In the modern business world, remaining competitive in a crowded market has become the primary challenge for entrepreneurs. Business owners are thriving to adopt the latest technologies to produce quality products that meet the consumers’ needs (Anwar, 2018). Product differentiation has become the primary competitive advantage for most businesses in various industries (Anwar, 2018). Innovation involves changing the production process and product specifications to produce quality goods at low costs (Clauss et al., 2018). In other words, innovation in the business world involves implementing new methods and ideas. Such a process is attained by introducing new services, features or products. Due to the excessive competition in the market, innovation has become a crucial part of the corporate strategy for established and emerging forms to attain significant market shares (Clauss et al., 2018). The bottom line of business innovation plans is to block the rivals from succeeding. Innovators are risk-takers focused on creating a diverse workplace where employees can openly share their business ideas without fear.
The capacity to rapidly and effectively move into a new business model is an essential source of sustainable competitiveness and critical leverage to advance organisational effectiveness in terms of financial and organisational performance (Rachinger et al., 2018). Business model innovations are expected to yield greater returns than process or product innovations. The sustainability problems in business and natural livelihood make changing more sustainable economic systems progressively necessary (Rachinger et al., 2018). Private enterprises play a crucial part in realising the transition because they command vast capabilities and resources. Nonetheless, the technological advancements towards sustainability are incremental, and most firms find it challenging to meet their targets (Keiningham et al., 2020). As a result, innovation in the business model is needed to align revenue mechanisms to influence sustainable solutions. The current briefing note will explore business model innovations and their application to current and future business effectiveness.
Overview of Business Model Innovations
The business model idea has gained recognition during the information age due to diverse and vibrant research activities, especially in business. A business model involves product, information flow and service architecture, including the various actors and their responsibilities (Pieroni et al., 2019). The benefits of the business actors and their revenue sources are also determined when exploring the business model concept. In other words, a business model is an empirical logic connecting technical possible the realisation of economic value (Pieroni et al., 2019). The entrepreneurs use the business models to explore the market and play a performance role by contributing to technological-economic innovation networks. Innovative revenue mechanisms emerged during the e-commerce boom in the 1990s (Ranta et al., 2021). As a result, the business model concept was initially used to relay sophisticated business notions to possible investors quickly. For an excellent decision-making process, the business model enables business owners to extrapolate from potential consumers and value benefits to the needed configuration and implementation of other organisational elements (Pieroni et al., 2019). The ultimate business model offers the required information regarding the necessary technological implications for further research. Therefore, the business model forms an abstract feature of an organisational unit.
By definition, business model innovation is the development of unique concepts which supports business financial performance, including its missions and the steps for realising the concepts (Geissdoerfer et al., 2018). The technological disruption has reduced business model lifecycles and made innovation paramount to organisational success. An excellent instance of business model innovation is the video game sector (Geissdoerfer et al., 2018). When first video games were developed, the consoles were highly costly and bulky, making them available to few customers. As a result, arcades emerged to charge consumers to buy credits required to play the games. The technological and production process advances made it possible to develop smaller and less costly consoles to meet the increasing demand in the market (Geissdoerfer et al., 2018). Some companies sold the consoles directly to consumers to increase their competitive advantage. The video game industry has continued to embrace business model innovation to meet the ever-changing customer needs. Consumers can play games on their handheld devices. Therefore, the players in the industry have started charging a subscription fee to consumers to unlock particular game levels. While making the gameplay accessible to the users, the developers have incorporated advertising messages to generate income.
Generally, a business model allows a business to leverage the changing customer needs and expectations. The new forms would have displaced companies such as Amazon and Netflix had they not embraced business model innovations (Ibarra et a., 2018). The business model innovation increases competitive advantage. Modern businesses integrate lean innovation with business model shifts to allow teams to develop, prototype and validate novice models using fewer resources. Rather than business model innovation, firms can purpose other types of innovations, including process and product innovations (Ibarra et a., 2018). Process innovation involves implementing new manufacturing and delivery techniques to increase production levels and minimise costs. On the other hand, product innovation explains the development of a new, unique product or improving the existing features to meet customer needs and enhance organisational effectiveness (Ibarra et a., 2018). The innovation type to adopt depends on the customer and customer needs. For organisational effectiveness, businesses should adopt business model innovations to remain relevant.
Application of Business Model Innovation in the Case of Netflix Inc.
