Friday, April 17, 2009

Freelusion: The illusion of free

I keep wondering how many people still do not understand that "There Ain't No Such Thing As A Free Lunch." Mostly, we pay indirectly for all these free product and services as in the "razor and the razor blade" approach. Ever wondered why for many products and services the actual production costs are only a fraction of the price? Who pays for the advertisements on "free" news sites? So every time you see an advertisement of one of the products you buy on a web page, consider yourself to be a paying customer. ;-)

What can be the case is that some end up paying the lunch of other. This is model that has been around for a long time and people may be quite willing to do so, as, for example, is the case with charity. But one may wonder how sustainable this, as a commercial model, is in the long-term.

For example, many people have been buying "high-quality" paper newspapers. Nowadays, those who do not care about this kind of quality read their news "for free" online and may be paying for it via their car insurance. So, this will ultimately require that those who do value these "high-quality" newspapers have to start paying the actual costs without cross-subsidizing and they may pay either via their subscription or via their car insurance. So, the internet may in fact be making people pay for what they actually consume!

Sunday, April 12, 2009

Business model experimentation

A while ago, I wrote about business model experimentation as one of the requirements for Business Model Management (see this post). It is advisable to experiment with new business models first, to test them and to try out different models and variations. One of the advocates of business model experimentation is Chesbrough in his discussion of open business models.

In a recent HBR article (Feb. 2009) titled 'How to Design Smart Business Experiments,' Davenport argues that managers should follow a more rigorous approach to business experiments. He promotes decision-making based on scientifically valid, quantitative methods made possible by new, broadly available software and some straightforward investments to build capabilities. Davenport also states that the scientific method is not well suited to assess a major change in business models. It is more suited for strategy execution than strategy formulation.

Still, I am already looking forward to seeing paradigm discussion emerge in the board room. ;-)