Emerging Business Models Become The Norm
This is a tale of two companies. One lets you watch things, and the other lets you see things. Both are uniquely positioned—and successful—because they came up with new, unique business models that acknowledge the commoditization of selling things today, whether it be online or in the physical world. And, both companies launched in recent years during a time of great opportunity and enormous risk. Everything analog was soon becoming digital, inviting disruption (and new business models).
But the risks were, and still remain, just as great because of Amazon, Google and Facebook: Amazon makes every product look the same with endless rows of easily comparable thumbnails; Google makes all information fully transparent so consumers can research everything about a product—including its price—before deciding to buy; and Facebook connects users to friends and experts, encouraging them to rely on trusted relationships instead of the seller. In short, Amazon, Google and Facebook have placed all of the power in the buyers’ hands, forcing commoditization.
Enter the business that lets you watch things: Vizio. Accepting that the digital giants had commoditized the marketplace, Vizio decided to focus entirely on being cheaper than everyone else. It’s a simple equation: offer the same product for less and you win. And Vizio did this with great zest. Today, just five years after founding, the company ships more televisions than anyone else in the United States, including tech giants Samsung and Sony. Did I mention that Vizio only has 200 or so employees? They’re nimble, they outsource everything and their sole focus is keeping costs down. Who cares if you’ve never heard of Vizio; if their 40" LCD screen is $200 cheaper than everyone else's, you'll buy it.
Around the same time, a company that lets you see things kicked off. Warby Parker launched, selling a product as commoditized as televisions: eyewear. There are currently 68,858 pairs of eyeglasses available on Amazon. However, none of those 68,858 models are Warby Parker eyeglasses. You can't buy Warby Parker on Amazon, because Warby Parker glasses are special. They're beautiful, they're worn by attractive people, they're made with care and you can only purchase them directly through Warby Parker, either online or in a few specialty stores that have just been opened. People buy Warby Parker because they're special and unique. Okay, time out. Are Warby Parker glasses really special and unique? No. They're eyeglasses. Nice, beautiful, well-made eyeglasses, but in the end, they're eyeglasses all the same. Drop them into Amazon and they'd blend right in with all other models.
Warby Parker adopted another differentiating business model in a commoditized world: Build a separate ecosystem for a product, walled off from everything else, and a commoditized item suddenly becomes unique, coveted, and not subject to comparison with comparable products. Fully verticalized, Warby Parker can now use emotional appeal to sell its eyeglasses. We buy Warby Parker because we like the story and the look—something that's difficult to copy—as opposed to the functional value of being truly unique. Of course, there are many trendy eyewear brands, but because you can't compare them side-by-side with Warby Parker’s products, Warby Parker remains unique.
Vizio and Warby Parker are illustrative examples of two emerging business models in our digitized world. Both accept the realities of commoditization but get around it in two very different ways. Vizio embraces scale to drive down price and thus win a commoditization brawl. Warby Parker avoids the commoditization battle altogether by verticalizing its business, thereby controlling all channels and making the experience something that's worth paying a premium for. We can now see more mature businesses taking cues from these upstarts: witness Apple and Target both verticalizing, Apple with its own stores and Target through its exclusive designer lines. We also see every major technology vendor offering comparable cloud computing options, where the only true differentiator is cost.
This tale of two companies will soon be a tale faced by every business: win with scale or win with verticalization. Few other companies have found a path to long-term sustainable success in the digital age.