There are 55 known business models available in the world and only a few are applied by businesses. This is because very few business ask themselves some fundamental questions and thus find their business model out of sync with the world.
A Razor and Blades Business Model is also known as a “tied products model”. The model basically involves selling two or more dependent products or elements of a product at different prices. One is sold at a discount or even a loss, while the second dependent good is sold at a higher price.
The model was named after King Gillette (his innovation was the thin, inexpensive, razor blade). Gillette sold / sells razors at a low price and makes profit from the blades. Much like Nespresso coffee machines and coffee pods, Playstation consoles and games, Amazon fire tablets and Amazon services.
Employing a reverse Razor and Blades model you make very little on the consumable (blades or coffee pods); you make your money on the hardware (razor or coffee machine). Amazon makes little from the Amazon store and little from the Fire.
Amazon is focusing on a long term strategy and on winning the customer with an easy-to-use, habit-forming, end-to-end eco-system.
The win is in enticing users into the Amazon eco-system. As a user it will become easier to have all Amazon products -which work seamlessly together – than to have disjointed, incompatible services and sales channels. Services are managed under a single account rather than having to have a series of products and services to manage. Whichever way Amazon look at it, they want their customer to win.
Ryanair is a company who are showing real leadership. Share prices are rising and they have wholeheartedly embraced business transformation.
With the latter Ryanair have not tried to simply up-skill an existing workforce, but employed a brand new one. They have realised that to become a future-proofed company means adopting a new mindset and that letting go of an old one is often the biggest challenge, so why not bypass that.
By starting a new company mindset within the existing one real change begins. This reminds me of what you might see in national parks where old trees coming towards the end of their life have a new tree planted beside them, this leads to new and sustainable growth and succession planning. Businesses need this, they need this beyond staff with business model succession planning.
I thought of this blog post while I sat on a flight reading a book on my kindle fire. The kindle cost me a mere £29 in the Black Friday sales on Amazon. A price like that means little or no margin for Amazon and surely a loss, even despite huge global volumes.
This is a typical razor and blades model as described above, no surprises there.
What comes next is why you have to admire the vision of Jeff Bezos. Once you’ve bought a kindle the Amazon world becomes much more accessible and indeed more affordable. It makes economic sense to become an Amazon prime member. Cleverly, Amazon know they earn more from prime members over a year because a prime member wants to get value from the service so uses it more often.
Kindle books are more often cheaper than their physical counterparts, this was not by accident, Bezos sold these at Amazon’s loss for a long time (knowing publishers would have to drop prices).
Bearing in mind our aforementioned razor and blades model, Amazon has employed not only that model, but the reverse razor and blades model and has wrapped all of this in a subscription model. What is extremely clever is that once you are in the Amazon world, a subscription to a relevant services makes even more sense again.
A Fire Sale or Kindling the Future?
Take kindle unlimited for example at a mere £7.99 per month or go one step further and become a prime member for £79 annually (£59 during Black Friday) and then you can access the kindle owners shared library. The catalog of Kindle Unlimited eligible books has grown from 640 thousand to over 1.4 million since the service launched only 2 years ago. If you step back and look at £29 for a kindle and £59 for prime during Black Friday, it looks more like a recruitment event than an annual sale.
In his wisdom Bezos has realised if he doesn’t keep reinvesting in the company and resist short term dividend payouts then Amazon can own retail and own the customer. The main blockers in so many markets is that prime benefits are not yet available there, this is due to rights issues for example with streamed content.
Once such blockers evaporate, so will many companies, who are simply not prepared for the disruption to antiquated business models.
If you have had any issue as an Amazon customer you should try their customer service live chat, it is second to none, well perhaps to Zappos, oh, but that is an Amazon company and you can bet that the famous Zappos service has been diffused throughout Amazon.
If you think of the acquisitions and investments Amazon have made it makes real sense and you can’t but admire the intelligence and bravery.
Think of Amazon original content, which means owning an Amazon device makes sense, which means being a prime customer makes sense.
Think Alexa, owning a web stats company means Amazon understands the worlds web traffic trends first hand and thus owned true data, it is also a nice complement for Amazon’s powerhouse Amazon web services (AWS).
Even when you think of the Washington post acquisition, you get the digital edition free as an Amazon member. Meanwhile Amazon get access to an advertising eco-system and when you add in the full screen interstitial advert you get on the Kindle that is a lot of eyeballs and a lot of data. A free e-copy is not only a nice perk for an Amazon Prime member, but boosts the digital numbers for the Washington Post, which drives advertising revenues,
Another perk is your free trial of “Free time unlimited – Endless kid stuff.” This is a great recruitment tool for the younger ones. Amazon will also replace a broken kindle no questions asked. (If you think of an iPad screen repair at 200 Euros I would rather buy 5 or 6 kindles).
