Abundance vs. Scarcity: The Business Model View PDF Print E-mail
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Monday, 08 September 2008 00:00

Nothing disrupts business models and entire industries more violently than when something that was previously expensive suddenly becomes cheap. Some of the more famous historical examples are Physical Labour vs. Machine Power (Steam Engine) and Internet Bandwidth vs. telephone time. The question here is not so much whether or not conflict exists between industries after the fact, but to identify as early as possible when something is about to become cheap, and to then do something radical; flip your thinking from trying to conserve that thing to wasting it as wantonly as possible. Those who can understand the implications of this flip can change the world, those who don’t usually fight to the death to maintain the status quo against those who do.

Why Established Companies Find Disruptive Transition Hard

As you can imagine incumbent companies whose business models are based on the conservation and judicious allocation of these resources find this concept incredibly painful and difficult to manage. On the other hand, adroit (typically small) companies who can correctly identify the impending shift have a real shot of creating successful offerings that exploit a radically different price point or new previously unaffordable features. Two such examples are Skype’s exploitation of cheap bandwidth ability to work behind home gateways and firewalls with NATs enabled the ability to use the Internet in lieu of a standard telephone network, and Apples combination of cheap storage and an easy to use download service to create the iPod phenomenon.

How Disruption Creates New Opportunities Elsewhere in the Value Chain

One interesting side effect of the rapid collapse of the cost structure in one part of the value chain is the automatic creation of one or more new pain point in the parts of the chain that remain. This shift creates new opportunities for business that can hone in on the newly emergent most pressing problem. An example of this is the web’s shifting information from being something that was hard to access to something that became abundant. This led to the need for search engines such as Google, Yahoo, and MSN. Another example is the rise of microelectronics that enabled powerful devices such as smartphones and PDAs. These in turn have created a demand for ultra efficient long life power sources.

So if you’re an entrepreneur looking for an opportunity. Watch carefully where a new technology is about to erupt that markedly reduces the cost in one part in a value chain, and then look for the implications throughout the entire value chain. Chances are you’ll find multiple opportunities ripe for the picking.
 

 

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Last Updated on Monday, 08 September 2008 21:51