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Business model innovation

INNOVATION in business is not only about new products and services: businesses can make money by introducing new business models.

Brett Chulu

In simple terms, a business model is how an entity organises its internal processes to deliver a product or service to its target market. Business model innovation, at a basic level, involves coming up with a new way of organising a business’s internal processes to deliver a product or service.

Business model innovation examples
Perhaps the clearest example of business model innovation is that of US-based movie rental company Netflix. This company was founded by Reed Hastings in 1997 after he was fed up with penalties for late of return of rented movies.

Movie rental businesses were making their money from two revenue streams; normal rental fees and late return penalties. Hastings just didn’t like paying late penalty fees. An idea raced across his mind: what if he mailed DVDs to customers instead of requiring people to visit a store?

What if he eliminated penalty fees and instead introduced a fixed subscription fee? On paper that would bring hitherto unknown convenience to the customer. This would also eliminate the need to build rental stores. All that would be needed would be a few warehouses from which to process mailing of orders for DVD movies requested by subscribers.

Hastings did a simple trial test. He mailed himself a few DVDs. These arrived intact. He then scaled up his idea by opening Netflix.

From a micro-economic viewpoint, the subscription-based movie rental business eliminated significant overheads such as rental of buildings. Each physical retail store would have required staff to serve customers.

The new model obviated the need for a huge headcount, saving on staff costs. Hiring a movie from the comfort of one’s home and having it delivered to one’s doorstep and the elimination of late penalty fees proved to be a winning value proposition that won millions of customers for Netflix. They did not invent any new product.

Netflix delivered the same product in a new and smarter way, making serious money in the process.

Another example of a successful business model innovation is Amazon.com. Founded by respected entrepreneur and innovator, Jeff Bezos, Amazon.com makes money by facilitating the sale of items such as books online and have those delivered to customers’ doorsteps. By moving bookshops to a virtual online platform, Bezos gave what people really needed. They were more interested in the books, not the bookshop.

Digital news distribution era
Zimbabwe’s media landscape is fast changing as a result of the influence of online news delivery trends. Individuals have become both creators and distributors of news content. A classic example of this phenomenon that shook the world was the tweeting by an ordinary observer, of pictures of a US Airways aeroplane that made an emergency landing on the Hudson River in January 2009.

One of the rescuers took a picture of the scene of the partially sinking plane, uploaded it onto Twitter, thereby streaming it on the internet. He beat CNN and other powerful media houses in breaking the news.

The media world learnt that with social media people could become powerful distributors of real news to massive audiences. The poser for media business ever since has been how to monetise digital content in the face of ‘free news’ delivered on social media platforms.

Another related phenomenon is that of influential opinion makers starting their own online websites or website logs (weblogs or blogs). Interest in online media platforms has since found expression in Zimbabwe’s media industry.

Online newspapers (or online versions in the case of printed newspapers) were some of the first visible responses to the opportunities and threats presented by the internet. Lately, our major media houses have entered the mobile phone news distribution space, making use of a subscription mobile phone news distribution model.

The jury is still out on the economic viability of mobile news. What is encouraging though is the willingness of our media houses to adopt entrepreneurial cultures, experimenting with business model innovations.

Business model innovation in which media houses simply replicate content from their print version might not be deep enough a form of business model innovation. The traditional newspaper business model was built on advertising revenue streams. Digital delivery of news content narrows the scope for transposing the same old advert-anchored business model. More thinking outside the box is still needed.

Exclusivity sales
In the news business, exclusivity sells. Media houses will have to invest more in their human capital to strengthen the quality of the content they generate. In an era where the internet enables amateurs to be news disseminators, intellectual assets will become the differentiator. With quality content, a digital news distribution business model will attract people willing to pay.

The good news is that Zimbabwean media houses can start generating foreign currency from digital platforms by giving quality content to people outside Zimbabwe who are willing to pay to access quality content.

There is no better time in Zimbabwe to engage in a serious drive to use human capital as a competitive advantage in the media industry.

Reflect on it
Winning businesses can be built on simply innovating around the business model. The internet has provided opportunities for business model innovation.

Chulu is a strategic HR consultant pioneering innovative HR practices in both listed and unlisted companies. — brettchulu@consultant.com

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