Business Model

A new business model is a way for a company to bring a whole new product or service to market, and/or often at a different price point. Wal-Mart, for example, brought a new business model to mass merchandising more than 50 years ago, relying on technology enabled supply chain efficiencies. Paychex Inc. brought a new business model to the payroll processing business, ushering in mass efficiencies to manage payroll for small businesses. Digital technologies that enable companies to connect directly with customers have the potential to change their business models once again. Just look at Netflix, which has used
its digital data on customers’ movie and TV programming viewing habits to expand its business model and become a content producer as well as distributor.

As we mentioned earlier, leaders were nearly twice as likely as followers to have already brought a whole new digital offering to market (89% of leaders have done so vs. 48% of followers). But that’s not all. Leaders are more than twice as likely as followers to be able to make major changes in pricing (40% of leaders can now do so vs. only 16% of followers). And they are twice as likely to have the ability to tailor pricing to smaller segments, at the customer’s moment of need. (Some 34% of leaders said they can do so, compared with 17% of followers.)

And whether it’s a whole new digital offering or a digitally improved version of long standing products and services, leaders are nearly twice as likely to say their digital initiatives delivered whole new value to customers (39% vs. 20%). And about twice as many leaders as followers say they’ve delivered that value in a whole new way that’s made possible by digital technology (31% vs. 16%).

Furthermore, digital leaders are nearly twice as likely to be using their digital connections to customers to monitor how they use the technology and spot new opportunities for new products. Some 61% of leaders are doing so vs. only 34% of followers.

This is the reason that companies like Netflix have been successful in changing their business model. “Because we have a direct relationship with consumers, we know what people like to watch, and that helps us understand how big the interest is going to be for a given show,” Jonathan Friedland, Netflix’s head of communications, told the The New York Times.36 The company reportedly analyzes the data 30 million times a day when its customers play its streaming videos, as well as its subscribers’ ratings and online searches. It now spends an estimated $300 million annually on its own video content, basing its programming decisions on using Big Data and analytics to understand the preferences of its more than 40 million subscribers around the world. “We have an
immense amount of data,” Cindy Holland, head of original content, told The Guardian newspaper. “We can identify subscriber populations that gravitate around genre areas such as horror, thriller and supernatural. That allows us to project a threshold audience size to see if it makes for a viable project for us.”37

But Netfl ix isn’t alone. Samsung, too, is looking intently at how digital technology could transform its business model. In 2012, the $179 billion South Korean-based manufacturer of smartphones, TVs, semiconductors and other electronic devices and components brought in David Eun from Google Inc. as an executive vice president to run its Open Innovation Center in Silicon Valley. The center has been funding digital startups, working with new acquisitions, and launching new software products to help the company stay ahead in the markets for smartphones and TVs (two devices of which Samsung is the world’s biggest seller).

But Eun’s unit is looking far beyond electronic hardware. He has publicly said that Samsung sees its digital TVs and smartphones as having the potential to provide advertisers a platform for distributing their content, as well as providing data to help them market more effectively. “We sell more screens arguably than any company in the world, and as you understand that more and more of the screens around the world are getting connected to the internet, there’s a huge opportunity for us to connect more and more of these screens to each other,” Eun told The Wall Street Journal earlier this year.38″And when we do that, we will have one of the world’s largest platforms for distributing content and services-this is everything from apps to advertising.”

Leaders Have Gained Greater Capabilities for Fundamental Change
Products and Services