Despite having an identical business model, why does Booking make huge profits while Uber doesn’t?
Both these ventures are platforms, or aggregators, which make demand and supply meet. While Booking continues to grow, however, Uber loses millions.
Even perfect business models fail
In today’s competitive business landscape, it is fairly common to see high-potential products/services enter the market, only to crash and burn. It leads one to wonder the reason why these business models fail despite having demand in the market. There are many excellent examples of this phenomenon. Alibaba and Amazon, for example, rule their domain while others struggle to make it. The same is the case with work platforms like Fiverr and Freelancer.
The fact that rules all business models
The issue concerning the failure of these models is extraordinarily complex. But more often than not, the solution is straightforward. Most businessmen point a finger at their model upon failure. However, it is not the case. Even a perfect business model can fail if two factors aren’t complimenting it well—how the business model canvas is applied and the moment in which it is applied.
Heed the canvas
The business model canvas is a simple but powerful tool that helps take a snapshot of the exchange of values between the product and the stakeholders. A great business model is one that offers great value to the consumer as well as the stakeholder. Value needs to be concrete and it needs to be communicated to stakeholders in a digestible fashion.
A common mistake most businesses make is forgetting that however detailed and precise a business model may be, it must always be placed in the social, political, and economic context in which it will operate.
Let’s go back to Uber’s example. It brings together the demand for cabs and offers an app you can use to hail one from anywhere. For every economic transaction, the company keeps a cut, generating profits for stakeholders. It’s a great business model.
Like all companies of this kind, however, the model had a remarkably high maintenance cost. It was expected that Uber would quickly cover the cost, but something unexpected happened. Something that wasn’t remotely considered as a variable. Uber had to face protests from taxi drivers. The clash was very violent and made it almost impossible to find an Uber car in many European cities. Consequently, the ledger ran red—and Uber kept struggling to make ends meet.
From this example, what we can learn is this—leave no stone unturned and no variable overlooked while creating a business model.
Heed the timing
The second problem is using the canvas business model at the wrong time. Even well-established companies often start their quest with the strategic structuring of the business model. The process should start from the prototyping of the idea and its validation. Only upon this accomplishment should one work on the structure.
The diffusion of innovation depends only partially on the effectiveness of the business model one uses. The priority must be to consider the characteristics that can help you innovate better.
Thanks to immense technological evolution, disruption has become more accessible than ever before. However, strategic prototyping and application is the only way to make an impact on the market. The right business model may be the secret of success, but if we don’t learn to think from a systemic and more holistic perspective, it can be the cause of failure as well.