Unbundled Business Models May Dramatically Enhance Economic Growth

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Unbundled Business Models May Dramatically Enhance Economic Growth

It would be nice to have a corporate jet, but not every company can afford to buy one and maintain one. Moreover, in many firms, the jet would simply sit idle most of the time. That's why there's a booming business in rental jets and the time-sharing of aircraft. The same is true of high-end sports cars and expensive vacation homes. As we've previously discussed in Trends, you can even buy into time-sharing arrangements for designer handbags, yachts, and jewelry.

This concept — using tiny slices of very expensive resources — has been spreading to many areas of business, as well as consumer goods. A big factor behind this trend is the ubiquity of information and communication technologies that make it possible to track and meter many types of services that were too awkward to break up into smaller components in the past.

And while the implications for consumer business models are enormous, this is dwarfed by the impact such models are having on the cost structures of businesses themselves. Suddenly, mom-and-pop operations can have access to capital assets and distribution networks formerly available only to the largest multi-nationals. This "unbundling of the value chain" changes the competitive dynamics of a whole range of industries.

Consider for a moment the striking example of unbundling recently presented by Amazon's foray into distributed computing. Its so-called "Elastic Compute Cloud" lets customers use Amazon's spare computing capacity and data storage.

According to a recent cover story in BusinessWeek,1 within a few hours of being announced, all the test slots on the new service were snapped up, and at least one unlucky developer who failed to get a slot was offering $10,000 to buy someone's space. He was turned down. And it's not just small companies that find this arrangement useful. Microsoft is using the Cloud, and Linden Labs taps into Amazon's Cloud when its virtual world — known as Second Life — becomes overloaded.

This sort of arrangement makes a lot of sense. Most computer networks use only 10 percent of their capacity, and 90 percent of the real capacity is idle. Amazon is no exception.

So, in creating a new business model for the "Elastic Compute Cloud," Amazon seems to be ahead of the pack. In that sense, Amazon threatens to compete directly with Google and Microsoft in their grab to be the definitive platform for the Web. In fact, the Trends editors argue this type of distributed and unbundled service will increasingly dominate the way that computers, and large capital assets in general, are used...

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