Strategy & Innovation February 17, 2010, 3:43PM EST

Stuck? Take A Look At Your Business Model

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Jeff Bezos has been relentless in pursuing customer opportunities beyond his current business model. He even says, "I really look where the customer is going and where I need to deliver value for that customer, and I don't care about legacy. I will do what it takes." And you can see his sequential business model innovations, initiated even before the previous business model is fully fleshed out, when he moved from online book retailing to more general retailing, to brokering other vendors' offerings, to even more radically leveraging Amazon's computing expertise to become a cloud-computing vendor of IT services, and then on again, with the Kindle e-reader, to become a hardware manufacturer. Bezos has been criticized by Wall Street for doing what he's doing, and he still did it.

I guess you could say that Apple has done the same thing, shifted its entire focus away from computers, more toward devices and systems like the app store, iPods, and iTunes.

And Apple's (AAPL) even moved off iPods now to the iPhone as a new platform, and of course just announced its new tablet, the iPad. Beginning with the iPhone, applications for small devices have become incredibly important in Apple's business model, independent of the computer. Basically, Apple has taken a giant step past Dell (DELL) in democratizing computing—a further step in the progression from the giant, expensive mainframes, through minis, but beyond the PC—by taking advantage of the shift to smaller computing devices, which is what the iPhone really is. That's pretty cool, because if anybody says, "The iPod isn't going to last because you can get your songs anywhere and we'll be platform-agnostic," Apple can say, "Fine, we're with you."

It's fascinating, that play. Even here at Innosight people said Apple was running into the sustaining space of Nokia (NOK) and other phone companies that would have reason to go after it with a vengeance. But I think what we didn't realize is that Apple was developing so innovative a new business model, integrating the hardware with a crowdsourcing model for the apps in so tight a way, that it was something materially different not just from a phone, but from how the phone manufacturers make their money.

And that's really the point. It's far harder for an incumbent to fight back against a business model innovation than it is for them to match and raise the stakes on a technology innovation.

Do some industries need business model innovation more than others?

Yes—media, no question about it. The newspaper industry has to address the fact that it's been disrupted by Internet technology and the new business models that the Internet has enabled. The newspaper industry has to be open to continuing to devise ways not just to put content online but to develop new business models.

The Internet has just enabled so much. In fact the buzzword "business model" really came with the whole Internet era of the late 1990s and early 2000s. So, yes, media in the broadest sense, whether you're talking about newspapers, journalism, networks, cable, you name it. That's a pretty broad swath.

Of course healthcare needs business model innovation as a way to truly take out costs and create greater value. That's going to be hard for a while—healthcare reform is focused on other priorities, but it doesn't change the fact that business model innovation is needed there. Nor should healthcare providers sit back and wait for Congress to finish debating the question of coverage (which is really just focusing on one means of increasing access to current models of health care). While some providers do that, others more farseeing will be forging ahead to capitalize on this huge and manifold set of jobs many, many customers need done.

And defense absolutely needs business model innovation, because we're fighting a different kind of war, and in order to fight that war, the organization that's behind the fighting of that war has got to change fundamentally. I think Secretary Gates gets it intuitively, but a lot has to change to enable that to happen.

And finally, energy. Again, that's a term that covers a very large swath of industries—automotive, utilities, oil and gas. As we think about electric vehicles, hydrogen fuel cells, electric grid technologies, and smart grids—renewable energy in general and the integration of different types of renewable energy into a coherent system—that's naturally going to require a different business model than the one that's powering our cars and light bulbs today.

Provided by Strategy and Innovation—published twice-monthly by Innosight, an innovation consultancy. Innosight's approach and proprietary tools facilitate the discovery of new, high-growth markets and the rapid creation of breakthrough products and services.