The Corona pandemic is the kind of disruption that no one was waiting for. Enterprises small and large have changed their business models overnight. Others hold their breath and just hope to emerge from the crisis alive. In this blog I give an overview of Corona-triggered innovations that we have observed in the past few months and draw some conclusions about trends that are likely to stay.
Business model innovations
A business model is a conceptual model of how an enterprise creates, delivers, and captures value. Business model innovations can therefore be classified into three types: Innovations in how you create value, innovations in how you deliver value, and innovations in how you capture value.
All Corona-related innovations are triggered by the need to create and deliver value in a low-touch way. Hence, you can expect examples of low-touch value cration and delivery below.
Surprisingly, none of the examples shows how value is captured —monetized— in the new business model. Therefore, it is not yet clear if any of the models listed below is commercially sustainable in the long run.
Let’s look at value delivery innovation first.
Innovations in the value delivery model
Many companies have replaced their delivery model with a low-touch one without changing much in their value proposition. Some allow customers to pick up goods at the shop’s premises in a low-touch way. Home goods warehouse At Home closed its stores but allows online orders to be picked up at the curb.
Others have replaced the customer’s visit to the shop by a low-touch physical delivery service. For example, the Mexican supermarket Merco partnered with the taxi drivers parking in front of its store to fulfill orders Merco received by WhatsApp. This idea is not restricted to buying physical stuff. Orange E-sports gaming café now allows customers to rent gaming units with pre-installed games to play at home.
A large number of companies have started or joined online markets or otherwise virtualized part or all of their delivery model. Farmers on Nova Scotia moved to an online market, fitness instructers started streaming their lessons, art workshops moved online, and even group therapy sessions are held remotely.
Innovation in value creation
A widespread kind of innovation in value creation is to shift the work to create value from the producer to the consumer. The British hanburger company Shake Shack launched do-it-yourself hamburger kits with a free cooking tutorial. A Canadian escape room company now sells escape-room style puzzles delivered to your door.
Some companies moved to sell basically the same product or service to a different customer segment to meet a Corona-triggered need. The producer of artificial snow canons Emicontrol now sells their product as super aerosol devices to sanitize big indoor spaces. Hotels started to rent out office space and OpenTable now reserves time slots for supermarkets instead of for restaurants.
Where the previous two ideas did not change the value proposition but changed the work to produce it, or changed to whom it was delivered, other companies had to tweak their value proposition a little bit. For example, booking agencies for musicians switched to online booking of peronalized music messages to consumers. The event production company SXS Events used their video production experience to switch to online education, and a hospitality service provider now provides social distancing advice for restaurants. The on-demand car cleaning service Spiffy now offers a service to sanitize facilities. There are many more examples of value proposition tweaks.
Last but not least, many companies found a way to serve the now overburdened mecical sector. Many alcohol producers started producing hand sanitizers. The Canadian company Inksmith makes tech tools for kids, and now started making face shields. Dyson, producer of vacuum cleaners, now started developing ventilators for Covid patients.
Note that some of these companies listed above did not get into trouble by the pandemic but saw a new business opportunity. Others would have been out of business of they had not changed their business model.
Industries that sit on the jackpot
A number of industries have not innovated at all, because they were already low-touch. Thety have hit the jackput, or rather, were already sitting on it. For example, online shopping took a flight due to ther pandemic. Amazon hired 175 000 extra people to handle the extra orders. Videoconferencing and collaboration software companies saw their business increase overnight, as companies all over the world shifted to remote work and instituted a travel ban for their employees.
Another industry that profited without changing its business model is cybercrime. The WHO reported a fivefold increase in cyberattacks directed at its staff. Within a few weeks of the pandemic, the British NCSC reported more than 160 000 reports about fake offers of testing kits, vaccines and face masks. Cyberattacks on banks and hospitals have been spiking. One cybersecurity company found that 45% of home networks are infected with malware.
Industries that are out of business
Other industries are in the business of putting many people in a confined space. These are currently are out of business, or nearly so. Airlines, events organizers, sport clubs and the performing arts are in big trouble in the low-touch economy. And platforms that enable travel and accomodation, such as Uber and AirBnB, have lost most of their business. Many of these companies have laid off staff. Some staff is redeployed in other sectors that are in need of additional workforce, such as online shopping or health care.
Business model innovation questions to ask
To sum up, to search for business model innovations to prepare for the low-touch economy, you need to ask at least the following questions.
- Delivery model
- Is there a way to have the product be collected by the customer in a low-touch way?
- Could you start or hire a delivery service in combination with online ordering?
- Could you virtualize your product, for example by online sessions, so that no contact is needed?
- Value creation
- In what way, if any, does your value proposition contribute to the low-touch economy?
- Could you switch the work to create your product to the customer?
- Could you use your resources to create a different value for the same customer segment?
- Could you use your resources to meet a need that arises from the low-touch economy?
We can observe a few trends in all of these responses. First, all of these responses change the ecosystem of businesses. Low-touch value creation and delivery bring in new partners and shift the basis of competition. The value chain changes and new regulations may apply. What trends can we see in these business ecosystems?
First, the infrastructure for remote work that has been rolled out in the past few weeks will not be unrolled. This is good news for providers of digital infrastructure, as well as for cybercriminals. Hence, we can expect a need for new services for home offices, such as food, cleaning and security.
Second, the digital infrastructure for remote, low-touch consumption is likely to stay around as well. Demand for e-commerce and delivery services will not return to their pre-Corona levels. In China there are signs that the demand for local products and health services will rise. The general public has become aware of the importance of supply chains and of health.
Third, many companies are now investigating their value chains to make them more resilient, for example by including buffers, and to make them more agile, for example by avoiding dependenc on one supplier. Just like the first two trends, this requires far-reaching digialization, not just of the company, but of the value network of which the company is a part.
A fourth trend that can be discerned is that the digital infrastructure for tracking and tracing people, which has been implemented overnight in many countries, is here to stay. The apps in India and China are used by many nongovernment organizations and there is no sign that other governments who have introduced such an app, have prepared for retracting it.
Creating a future
For the industries that are out of business there is as yet no trend to identify. But there is a striking phenomenon. In Europe, airlines receive large-scale government support, events organizers want to live on government money until there is a vaccin, and football clubs simply ask for money without much explanation. The performing arts have received a little bit of support and are complaining eloquently about this. It is in all these areas that policy makers as well as businesses and non-profits need to display their greatest creativity to find a sustainable way forward.