remain charging for it.

 

imagesFinally the question of downstream value capture because a producer left too much money on the table. The related news item is the secondary market for tickets for Papal visit. Pope Francis is visiting US and naturally many people like the opportunity to see him during his visits. To manage crowd the Archbishops of New York and Philadelphia implemented ticket system and distributed through a lottery scheme some 80,000 free tickets. They are clear about not selling and giving the tickets away for free.

However the noble intention did not carry over to others. Those who the tickets, some of them, are selling them in secondary market at high prices. Some of the tickets go for $1000 a pop. People expressed outrage about this profiting and call it denying the rights of others with modest means to see the Pope in person.

I disagree. With the lottery scheme everyone had a fair chance to win a ticket, even those with modest means. After that, once you get the ticket then it is your choice alone on how you value the ticket. For some, the value is in using it for themselves to see the Pope. For others the value is in the dollars they make in selling the tickets to others who value it more than they do.

The  Archbishops failed to capture value upfront – which is okay here – but that should not stop someone downstream from capturing the value. If you think about it, this actually grows the value pie bigger – those who won the ticket but value the $1000 more are happier, those who did not win the lottery and value the visit as $1000 or more are happier.

There you have it. Business model is value creation and value share. Your customers are not responsible for protecting your business model. It is perfectly fine if your customers find a way to benefit from inefficiencies in your business model.