Currently, I am doing a course on Digital Business Model on Coursera. In one of the lectures, I encountered the term Asymmetric Business Model. The Asymmetric Business Model is a business model that crosses industries, by forcing profits to migrate from one industry into another. Asymmetric business models are based on the economics of complement. Let’s see how complements work. In economics, a compliment is a good that is dependent or requires the use of another product. Let’s see some examples. Home printers depend on ink cartridges to work. So, cartridges are a complement to printers and vice versa. Cars depend on gasoline fuel to work. So gas is a complement to cars and vice versa.
The economics of complements says that when you reduce the value of the complement, the demand for the product increases. When you reduce the value, that is the price of printers, more people will buy printers, and therefore, more people will buy cartridges. Similarly, when you reduce the value, that is the price of gas, more people will buy cars.
To understand the concept more clearly, let’s say that companies could grow their business either –
- Diversify, which means branch out into new markets by investing their profits into that new market, and try to turn that new market into a source of profits in its own rights; or…
- Grow asymmetrically, which means branching out into a new market with the intention of not turning huge profits within that new market, but rather to drive profit in the core market.
When the complement is commoditized, the demand for the product is increased. Let’s now see how companies use complements as part of their business model. To do that, we will overlay the architecture of a business model with three examples, using the economics of complements, Apple, Google, and Amazon.
Apple creates value by making it easy for software developers to create millions of apps. Apple has therefore commoditized apps by making it easy for anyone to build and distribute an app, and encouraging price competition among developers. In turn, these apps are the reason why users buy iPhones, iPads, Apple TVs and Apple watches. Therefore, reducing the value of apps drives the demand for its core product, which is devices.
Google creates value by making it easy for handset and tablet makers to build smart devices. The open-source license version of Android is distributed at no cost to the handset makers. Therefore, by commoditizing Android, Google is effectively driving the demand for its core advertising business.
Amazon creates value by making hardware such as Kindle Fire tablets and Echo devices available at cost. In turn, these devices are bundled, which is locked to Amazon e-commerce services. Effectively by commoditizing Kindle Fire and Echo, Amazon is driving the demand for its core e-commerce business.
In a nutshell, the Asymmetric business model consists of 3 major components –
- A company identifies a complement in a different industry.
- Value is created by commoditizing that complement.
- The complements are bundled with a core product of the company, ie where profits are generated.
If you think about business strategy for your company, I recommend testing this model. Let me know what you think!