Archive | June 2, 2014

Amazon Innovates With Its Business Model, Not Drones

amazon prime air

Amazon CEO Jeff Bezos created quite the stir when he announced plans for drone package delivery on 60 Minutes. However, as exciting as commercial applications for drone technology might be, the true innovation lies in Amazon once again reinventing its business model and finding new ways to create value, conduct business and get paid for it.

The essence of business model innovation (BMI) is not a new concept. Indeed, creating disruptive new business models is at the heart of many entrepreneurial start-ups. However, in most large companies and corporations, business models take a back seat to brands. BMI should command more attention as business models, above products, services or brands, are the basis of competitive advantage in the 21st Century.

The implications to this are significant. Over time, the companies that fail to reinvent their business models to challenge outmoded assumptions about their businesses, renew their customer value propositions and change the competitive dynamics of their industries in their favor can quickly become vulnerable to commoditization, obsolescence or business failure.

The trends towards business model-driven strategy are encouraging. According to the Economist, over 50 percent of executives believe that business model innovation will be even more important than product or service innovation. Yet, the American Management Association determined that no more than 10 percent of innovation investment at global companies is focused on developing new business models.

Finding the business model sweet spot can help companies generate both incremental growth from optimizing existing businesses and transformational growth from generating entirely new sources of revenue and value creation. Rather than simply figuring out more efficient ways to operate in existing markets, the components of business models can, individually or collectively, be reinvented to create entirely new markets, new opportunities and structural competitive advantages.

Amazon’s business model innovation certainly allows it to deliver a diverse portfolio of customer value propositions that serves as its main competitive advantage. Culturally, a continuous focus on business model innovation keeps the company connected to its entrepreneurial roots — an advantage that should be coveted by even the largest of companies.

At the end of the day, “It’s all about customers.” As Amazon demonstrates, even when customers have many choices, with business model innovation, it is possible for revenue and growth opportunities to flow from the basic way a business is put together — even without the use of drones.