Business models and commodities and the ICT viewpoint

Part I - Similarities in business models

When you have worked in multiple industries you realize more the similarities between them than differences. Large share of the differences are defined and exist because of different industry beliefs, different management focus, different phase of maturity in industry life-cycle, role of tangible vs. intangible assets but in the end what seems to be the biggest differentiator is the language - used acronyms and vocabulary in general. And on top the pride of being expert in certain industry vs. another especially if your industry is considered to be sexy-one... of course there is then need to highlight the differences (using this special industry language) not similarities.

When I joined Hewlett-Packard and its printing business years ago many people asked from friends to business contacts how on earth you plan to utilize your competence from energy industry (years at Fortum) in high-tech. business. Of course I had my years in management consulting as one enabler but anyway it was a relevant question to ask.

Those who asked I told "because electricity business is so similar to printing business" but that only caused more questions and comments with one nominator: disagreement. So I continued and asked to listen for a while while I explain why they are so similar.

Business model in electricity business when selling to customers (excluding trading) is rather simple - to have largest possible customer base to whom you can send bills as long as possible. Model requires that you have signed a contract with each and every customer where you agree the terms. For customer this means that as long as the contract terms are valid they can live their lives and use all the household applications and the electricity keeps coming to their house. Naturally this applies to commercial customers as well.

So what is so similar in printing business. Again business model is rather simple. To have largest possible installed base of printers spread to customers and as and even more important customers use their printers at home and at offices. Behind the installed base concept is the idea that without customers there is no installed base. And your customers can either be managed as an asset with customer (base) management principles or as unknown transactional buyers with box based sales principles. In ideal world of printing every customer would hold a contract where they with set terms can print as much as possible and the printing company can send them bills based on usage. And add more and replace printers when required.

So both have a contractual customer base and you try to maximize the consumption and billing based on usage. In printing usage is measured based on printed pages (cents/page) and in electricity business based on consumed energy (cents/kWh). So far very similar at least to me.

How about few other ICT sectors - Telecom operator's business business model compared to this?Again very similar - maximize customer base, maximize billing from the base and more or less based an usage. Or an Internet security company: Again contractual business, product/service with a contract where you try to maximize your customer base but slightly different because pricing has no usage element but churn management is very valid as it is in electricity or telecom. Or in printing.

How about iPod or iPhone? Again you try to maximize installed base which has behind it a customer base... customers who should maximize the use of their i-something by visiting online store and buying as much content as possible. In iPod case this similar business model as in other businesses is more invisible because the cool gadget steals the stage and many companies in the arena are placing the hardware product to the center not the usage based customer relationships which over time forms a customer base.

So what are the key ideas of customer base management? I am not sure what is labelled as marketing and what is understood as business management but a list of key concepts I would define as:

- Customer acquisition (how do you a acquire more customers from the segments you are after, not just customers)

- Customer retention (how do you keep your customers and understand retention not only from time perspective but also from usage stand point)

- Customer's share of wallet (based on how you have defined your competition and the category you compete with outside-in view how you are able to increase the value of each customer relationship - increase purchases per customer which should be more understand as increase usage levels per customer)

- Customer profiling and analytics (key enabler for all above)

- Customer experience (huge topic and difficult to cover here everything from brands to seamless touch points to offerings to service levels)

- Financial accounting model based on customer/segment revenues (and formula to calculate profitability if possible)

- Multi-channel model, online services, etc. actually list is rather long but good point is that they form a coherent and consistent world which can be managed

What is very interesting and how it sets apart businesses mentioned above - mind share = how much time you get per day or per week or per month or per year from your customers? How do you plan to use this mind share? Can you increase mind share (for good not short term ad based)? Is my business interesting enough for customers that it pays to use customer base management ideas? How the ideas of commodity and mind share support each other - that I will continue in part II