Understanding Your True Business Model

Your business model is not always your business model.

McDonald’s, for example, is not in the restaurant business; it is in the real estate business. The company buys locations and leases them to franchisees, using fast food as a way of ensuring stable and low-risk rental income. But in order for its property model to work, people have to keep coming back to its franchisees’ restaurants -- and so the company has a vested interest in ensuring the greatest possible Big Mac market penetration.

Media companies deal with the same kind of vendor-customer-stakeholder love triangle as McDonald’s. TV channels are in the business of selling eyeballs to advertisers; while the advertisers are the customers, the channels can only sell advertising if people watch the shows.

This is why the trend toward sensationalism and drama in news is inexorable. Most journalists I talk to say the same thing: They’d love to do real, factual news, the kind Jeff Daniels offers in “The Newsroom” -- but it just doesn’t sell. And if people don’t watch, it doesn’t matter how informative your story is. Serious news costs serious money, but the money follows the eyeballs, and the eyeballs don’t follow the serious news.

Setups like these work best when the interests of all three parties are in alignment. Google doesn’t have to manufacture controversy to seduce you into tuning in.  It simply offers a gateway to all  content: serious or silly, factual, misinformed, or extremist, XKCD or cute cats. It doesn’t matter. Google can put a sponsored ad next to the results of your query -- and as long as you feel the results are relevant, then your interests are aligned with its interests and those of Google’s advertiser customers. Everybody wins.

Google has another major advantage, which is that the ads are often the very thing we are searching for. A local mechanic, an online project management course, a holiday in Europe: We are grateful when the results give us answers and expand our choices.

Compare this to Facebook, which is not actually in the business of providing a means to connect us with the people in our lives. Facebook, like the TV channels, is in the business of providing a channel to market for advertisers. A connection platform and an advertising channel don’t always play well together. More ads mean more revenue, but unhappy customers -- and unhappy customers mean less revenue, and so it goes.

The environment Google and Facebook operate in is changing, of course. As we migrate to mobile, as we adjust habits to incorporate our social graphs, as Siri learns even more about our needs and desires, the current kings of the Internet have to adapt on the fly in order to remain relevant. And they’re not the only ones who need to be thinking about their business models; nearly everybody does. Brick-and-mortar retailers. The postal system. Librarians.

Think for a second about librarians. The word “library” comes from “libros,” or “book,” and libraries have traditionally been in the business of providing books. But they have already evolved to be about so much more than physical paper tomes. As we shift to e-books and e-research and e-learning, as the availability of content becomes ever more ubiquitous and expansive, the library will need to continue to reimagine itself not as a place that houses books, but as a place that offers information -- and also as a service to help information get navigated. In an ocean of unreliable, confusing and conflicting content, librarians can help us understand how to find, how to analyze and how to process that content.

A deep understanding of your business model is key to success, and an ability to understand the shifting vectors that influence it is key to its sustainability. What’s your business model?

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2 comments about "Understanding Your True Business Model ".
  1. Ted Rubin from The Rubin Organization / Return on Relationship , February 15, 2013 at 11:18 a.m.
    Thank you Kaila... for putting into such a well written post what we all need to understand. New Media is just that... something New that in order to thrive needs to be properly positioned. We all have to take a step back, before moving forward, and decide what we are looking to accomplish.
  2. Pete Austin from Triggered Messaging , February 15, 2013 at 1:17 p.m.
    Most large companies are actually in the regulation arbitrage business. One example is that their local affiliates buy/license IP or services, at high prices, from central sources hosted in low-tax countries, therefore moving all profit to these low-tax countries. In the case of TV channels, they buy content in the open market where it's cheap and "sell" it via their government-licenced bandwidth, where the artificial scarcity makes it more valuable.