Unlocking the Customer Value Chain: How Decoupling Drives Consumer Disruption

by Thales S. Teixeira

the creation of new business models tended to happen slowly prior to the internet.

A similar story holds for other industries.

This slow pace of change made life comparatively easy for executives.

In media, for instance, a single model for making money dominated for much of the twentieth century.

created value for customers by

They captured value by selling viewers’ attention to advertisers, in what was termed an “ad-supported” model.

“paid media” model.

For decades, these two models were basically it.

This situation changed dramatically with the advent of the commercial internet in the mid-1990s.

as just another communication channel

Then businesses began to sell retail goods online, retaining the same basic business models that had long existed in their industries.

What started as a communication channel had transformed into a full-fledged sales channel.

David Teece

“The internet era has fueled the need to understand and design innovative business models. It has caused many companies ...

Many factors have spurred business model innovation in the digital age, but three deserve further elaboration. First,

tightly knit or co-located,

clustering effect

Second,

ample c...

T...

great fl...

Co-location, capital, and fluidity of people and ideas create ideal conditions for business model innovations to spread.

private car transportation industry.

As this model showed early signs of success, copycats emerged.

“There’s an Uber for everything now.”21

Disruptors tend to use a surfing metaphor, perceiving promising business models as powerful ocean waves.

For incumbents, the spread of business model innovations feels far less fun, and far more threatening. Incumbents tend to think of them, consciously or not, as wildfires that pop up unpredictably, propagate quickly, and wreak devastation in their paths. Their instinctive response is to suppress the wildfire by attacking or buying the startup. If a business model innovation flares up in your industry, turn on the siren, quick!

theory of special relativity,

Similarly, we might think of digital disruption as behaving like both a random forest fire and a predictable tidal wave.

To date, the internet has seen three great waves.*5 The first—called unbundling—began in the mid-1990s

Physical newspapers

The internet enabled businesses such as Google, Craigslist, and Yelp to specialize in each of these types of content, respectively, thereby unbundling the newspaper.

iTunes unbundled TV series into single episodes

Digital services such as Apple’s iTunes

Kindle

digital disruptors grabbed an opportunity to distribute content online and deliver only what people wanted to consume,

In the aggregate, consumers purchased less content, not because they consumed less but because finally, for the first time, t...

By the late 1990s, most online content that could be unbundled profitably had been. This first wave of business model innovation began to give way to a new wave: the disintermediation of goods and services.

Service providers in a broader array of industries, not just content, took note of the internet’s potential as a low-cost, high-reach sales channel and further removed the middleman from their transactions.

With the internet’s emergence, agents no longer enjoyed a local monopoly on these travel options. Customers could communicate easily with service providers and book travel themselves, bypassing the travel agent.

Unlike unbundling, disintermediation affected both digital and physical service providers.

This tidal wave flooded markets during the 2000s, beginning to ebb by 2010.

By 2012, I began to discern a third wave of business model innovation on the horizon. The most innovative companies were no longer responding to shifting consumer behavior by unbundling products or disintermediating services. Rather, they were stealing customers by “decoupling” specific activities that customers normally performed in the course of shopping.

Amazon decoupled the purchase of products from browsing.

This third digital wave also differed from the other two in that now disruption was taking place across the customer’s value chain. The first wave, unbundling, largely took place at the product level and in the consumption stage: some consumers read only newspaper articles, others only the classified ads. The second wave, disintermediation, occurred within the supply chain (e.g., cellulose companies selling pulp directly to the newspapers, bypassing paper manufacturers). Decoupling also broke down important linkages, but this time between customer activities, not products or supply chain stages (see Figure 2.1).

It was no isolated phenomenon.

They had detected an unmet consumer need and were simply—and intuitively—doing their best to satisfy it. In the process, they were quickly stealing customers from established companies.

Not knowing the root cause, they scrambled to respond, often futilely.

In 1999, the average U.S. car dealer earned 40 percent of its profits through the sales of new vehicles.

Those days are over.