Coexisting Business Models

Coexisting Business Models

A question I get asked a lot is: Can two Elementary Business Models™ coexist within one company?

Car Manufacturers versus Car Sharing Platforms

Let’s take a car manufacturer, like Mercedes or BMW. In both cases, their primary business model – for the past 100 years – has been product-centric. After all, the main objective was to gain market share to profit from economies of scale. The marketing strategy was to generate demand through brand-centric marketing campaigns.

However, with the rise of the sharing economy, both car manufacturers soon realized the threat of market contraction caused by newcomers offering car-sharing services. Research by Global Market Insights showed that in 2017 the Car Sharing Market was estimated at $1.5 billion with a fleet size of over 100.000 cars. They expect the market to grow at a pace of 20% per year.

According to Jeremy Owyang, industry analyst and founder of Catalyst Companies, believes that a ‘properly shared car’ indicates a loss of revenue of $270.000 to car manufacturers or even $1 million to the car industry (video, 5 minutes).

So, how did Mercedes and BMW respond?

Besides partnering with Uber, Mercedes introduced CAR2GO while BMW introduced DriveNow – both are resource-centric business models.

Again, if the current 100.000-150.000 shared cars are ‘properly shared’ (~50% utilization rate), the loss of revenue to the car industry – not due to a loss of market share but due to market contraction – is already $27-40 billion (270.000 x 100.000-150.000). When can this be expected? Fujitsu forecasts utilization rates of shared cars to surpass 50% by 2030.

As shown by BMW and Mercedes, it is best not to confuse existing customers, partners, or distributors and divide the two business models over two separate entities. IBM made a similar decision in 1980 to establish a separate PC division led by Don Estridge, however, much of the decision had to do with ongoing antitrust issues.

Amazon Marketplace versus Whole Foods Market

Now let’s perceive Amazon. Obviously, Amazon started out with a network-centric business model. After all, their objective was to add as many buyers and sellers to the Amazon Marketplace to increase the number of transactions between them and capture a piece of the transactions as profit.

However, with the $13.7 billion acquisition of Whole Foods Markets the company introduced itself to a product-centric business model, as WFM has to battle for market share like any other supermarket chain. Why is Amazon acting on two fronts? Because Jeff Bezos believes its advanced distribution network, built to fulfill orders from the Amazon Marketplace, could also be utilized to deliver groceries to consumers. And the $750 billion grocery market is ready for disruption.

Even so, these are two separate brands, Amazon and Whole Foods. As long as the customers are not confused, no harm will be done.

However, as we have seen recently, both US Congress, as well as the European Commission, are currently investigating Amazon as part of antitrust scrutiny. While Amazon acts like an independent platform it is being investigated for using platform insights to develop competing products and offer them to their customers.

One exception to the rule

While having two Elementary Business Models™ in one organization is often ill-considered, there is one exception to the rule: you’ll have to combine Customer Centricity with a secondary Elementary Business Model because by itself a customer-centric business will not be able to sustain for long. After all, Customer Centricity is about customer differentiation, i.e., selecting a group of customers for which you are able to fulfill more of their needs, allowing you to obtain a larger portion of their spending (share of wallet). The remainder of your customers will still have to be served in either a product-centric, resource-centric or network-centric manner.

Author

  • Edwin Korver

    Edwin Korver is a polymath celebrated for his mastery of systems thinking and integral philosophy, particularly in intricate business transformations. His company, CROSS-SILO, embodies his unwavering belief in the interdependence of stakeholders and the pivotal role of value creation in fostering growth, complemented by the power of storytelling to convey that value. Edwin pioneered the RoundMap®, an all-encompassing business framework. He envisions a future where business harmonizes profit with compassion, common sense, and EQuitability, a vision he explores further in his forthcoming book, "Leading from the Whole."

    View all posts
Share the Post:

Recent Articles

Think Differently: Embracing the Next Era of Management Innovation

Beyond the Quarter: Embracing Long-Term Strategic Renewal for Sustainable Success

Coming Full Circle: A Journey of Transformation, Connection and Emerging Wisdom

Breaking Down Silos in Healthcare: The Critical Need for Cross-Disciplinary Collaboration

Impending Impact: Business Strategies Destined for Demise

Harnessing Informal Networks: The Key to Building Adaptability and Resilience

Navigating Uncertainty: From the 2D to the 3D Strategic Agility Matrix

Navigating Complexity: The Cynefin Framework and the Art of Adaptive Leadership

From Division to Unity: The Evolution of Community Design

Navigating the Future with the RoundMap’s Strategic Agility Matrix

Rise to the Occasion: Navigating Complexity with Strategic Agility and Foresight

Beyond Optimization: Embracing Transformation in the Digital Age

RoundMap’s Continuous Elevation Process: Cultivating Cyclical Growth

Beyond Ignoring Early Warnings: Exemplifying Adaptive Leadership in the Face of Disruption

Learning through Reflection: Adapting the Navy SEALs’ Mission Debriefing

Join Our Newsletter