Netflix Inc is an international company offering streaming services of movies, television shows and documentaries. Netflix is among the few companies that have demonstrated business model innovation to achieve organisational effectiveness and sustainability (Rataul et al., 2018). Considerably, Netflix has shifted their business model severally and grown exponentially (Daidj et al., 2018). The company began with renting boxed products using the mail services in the United States and later shifted to delivering on-demand entertainment services to meet consumer needs. With technological advancement, Netflix adopted the subscription plan to ensure consumers watch movies from their smart devices (Rataul et al., 2018). While in 1998 Netflix rented out DVD, a year later, it had shifted from pay-for-use model to subscription business model. Approximately ten years later, Netflix changed their proposition to streaming services, changing how millions of consumers globally spent their leisure time (Daidj et al., 2018). There are new entrants in the market segments, including Facebook Watch, Amazon Prime and Hulu Plus, but Netflix Inc remains the world leader with more than 200 million customers by 2020 (Au-Yong-Oliveira et al., 2020). Therefore, Netflix Inc. presents an excellent example of how business model innovation transforms an organisation and increases competitiveness in a highly crowded market.
Netflix’s first competitor was Blockbuster, a global chain of video stores that allowed consumers to rent videos. While Blockbuster was the biggest competitor in the industry, it took years to offer subscription services (Rataul et al., 2018). By the time the company adopted the business model, Netflix had created a brand and attracted loyal customers – the case company was already quitting the DVD rental business (Bashir and Verma, 2019). By 1999, Netflix had nearly 240000 subscribers within its first year of adopting the subscription model, and by 2003, it had built a customer base of more than one million consumers (Au-Yong-Oliveira et al., 2020). Ever since, Netflix business model has evolved into a service-based non-linear model. The exponential growth has been driven by technology, comfort, on-demand, subscription and data. Technology has allowed seamless content watching on various devices (Au-Yong-Oliveira et al., 2020). Nowadays, people do not have much time to go out and shop for movies. Instead, they want to watch personalised content from the comfort of their homes. Subscription addiction and low-cost monthly fees have allowed Netflix business model to thrive (Rataul et al., 2018). Generally, Netflix has adopted a lean means of working using self-managed teams and algorithms (Au-Yong-Oliveira et al., 2020). The subscription model was more flexible and allowed for personalised content. Generally, Netflix introduced a business model innovation that influenced how the value was delivered to consumers, changing the sector.
Nonetheless, the business model innovation theory suggests an innovative firm requires to stay ahead. Netflix had remained the world leader in the industry even when using the DVD rental model (Rataul et al., 2018). By 2012, Netflix had identified itself as an internet television network other than an online entertainment subscription service, implying a new business model (Au-Yong-Oliveira et al., 2020). The new model was established after examining the trends of the mid-2000s, including watching movies from computers. By 2007, Netflix Inc. began to provide such services to its consumers even when it would compete with its original model. In 2011, Netflix began competing with its partners by producing original content that has been recognised as high-quality by global partners (Au-Yong-Oliveira et al., 2020). The strategic decision implied the creation of a new business model, which saw yearly revenue increase by 22 per cent (Rataul et al., 2018). Therefore, the business model indicated success and prospective future for the company.
Netflix’s new business model highlights two distinct customers generating varied income streams: international and domestic streaming. The offering to the two segments is unlimited access to non-exclusive and exclusive film entertainment using internet-connected devices (Au-Yong-Oliveira et al., 2020). The model is similar to the earlier one, except it offers exclusive content. The form business model depended on content produced by third parties. In essence, the value proposition in the new business model has changed significantly to accommodate exclusivity (Daidj et al., 2018). Further, the new business model allows consumers to access entertainment through internet-enabled services rather than Blu-rays and DVDs (Au-Yong-Oliveira et al., 2020). The changes in the target consumers, the distribution channels and the value proposition for Netflix are affiliated to variations in other aspects of the business model. Substantially, key partnerships, cost structure, resources and activities have changed from one model to another (Daidj et al., 2018). For instance, the content acquisition costs depend on the agreement between Netflix and the movie producing company.
In conclusion, Netflix has set an excellent example of how business model innovations improved organisational efficiency. The primary aim of business model innovations is to ensure businesses stay ahead of their competitors even in uncertain situations. Business model innovation changes how products or services are created and how they deliver value to consumers. The changes experienced by Netflix is best explained by the reasons that drive business model innovations, including competence, technological shifts or disruption or economic downturn. Netflix experienced high competition from rival companies, and technological disruptions facilitated the rise of the new business model.
List of References
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