Amazon’s quarterly revenue rose 51% year-over-year while Best Buy’s revenue remained flat. Is it any wonder Best Buy’s stock prices fell by one-third this year? What’s going on? A high percent of store visitors use Best Buy for decision-making but turn to the Internet to find best prices and make purchases. Without stores and with a government-given competitive advantage called “no sales tax,” Amazon has the lowest cost business model. Best Buy is stuck in commodity-competition quicksand, sinking steadily while customers see little difference between buying from them, Amazon or other reliable suppliers. Of course, lowest price wins. Best Buy is not alone. Most manufacturers and retailers are stuck in this situation. I saw a great solution to this dilemma while helping my husband Nick shop for running shoes at Road Runner Sports, the world’s largest on-line running and walking store with a…
Business model innovation lesson in HP exiting PCs
What should we make of HP CEO Leo Apotheker’s recent announcement that HP is spinning off its PC business for a future sale, despite holding worldwide market share leadership? Here are three potential answers. HP understands portfolio management. The PC industry as traditionally defined is maturing, with growth mostly in the developing world. HP has higher growth businesses in which to invest. Apotheker’s copying another company’s winning strategy. In 2005, IBM sold its PC business to Lenovo to focus on its Smarter Planet B2B solutions business. HP’s recent announcement that it is buying British enterprise software maker Autonomy Corporation at a 60-80% premium (depending on the analyst) suggests a copycat strategy. Autonomy provides unstructured data analytics and data management software, positioning HP for the $20 billion enterprise information management market and $55 billion business analytics software and services market. HP can’t compete. Computing…
Apple’s Business Model Lesson
The blogosphere is aflutter with talk on Apple’s recent customer satisfaction issues linked to the new iPhone 4’s antenna design. A quiet whisper turned into thunderous noise once Consumer Reports decided to not recommend the phone because calls are dropped if the antenna is covered while in use (for example, by the user’s hand holding the phone). Much of the on-line conversation centers on public relations lessons and a debate about the sensitivity issues of the iPhone versus competitive products. (For a good assessment of the PR lessons for Apple, see The Leadership Playlist blog.) There is more to this lesson than public relations. I think in terms of business model and strategic leadership, and I believe Jobs ignored Apple’s business model in resolving an internal debate about the antenna, a product design decision that I’m confident Jobs now regrets. Apple’s value promise…
Why Business Model Innovation Matters
In November of 2008, Business Week magazine reported that Apple’s cash on hand exceeded Dell’s total market valuation. These two statistics explain how it happened – Apple net profit margin = Dell’s net profit margin plus 10 percentage points Apple operating margin = Dell’s operating margin plus 13 percentage points There is a vital lesson in the Dell-Apple financial comparison and it goes way beyond new product innovation. Apple has an incredible company-wide design competency upon which it built a differentiated business model. As a result, it introduces breakthrough new offerings while spending a much lower percent of revenue on R&D than other Top 25 innovative companies. The comparison in R&D spend tells you everything you need to know about the power of advantage and a differentiated business model built upon it. In Quarter 4 of 2008 – Apple R&D spend of 3.1%…