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Identifying business model types

Watch Alex Cowan introduce three business model types: Infrastructure-Driven, Customer Scope-Driven, and Product-Driven.
One thing I think will really focus your work on your existing product is thinking about your business model type. You’ve presumably got this dimension of desirability, a kind of working version of this. And you want to optimize your feasibility and viability dimensions around that. You also want to keep that desirability dimension fresh. You take a product like iTunes that was really innovative in its time, and I haven’t really used it for ten years. I use Spotify and Pandora. And so even an extremely durable innovator like Apple needs to keep their innovation pipeline fresh, and aggressively pursue new ideas. And continue to look how their customers are wanting to solve those core problems that you’re addressing for them.
So that’s something we’re going to talk about. Now, we’re going to focus on thinking about the kind of product you have. I think this will really help you create some focal points around refining your execution. The three types we’ll look at are the three you see here. These come from an article in Harper Business Review back in the 90s, I think, called Unbundling the Corporation. And their idea was that successful corporations focus around one of these three types. And that if you’re kind of doing a whole bunch of these different things, you won’t be as scalable. You won’t be able to operate your H1 as effectively, if you will.
By infrastructure-driven, they mean a business whose primary profit driver is scale. An electric utility or a utility, really, of any type is driven by how much water, power we can sell to how many people. Likewise, most traditional telecom is of that nature, and commodities. I mean, Dow wants to sell as many of a given type of plastic as they can. And they don’t care if you use it to make jackets or snow shoes or whatever. And whereas a scope-driven company is driven by some kind of economy of scope. So how much of the buyer’s dollar in a certain area can we acquire?
Because we think that we can provide them a more desirable experience and increase our own performance if we do that. A lot of retailers are like that, Neiman Marcus wants the biggest possible share of that buyer’s luxury clothing dollar. Clothing, or, I don’t know if they sell bags and stuff too. Banking, Bank of America in particular is really focused on, okay, we have this person with a checking account. Can we sell them a mortgage? Can we sell them a retirement plan, a savings plan? Because that makes us more profitable, and that’s what we want the franchise to be about.
A big corporate law firm is interested in having these corporate clients and selling them lots of different kind of law services. Employment law, corporate law, litigation, whatever it is that is of interest to the corporation. And product-driven companies are extracting a price premium and/or connecting with demand in a way that they wouldn’t otherwise be able to access without the special thing that they have. So CPG, branded CPG is a good example of that. A lot of application software, though certainly not all of it, is a good example. These companies are good examples, as is media. And so why is this important?
What are the implications for you as the product manager, and your focal points for your product, depending on which one of these types of businesses your product falls into? Let’s step through that. I’ll use Amazon Web Services. This is the service they provide where you can get a virtual server, or virtual time on a server. And this is a good example of an infrastructure-driven business, their profit driver is volume. So they don’t care if other services, they love it if other services are built on top of AWS, if an individual buyer buys AWS. As long as they more or less buy it and use it in roughly the same way.
Because the sales process, the packaging and pricing is all pretty standardized. Otherwise, the model, their cost model would start to fall apart. And likewise, support, the way that they support it is relatively systematic. They know how people use this, they know how to avoid problems and continue to smooth that customer journey.
We’ll just think of a generic big law firm, they’re looking at share of demand, the legal spending of that large corporation. Their pricing, their sales process, their support is relatively flexible and customized. I mean, some partner is probably taking care of this corporation and making sure they get, to whatever extent possible, exactly what they want. The iPhone is a good example of a product-driven product. Its price premium versus the alternatives and its volume are its primary profit drivers. It ideally sells through lots of different channels, because they don’t want to be in the business of selling. That’s maybe a better business for a scope-driven company, like Best Buy or some place like that.
The sales process and the support process is relatively standardized. I would take a minute and think about your product, which one of these do you think it most falls into? And other implications, do you think that the product should be more focused around acting in one of these particular ways? So should it be, for example, the sales process more standardized? Or is it maybe too rigid? It’s an interesting question. I think that you’ll find this tool a very useful way to think about your focus on all three dimensions of product management, desirability, feasibility, and viability. And we’ll look now at how it translates into focus for the delivery side of your products, the business model that’s wrapped around your product.

In this video, Alex discusses the identifying characteristics of infrastructure-driven, customer scope-driven, and product-driven business model types. Take a moment to characterize a product you are working on, or are familiar with, and think about what business model category it falls into.

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