"The Transformative Business Model" (Additional article)
According to this article, the occurrence of transformation of industry is usually linked with the adoption of a new technology as well as the current market needs and wants. This article used the example of the revolution from magnetic tapes and CDs to MP3 devices and finally changed to the iPod with iTunes invented by Apple that move music platform from the physical to the virtual world as an illustration to show the technology as a basis for changing the whole audio devices market and how to introduce a new business model in the industry and allow it to transform and eventually change the whole industry.
In order to have a comprehensive and clear understanding of how business model work, it is good to start with a good definition of business model. Business model means the way a business generates and gain value and it includes the customer value proposition as well as the pricing mechanism and the way the company organize itself as well as the partnership it has to generate value and the way it structures the supply chain. Business model is an important system to determine the company's success. In the normal market situation without any distortion, the existing business model will normally reflect the most efficient way to allocate and organize resources and there will be a dominant business model in that industry. However, when there is a success of overturning the existed business model that is caused by introducing a new technology, it can successfully replace the existing dominant business model because the new entrant introduces the new business model and hence the competitors will adopt to it and thus the industry is can eventually transformed because of the new technology. A case in point is the founding of Airbnb in 2008 and it is a new business model which changed the hotel industry. Airbnb, an online platform of technology for people who are looking for accommodation with home owners who is to share a room or house for them and it does not own or manage the property, and it is successful a new business model that has a significant growth and it account for a considerable market share in the hotel industry and challenged the traditional hotel business. For instance, Airbnb accounts for 19.5% of the hotel room supply in New York and operates in 192 countries, has 5.4% of room supply in the world in total. It earns money by taking the percentage of rent. This example shows that Airbnb against the traditional hotel business that need to own and manage a property in order to generate revenue but it can invest smaller amount of money and having lower risks as they are not responsible for the management and maintenance of the property and also the services provide. And this business model can be success as there are financial incentives of cheaper room rate with personal service. Ultimately, the introduction of new business model can be a treat to the original dominant model as it knows what technology enables and what the marketplace wants.
There are six keys for successfully making a business model transformative and innovation success. The first factor is to have a more personalized product or service and the models to provide a tailor-made products or services that suits the individual and immediate needs of the customers and it causes more diversity of consumer preferences. The company need to have leverage technology with competitive prices to increase their competitiveness. The second factor is to have a closed-loop process and the original linear consumption process is replaced by the closed-loop process so that the used products can be recycled to reduce the resource costs. And it causes increase in demand for products and services, rise of input costs and greater regulatory pressure. The third factor is to have asset sharing and it is about sharing the costly assets with customers or across a supply chain and it can reduce the barrier to enter different industries as people do not need to own the assets but they can be an intermediary. And it causes increase in demand for products and services, rise of input costs and