In time we will see the kindle offered for free with a 12 month subscription. Another hook for the future customer. Another enticement to get us on board.
All these touch points mean Amazon is creating habit forming products, at least one Amazon touch point could feasibly touch your life every day. A nice model, driven by bravery and vision.
One of the unseen pieces of genius yet to unfold is the Amazon focus on the home. Amazon is very advanced with its Alexa and Echo ecosystem. Think of the habit forming products and ease of use backed by excellent customer service. Now let’s jump to a future of no screens. Let’s jump to a future where we have chosen our product set. This is a future where without a habit driven product you no longer exist! (For more on this check out Nir Eyal here).
While I sat with my Kindle, I thought of Ryanair as the Amazon of Air travel. That makes total sense!
Imagine the flight as your kindle, Imagine you pay a subscription, ideal for footloose people, indeed ideal for families if a subscription allows it.
Go beyond this though and think of ancillary services as the coffee pods in the razor and blades model. Think hotels, think car hire, think restaurants, think food on plane, think products. Hence we heard Kenny Jacobs of Ryanair announce the launch of Ryanair Rooms. Ryanair Rooms will be a Ryanair play on Airbnb.
This all makes sense, Ryanair labs are working on the app, which will be your kindle-esque home to all things Ryanair, the Ryanair eco-system if you will. This will blend user experience, utility (e-boarding passes), loyalty (coupons, treats), services and offers (rooms, hires) and of course travel content. The latter piece also makes sense, why not create killer travel content, which is essentially content marketing to entice the customer to Ryanair destinations. Going a step further you can even boost certain content when you have capacity in certain countries. Not sold out in Riga? Offer an incredible deal, supported by data driven content placement to lure a traveler to a certain destination. To this end data and data analysis will be essential.
Patterns, Evolutions, Ideality
Whether Ryanair know this or not they are tapping into the evolution of patterns of people. This is likewise for Amazon. The sharing economy, the access economy, the experience economy and ideality.
Ideality would pose the question how do you give all the flights with none of or as little of the cost as possible? This is where Ryanair are moving towards, a subscription service is not out of the question. JetSmarter, launched in the US in 2013 and is essentially an Uber/MyTaxi for private jets. JetSmarter offers an annual membership of unlimited travel for $9,000. Sounds like ideality to me.
There is a shift in society towards several forces. One such pattern is the access economy. Possession is giving way to access, this is a very clear pattern. Think Uber and MyTaxi, where people are preferring access to a car to owning a car (check out this weeks innovation show and this one with Hailo/MyTaxi CEO). As for Airbnb, many people would rather afford to be able to enjoy Paris and enjoy experiences there rather than spend their money on staying there.
Now go back a step, I may be using Hailo (MyTaxi) or Uber to get to an airport, then jump on an airplane and then use Airbnb when I get to my destination.
So in the customer “journey” (so to speak) the sharing and access economies could use an Airline to take part in this pattern . Who is brave enough and willing enough to do this?
When (and not if) Ryanair take advantage of this it will be very interesting to see what other “blades” might be added to the razor and blades model. We have already seen the launch of Ryanair Rooms.
Could they add a service like Hailo? They could have done that recently before Daimler acquired Hailo via MyTaxi.
Could they add Ryanair lounges in the Airport? Imagine they could own an airport?
With 55 known business models available in the world and only a few being used there is an interesting “journey” ahead.
One last thought to leave you with is this one. Amazon have not been afraid to explore every business that is part of or adjacent to their business. Amazon could not find the right web services for their requirements so they built it and then sold these services. Amazon are often frustrated with third party delivery services as their delay can affect the end customer and the customer experience is upset.
Rather than just Ryanair becoming the Amazon of air travel, what if Amazon expands their offering to air travel? This would mean owning a logistics pipeline for people and products.
Could we see Amazon Air travel and in tandem see Ryanair become the Amazon of Air travel? Or might Amazon simply buy Ryanair or a similar competitor, maybe a distressed asset?
Or, will Jeff Bezos, true to his visionary self, simply focus on space travel?
On this week’s innovation show we talk to CEO & Founder of Fundit Andrew Hetherington, iCabbi’s CEO and founders Gavan Walsh & Bob Nixon, Car Amigo CEO and founder Alex Gaschard, The Innovation Value Institute’s Martin Curley.
We talk crowdfunding, mobility, mapping, platforms, driverless cars and much more.