Business Model Innovation: 10 Types & Strategies
Profit Model (Configuration)
Netflix: Transitioned from DVD rentals to a subscription-based streaming service, revolutionizing its revenue model.
Network
Spotify & Record Labels: Leveraging partnerships and collaboration, Spotify collaborates with music labels to provide a vast library of songs on their platform.
Structure
Reorganizing company assets or processes to create value. Google: Offering employees 20% of their time for passion projects, leading to innovations like Gmail and Google Maps.
Process
Changing how products or services are created or delivered. McDonald’s.
Product Performance
Improving the features or functionality of a product. Dyson Vacuum Cleaners: Introducing cyclonic separation technology for better suction and efficiency.
Product System
Creating complementary products and systems. Apple Ecosystem: Integrating devices like iPhones, iPads, MacBooks, and services like iCloud to work seamlessly together.
Service
Enhancing the customer experience with additional services. Amazon Prime: Offering perks like fast shipping, streaming, and exclusive deals to improve customer loyalty.
Channel
Innovating how a product or service reaches customers. IKEA: Introducing “Click & Collect” services, blending online shopping with in-store pickup.
Brand
Enhancing customer perception of the brand. Nike: Positioning itself as a symbol of inspiration and empowerment through campaigns like “Just Do It.”
Customer Engagement
Creating meaningful interactions with customers. Starbucks Rewards App: Engaging customers with personalized offers, rewards, and seamless mobile ordering.
Similarity Principle
You theorize about business models by looking at similar industries or slightly less similar ones. The idea is to adapt patterns from industries that are close in structure, operations, or strategy to your own.
Approach: Start with a question like:
“If I adapt the X pattern to my company, how would my business model change?”
Example: A retail chain adapting subscription models from e-commerce platforms to drive loyalty.
Advantages: Well-structured and easier to follow. Suitable for individuals or teams who are new to creative ideation.
Disadvantages: Creativity may be limited, as thought patterns are only partly disrupted. Risk of remaining stuck in familiar solutions that do not address new, unique customer problems.
Confrontation Principle
You confront extremes by examining totally different industries and their business models. This principle challenges conventional thinking and encourages you to approach problems differently.
Approach: Use questions like:
“How would [a radically different company] manage our business?”
Example: A company in the education sector asking:
“How would McDonald’s manage our business?”
Advantages: Helps break out of rigid thought patterns. Opens up undreamed-of innovation potentials by exploring radical or disruptive solutions.
Disadvantages: Requires a high level of creativity and is more demanding in its application. May be challenging for individuals who are not used to working with abstract or ambiguous ideas.
AI Customized
Foundational Model
- A general-purpose AI model trained on a broad and diverse dataset.
- It is a closed box. Nothing can be changed inside the model after training has ended.
Specific Models
1) Fine-Tuned Model
Adapts foundational models by manually incorporating your additional documents or data for better task-specific performance.
- Enhances relevance and accuracy through context-aware relevant outputs.
- E.g., Claude.ai projects
- E.g., ChatGPT’s customized
2) RAG-Enhanced Model
Integrates foundational models with external knowledge sources to provide dynamically more accurate and context-specific responses.
- Automatically accesses up-to-date information from APIs or databases, improving adaptability without needing retraining.
- More flexible and up-to-date compared to fine-tuned models.
- RAG = Retrieval-Augmented Generation
Business Model Innovation Has Ended
- Much lower cost than your traditional competition
Ryanair: Offers extremely low-cost flights by cutting services, making air travel affordable for more people. - Much higher gross profit margins than your traditional competition (Apple)
- Apple iPhone: Delivers high profit margins due to premium pricing and ecosystem lock-in, compared to traditional mobile phones.
- Accessibility: Available to a larger number of people
- Xiaomi: Provides affordable smartphones with high specifications, making quality tech accessible to a broader audience.
- Niche market: testing in markets with less demand, before experiencing high growth
- Tesla: Started with high-end electric vehicles in a niche market and later expanded into mass-market EVs.
- Create a new category – or a new segment – that dramatically upends the market
- Netflix: Created the streaming service category, disrupting TV and video rental industries.
- Based on a new technology or new business model
Airbnb: Disrupted the hotel industry with a new home-sharing model powered by technology.