What is it about the rise of the Internet that naturally inclines companies toward more developed business models? We can use the idea of challenge vs. skill to describe how the rise of the Internet has raised the challenge organizations face to level that cannot be coped with using Subjective-stage business models.

Balance of power shifts toward customers; companies lose control over customers

1. More accurate information is easily available about products, benefits, alternatives, so customers aren’t dependent on company advertising for info
2. Customers are now going beyond the traditional customer role (the concept of “customer” itself is rooted in the Authoritative and Subjective stage), acting as reviewers, suppliers, regulators, sales, marketing, support, & R&D
3. Customers have more choice in virtual marketplace without barriers of time & place
4. Customers are now free agents, with much more control
5. With less control over customers, companies must try to satisfy free agents
6. This requires a more developed business-model

Effects on companies of changes in communication

1. Speed of communication accelerates rise and fall of products & services
2. Can communicate at much lower cost with fewer barriers & higher quality
3. Easier to learn what customers want and what it will take to satisfy them
4. More opportunities for tight feedback loops allow products/services to improve faster

New opportunities for companies

1. Easier to offer highly specialized products/services
2. Lower cost of operating

Negative consequences for companies

1. Worsening consequences for bad behavior by companies

Developmental stage

1. Subjective stage used to be adequate to companies’ challenges, given the control they had over customers (& lack of control customers had)
2. In the Objective Stage, marketing becomes informing & sales becomes consulting & problem solving.
3. In the Abductive Stage business-model (Communities), many of the functions of standard line-departments in organizations can be accomplished by members of the community. You just have to facilitate that happening.
   • Market research
   • R&D
   • Marketing
   • Support

What it will take to get companies to shift to a more developed business-model

1. Start ups
2. Small companies
3. Small groups or departments in big companies

(Compare the effect of Consumer Reports when it was founded in 1932. The bare fact that companies for decades have tried to put CR out of business by suing it (unsuccessfully) shows you what the real business models of most companies were at that time)

An Alternative Perspective

My friend and colleague, Peter Kassan, responded to this post with a counter-perspective to mine that is also highly worth considering:

If it were true that customers were more empowered and had greater influence on companies, one would expect that there would be less domination of industries by single companies (or only a few), less consolidation (as companies specialized to serve narrower customer niches), and more competition. Instead, we see a number of tendencies in the opposite direction:

• In areas like personal computers and their operating systems, search engines, shopping sites, business and social networking sites, and so on, we’ve seen more and more winner-takes-all effects. Although companies still rise and fall (perhaps quicklier than before), Microsoft and its major products (both operating system and office applications) has totally dominated the business market and to a large degree  the home and home-office market for something like twenty-five years (although Apple does have a small but significant share). Google has an overwhelming majority of the search-engine market, and it’s not because consumers have tried all the other search engines and found Google to be superior. Linkedin, Facebook, Meetup, and Twitter all dominate their respective networking spaces precisely because of the networking effect. Also, people are lazy and tend to gravitate to the name (whether website or physical store) that’s most familiar–such as Amazon and Best Buy.
• In areas like banking and finance, there are fewer, larger players than ever before. Again, this isn’t because consumers have found them to be overwhelmingly superior, but for other, far more complicated reasons.
• Capital-intensive industries such as automobiles, oil and gas, cable, telephone, and manufacturing have also experienced increased consolidation.
• The “big box” stores (especially Wal-Mart) have never been bigger.
• There may indeed be more communication between companies and their customers and prospects, but that doesn’t mean that companies have necessarily become more responsive to their customers (except in the most superficial sense) or more responsible to anyone, even including their shareholders (as executives enrich themselves: the agent-principal problem). Even though it’s become easier (even trivial) to put up a website and declare oneself in business, it’s no longer true (if it ever was) that if you build it, they will come. The Internet has made the fight for market share and audience attention more difficult–and before you can have a conversation with your customers and prospects, you have to have customers and prospects.
• The fact that a few companies (out of literally millions of start-ups) have risen to become multibillion dollar enterprises very quickly doesn’t mean that the rest of the world has changed.
• Also, as the rise of business analytics indicates, companies are drowning in data as much as we as individuals are. With the overwhelming quantity of data about customer habits, companies are struggling to make sense of it so that they can make sense of it and exploit it. This is not the same as a conversation between equals.