Issue No. 24 - August/September 2005
Is your business the right model?
by Dr David Corkindale and Dr David Corkindale
Without operating to an appropriate business model your marketing efforts could be in vain.
What is a business model?
Newspapers, magazines and commercial TV create material that lots of people look at; they then sell these assembled eyeballs to advertisers. That’s their basic business model. It’s a sell-advertising-opportunities business model.
A business model describes the fundamental principle underlying how someone expects to make money. The basic retail business model is: acquire things at one price and sell them for a higher price.
The term came into wide use during the ‘dotcom’ era when it was often claimed that the Internet enabled new forms of business models to be created. This was not true.
Many online new businesses assumed that they could use the sell advertising opportunity model if they created interesting enough websites. The trouble with this idea is that there is only so much advertising money to go around and in the early days, users believed the Internet should be an advertising-free zone.
Amazon had an interesting initial business model: they would attract orders for books, send these orders to publishers who would dispatch the books and Amazon would collect a fee for bringing buyer and seller together. Their costs would be low as they had no stock — that was held by the publishers.
This business model works for non-blockbuster, best-seller books; for these, people want the book quickly and will go to a physical bookstore to get it.
In order to participate in the high volume book selling business Amazon had to have warehouses and hold stocks. This meant that they needed a new business model and one that would make them money. This still seems elusive.
The new model is essentially the traditional, simple retail one and — as with many retailers with large fixed costs — it may be profitable if you can get the volume up. Amazon will now sell you anything throu...