What is a Business Model? (Part 2)

In the last article, business models were discussed in generalities:

What is a Business Model (Part 1)

Now if we start to double-click and call out specific elements, perhaps a level above the specifics of systems, process, and culture, we find elements like activities, assets, routes to market, targeted customer segments, revenue streams, etc. An example of such a mapping can be seen from Strategyzer:

Business Model Canvas

Fully mapping a company’s business model, or intended business model, is a great exercise, especially when done at different altitudes [I have no relationship with Strategyzer, but I have enjoyed looking at some of their work]. Now like any templated approach, it is easy for it to become a check-the-box exercise. You really need to walk away with insights. You really want to persevere until you can crisply and briefly articulate the core of what makes a company what it is.

Let’s consider a company like Uber, whose model is viewed as disrupting the Taxi service. I have not actually studied Uber in any depth, but as someone sitting outside the company, I would superficially assume what really differentiates Uber from the previous generation of Taxi services is the integration of a smartphone app with a centralized ordering and tracking system – in short, the IT investment it has created over many years to build its internal “operating system”. Whether this is the right description or not, is not as much of interest in this article as providing an example of the simplicity of description you ultimately want to get to: in the old model, acquiring expensive medallions / licenses was perhaps the most significant characteristic of the model, where in the new model, applying IT to collect and provide information to passengers and drivers is perhaps the most significant characteristic of the model. In one generation of the service, radio was the most prominent technology, and in the next generation, smartphones, cloud services, and other IT.

Of course, you probably cannot escape an Uber business model discussion without talking about how they don’t own the cars, etc. Important stuff, especially as it pertains to cost structure, scalability, and the ability to enter a market. But in terms of moats (loved the war of words between Buffet and Musk about moats – definitely worth an article) I would hazard a guess that Uber’s investment in its “operating system” is really the crown jewels of its business model. Maybe that is wrong, and maybe with an adequate amount of research I would concede that, but being right is not the point of this particular article. Challenging the notion that an immense amount of detail is required to describe the strategically key elements of a business model is the point of this article. You may need to wade through enormous detail to get the insights, but ultimately, the insights need to roll-up to a brief description. This way you can not only know the critical strength of a model, you can also understand where it is vulnerable, and what is going to be most impacted if the model needs to change.

  • What is the briefest way you would describe the key elements of Uber’s business model?
  • What is the briefest way you would describe the key elements of your own company’s business model?

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