Crowds Lead New Business Models

Wal-Mart is proposing a very bold move, allowing customers to deliver packages to online buyers.  If successful, the concept would save Wal-Mart money while making it more competitive against Amazon and other online retailers, but a bevy of legal and regulatory issues would have to be addressed. Also, many buyers would have privacy concerns that they would want Wal-Mart to protect. Wal-Mart already ships products directly from nearby stores to reduce transport costs, but the new system, if implemented, would have Wal-Mart paying gas money in the form of discounts or gift cards to the customers who deliver the goods. The senior vice president of Walmart U.S. innovations says the plan could be implemented within two years if it gets beyond the brainstorming phase. However, the plan may never prove practical for a variety of legal and logistic reasons. For more on the limitations, see Exclusive: Wal-Mart may get customers to deliver packages to online buyers.

In May of 2010, Sheila Moorcroft published a trend alert about new business models which is still relevant three years later as can be clearly seen in the Wal-Mart story.

Emerging business models

Business model innovation has a long history of challenging the who – customers; the what -the offer – product or service; the how – channels, resources and activities; and the how much – cost structures and revenue streams of making things or delivering services. At present, five critical areas of change, individually and collectively, are creating the need for and enabling new business models to emerge. This alert summarises four emerging business model characteristics namely: From nowhere to HereNow; Usership; Open for Business; Not just for profit.

What is changing?

  • New communications technologies, especially smart phones and mobile internet access, are enabling new approaches. But also cloud computing, M-Payment and increasingly embedded intelligence / distributed computing and augmented reality are changing the rules.
  • The needs of millions of new consumers in emerging markets are being met by innovative local companies, delivering quality products at knock down prices and developing new approaches in the process. These companies are also expanding overseas beating western companies to the new markets and bringing their wares to the West.
  • Consumers are becoming vocal. Social networking, blogs, Instant messaging – all are enabling consumers to comment on, recommend, react to what they see and experience in an instant. Transparency and multiple interaction and connection are here to stay.
  • The time of economic expansionism is, for now, over. National debt, but also consumer debt, cuts, falling house prices and negative equity, discussions of austerity and job losses are creating a sense of uncertainty. Media focus is reinforcing a sense of gloom and caution.
  • Finally, resource shortages will grow. Peak oil has been discussed for a while, but water, food, rare earth shortages worldwide will have major repercussions on prices. Finding resource-lite processes will be important to cost control.
Why is this important?

Four significant business model characteristics are emerging; many others will follow.

From Nowhere to HereNow – A raft of new services take advantage of the power of place and the power of time enabled by smart phones. Consumers can ‘win points’ by bringing their friends to specific shops or cafes, win reductions if a big enough group decide to buy things. Local shops tweet customers about new offers and fresh produce that has just arrived. Communities can organise local food growing and generate barter systems to exchange food for garden growing space.

Usership – Consumers are reconsidering ownership, less can be more, experiences rather than stuff in the wake of the recession. Shared ownership, collaborative consumption, inconspicuous consumption are arriving. The most visible of these are schemes such as Streetcar – where you can rent a car for an hour; and city bike schemes. But the concept goes wider with local schemes to let people share and borrow bigger items like tents or drills and pay a minimal fee for the network. Among small businesses, software as service is a similar concept.

Open for business – Wikipedia, Wikinomics – and now Macrowikinomics – Linux and Mozilla are all prime examples of open source collaboration. The ideas underpinning them are spreading. Open innovation among corporations is growing: for example P&G is setting targets of 50% of ideas to ‘come from the outside’. In science, there is growing recognition that open science can often find solutions to problems more effectively than conventional approaches, that the outsider perspective brings new insight. The same principles are also being applied to car production – Local Motors in the USA has designed, manufactured and is now selling a high end, fairly extreme off road vehicle in far less time and with far lower overheads than conventional approaches.

Not Just for Profit – Meeting the needs of the ‘bottom of the pyramid’ is creating new approaches. Social enterprises are bringing new forms of capitalism to solve social problems both in the West and emerging markets. Hospitals where specialists operate almost on a production line scale have reduced costs per operation while increasing skill levels and outcomes; GE having developed a high end ultrasound scanner discovered it was too expensive. When they stripped it down, made it portable sales took off. They are now bringing the same product to the west.

As a result of these changes, the pressure is rising to deliver more for less. Organisations will need to learn from elsewhere, not risk reinventing the wheel; recognise that they do not necessarily have all the answers and that in order to innovate they will need to engage across supply chains and with customers. But they will also need to find the courage to do things differently; recognise that good enough can be just that, and that not every response needs to be the Rolls Royce answer, process, service, or product.

First Spotted: 10 November 2010

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