Sunday, January 11, 2009

Horizontal Business Models

This post is a continuation on the posts on One-Sided Business Models and Two-Sided Business Models presented earlier and part of a series also including Multi-layer Business Models.

When the refinement of products and services, or the monetary flow, comes from competing companies I refer to it as a Horizontal Business Model. It can be in either competing or non-competing fields within the industry in which the companies compete.

When companies decide or are forced to create cross-company standards, technology and IPRs are often licensed between competing companies. Owners of important parts in the standardized technology generates revenues from competing companies in exchange for its assets.

At times companies decide to share costs and risks with competitors to develop something together, where some companies contribute more than others. An interesting example is the Toyota-Citro├źn-Peugeot collaboration to develop small environmentally friendly cars.

Sometimes companies with unique assets, decide not to enter into new business areas and instead let other competing or non-competing companies use its assets. An interesting example is P&G's joint-venture with Clorox, one of its worst competitors. The joint-venture is based on P&G's plastic film technology discovered through diaper research applicable for plastic wrapping and Clorox's established brand GLAD. P&G had the option to launch its own brand and enter into consumer food wrapping products, head to head against Clorox's established GLAD products but decided that a joint-venture would be a better strategy. According to P&G, total Glad sales have doubled in the four years since the joint venture was formed.

Mobile phone operator example
In the Two-Sided Business Models example, mobile phone operators charged advertisers, brand-owners, developers of applications, content or games, instead of only charging end-users as in One-Sided Business Models. Traditionally the mobile phone operators have wanted to provide everything themselves or through own portals, seeing other application or content developers as competitors. Using a Horizontal Business Model, the mobile phone operators with a developed or in-licensed application or service, could provide it to own users and competitors to increase the speed of adoption to get critical mass, more user-data, and generate small revenues from many sources instead of larger revenues from less.

Further reading:
One-sided business models
Two-sided business models
Multi-layer business models

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