Why you should care about business models

Most consumers don’t know and don’t care about the business models underlying the products they buy because, let’s face it, life is complicated enough and bottom line what really matters to most people is just the availability, quality, and price of the product they buy. People should care about business models, however, because they affect the profitability of different enterprises in the supply chain and their ability to provide value or even exist. This eventually does impact availability, quality, and price if the enterprises affected were providing value.

Charlie Stross provides a book publishing business model supply chain explanation on his blog. It explains what is behind the fight between Amazon and MacMillan that casts a light on who are the good guys and bad guys in this dispute. Without being informed, consumers might tend to side with Amazon who positions the fight as Amazon standing up for consumers to bring a consistent low price for products. Once there is an understanding the business model and supply chain a different perspective can emerge that the battle is really about roles, control, and who gets what portion of the profit. It also exposes what is at stake in the ability for market forces to operate vs. an enterprise exercising monopoly like control. Consumers might actually have an opinion over which enterprises can provide best value in a role and would like choice with free competition. Even if an enterprise professes to be a benevolent dictator (e.g. do no evil) my vote is for the distributed power of letting the market decide availability, quality, and price by consumers voting democratically with their dollars. There may be a temptation for just going for the lowest offered price but without understanding the business model implications there is a real danger of creating unforeseen consequences by putting portions of the value chain out of business.

In Canada, another example of a business model battle that has gone public, is the TV distributors vs. the local TV content providers. The content providers business model has changed and they can no longer remain profitable with advertising so they want payments for their content from TV distributors. The TV distributors (e.g. Bell ExpressVu and Rogers cable) pay for other content from the US but don’t want to pay for local content. They are positioning these proposed local content payments as a tax that has to be passed through to consumers. A public relations battle is taking place to see if and how the business model will be changed.

Business models are also important for workers who are increasingly concerned about the viability of their jobs. It may be tempting to think that viability of a company’s business model can be left to the CEO or marketing department but ultimately workers need to make informed decisions about where they work and the industry where they earn their livelihood. This needs to be based on an “eyes wide open” view of where their employer and industry fits into the supply chain, what value they provide, and is the business model structured to reward that value. The world is getting more complicated by the emergence of innovative and complex business models but this is the reality of the brave new world of opportunities and risks.