Business models built around the needs of companies don’t work

By December 16, 2013 No Comments

It seems trite and obvious to write that the best products are designed around what customers need and want, yet it is still surprisingly common for companies to make decisions based on what’s important for themselves.

Digital magazines are a great example. Physical magazines have been suffering from declining circulations for a while now and their owners have mostly struggled to charge for their content online. When the iPad arrived they and Apple saw an opportunity to reverse the trend by selling magazine subscriptions through the Newsstand app. Unfortunately they were solving for their problems rather than what users wanted. Magazine publishers saw a chance to start charging for digital content and Apple saw an opportunity to take a cut. Neither stopped long enough to realise that the great free content was still out there and would inevitably find a way onto people’s tablets.

I’m writing this post today because I’ve just read an article about the impending death of tablet magazines. It describes how many people are getting free realtime content in magazine format from apps like Flipboard whilst very few people are subscribing to digital versions of traditional magazines. Moreover, Apple has now made it so that the Newsstand app can be buried inside a folder whereas previously it had the prominence of a guaranteed home page spot. A lot of time and money was wasted by Apple and publishers in bringing the Newsstand model to market because they were thinking about their own needs rather than what consumers wanted.

The area where I most often see this mistake of putting the business model ahead of what consumers want is subscription ecommerce. Subscriptions are great because they bring predictable revenues and higher customer life time values (LTVs). High theoretical LTVs in turn make it possible to justify high customer acquisition costs (CPAs). For managers and shareholders in ecommerce companies the combination of high and predictable revenues, and justifications for  high CPAs is intoxicating and often results in a lack of discipline in questioning whether customers really want a subscription product.

You should be able to justify your business model by reference by what’s good for your customers,