Field of Dreams Business Model

I'd heard that Wired Editor Chris Anderson was writing a book called Free: Why $0.00 is the Future of Business. His basic argument is that storage space and bits are so abundant and cheap at this point that almost anything that can be digitized will eventually become essentially free.

What I didn't realize was that he believes that this phenomenon will drastically change even the way we think about business as a whole. Consider this chart that he links to on Wired.com which describes the "world of abundance" that we are entering:

SCARCITY VS. ABUNDANCE

Rules	Everything is forbidden unless it is permitted.	Everything is permitted unless it is forbidden.
Social model	Paternalism ("We know what's best")	Egalitarianism ("You know what's best")
Profit plan	Business model	We'll figure it out
Decision process	Top-down	Bottom-up
Organizational structure	Command and control	Out of control

Particularly interesting to me is the evolution of the profit plan. Instead of a carefully crafted business model which seeks to understand all risks and opportunities before the product has even launched, in the new model, products are launched in beta, ideas are crowdsourced, and the initial set of curious customers becomes the focus group. This is a concept that I've written about before. Because the cost of experimentation is so low when it comes to digital products, business models are less important. As Strategy+Business has written,

Traditional market research (chiefly, consumer surveys and interviews as well as sales data for related products) is not a particularly good predictor of success. Worse, it tends to thwart creativity. For one thing, market research is not suitable for assessing novel product ideas. An innovative product, virtually by definition, is not going to have existing real or anecdotal data to support whether or not it will be well received.

On other words, most new companies aren't like Ford. Ford can't just put out thousands of random models on the road and hope that a few of them don't blow up in traffic.

This idea -- that business models are overrated -- seems to be picking up more traction lately. Consider Umair Haque's take on business models at his Harvard Business School blog:

Business models aren't today's fundamental economic challenge. There's nothing wrong with simple, one-sided business models. In fact, the opposite is often true: business model innovation is exactly the wrong thing to focus on. Consider finance. Securitization was a breakthrough business model innovation for banks. Everything was remixed by everyone. Yet, toxic junk was mostly what was flowing through that new business model. Business model innovation amplified value destruction. Banks who didn't play the securitization game — and stuck to simple, one-sided deposit-taking business models — are today's survivors.

Haque, like Anderson, isn't all that concerned with the business model -- he is concerned first and foremost with a company's ideals. He's concerned with whether a company is producing something valuable. The idea is, if you build it, and you value it, the customers, and the revenue, will come. As Haque has said elsewhere, there are a thousand possible business models for most products. In the new society, entrepreneurs should focus less on the model and more on the product -- business models happen.

Of course, all of this goes a little too far in the name of provoking conversation. For many established companies, a tight, lean business model can really reduce costs and have a real impact on the bottom line. For other companies, their product doesn't distinguish them, but the business model is so clever that it makes up for it. And for an established company that has achieved success with a particular business model, continuing to follow and refine that model might make sense.

Unfortunately, business models can be taken easily -- see Nokia following the iPhone and the Apple App Store with their smartphone and their Ovi Store. I think the main point that Anderson and Haque suggest is that experimentation, value-creation and user-input are much more important than a pristine, shiny new business model. If you have engaged customers and a product that actually makes people's lives better, you have a choice of business models. And if you don't have these features, even the best business model won't stand a chance.