Disruption seems to be a normal part of business these days. But do we know why unbundling causes markets to disrupted?
What is unbundling?
Unbundling is a business process where a value chain is broken down into smaller parts that are then purchased individually. Consumers benefit by not having to pay for the parts they do not want.
What does unbundling mean in business
Bundling and unbundling value can change markets and deliver new strategic opportunities to compete.
As an example, Setapp a company has made it easier for mac owners to get a range of apps at a much lower price by bunding products.
Unbundling happens when a value chain or parts of a company are transformed by other companies attacking the value chain and offer separate services.
Emerging companies generally don’t attack incumbent players head-on, but rather focus on tackling specific verticals (hence the term “unbundling”). Said another way, mighty banks like Wells Fargo, Bank of America, and Citi lose their competitive edge not to large, entrenched competitors, but because emerging startups inflict upon them death by a thousand cuts?
Many companies are being unbundled because of the ease with which digital technologies can be interconnected. This makes systems more modular and startups can pick off the parts of a business that offers value.
If a market is big enough e.g. banking, even a small part can be worth millions of pounds.
What are some examples of bundling?
Examples of companies who use bundling are
- Microsoft bundles its productivity software, consisting of multiple complementary applications, as Office 365; computer manufacturers partner with Microsoft to bundle hardware with the Windows operating system.
- Telecommunications companies bundle TV, internet and phone services.
- McDonald’s bundles its food offering into meals.
- Xbox sells with bundles of Games
What is a bundling strategy?
A bundling strategy is an assessment of market conditions to understand if a customer segment will value a bundle and to assess the opportunity.
It is unwise in the era of increasingly personalized experiences and choose to force people to choose a bundle. Bundles can have negative effects if they then lower the value of the other products and cannibalize the sales and profit margins.
Bundling As Personalization – Modular Bundling Systems
Car manufacturers such as BMW offer the ability to create your own bundle and/or customize your car. Often they offer lower price options that naturally fit together e.g. a technology package or entertainment package.
What are the benefits of bundling?
Bundling products or services offer economies of scope, in other words, you can sell more to a single customer.
In terms of digital technologies, there are large economies of scale. As an example, simply adding an app to a mobile phone whilst it is being manufactured incurs a very low, almost zero cost.
That app though could offer free TV to a consumer or free Spotify for a limited period.
The bundling increases the value proposition to the consumer and makes it a more attractive purchase.
What are some examples of Unbundling
Unbundling takes place as technologies change and cause disruption. As an example, digital technologies are modular, easily distributed and integrated and be combined with other services easily.
As a result, massive changes are taking place across many industries such as hotels, banking (aka FinTech) and healthcare to name a few.
Old Examples of unbundling include
Apple unbundled music
At the time of Apples iTunes and iPod launch, the most common way of buying music was on Compact Discs- CD’s. As a result of making music digital, Apple was able to unbundle the music industry and allow customers to buy single tracks instead of albums.
Google unbundled newspapers
Newspapers in the were still stuck into the old form of distributing news (content) through the printed paper when Google started to dominate our search habits. Digital content, as opposed to physical papers, could be distributed with low costs compared to print. Google became the gateway to news sources and content across the world., thus unbundling the newspaper industry.
Bundling vs Unbundling In A Digital Age
Bundling and unbundling in a digital age offers new opportunities for incumbent organizations as well as new startups.
Bundling of services produces new and unique value propositions while unbundling offers opportunities to focus on a niche value opportunity and scale.
New Examples of Unbundling
CBInsights have run a series of graphics demonstrating how large traditional industries are being unbundled as a result of digital technologies and new startups.