How to Give Your Business Model a One-Two Punch

It's an intriguing hypothetical: In a fight between Bruce Lee and Mike Tyson, who wins?

We'll never know the answer to that question, but in today's world of mixed martial arts (MMA), probably neither of them would have fared well. MMA, which has overtaken boxing as the most-watched combat sport, emphasizes multi-disciplinary fighting styles. As an MMA commentator recently said, "Boxing is the sport of punching. MMA is the sport of fighting."

Learning how to "fight" across multiple disciplines is also relevant in business. But instead of adopting multiple martial art styles, more B2C companies are using mixed business models, or MBM, to win.

We are not talking about the classic conglomerate model, in which the main purpose is diversification. Nor is this standard vertical integration, which is typically geared to drive supply chain advantages. MBM utilizes multiple, complementary business models in the same industry and brand to build competitive advantage in analyzing and anticipating demand in order to defend, acquire and create new profit pools.

Technology companies have done this particularly well. Many were perplexed in late 2007, when Google announced they would build a mobile operating system, seemingly far afield of their core online advertising model. Four years later, according to Nielsen, Android is the #1 smartphone OS with 49% share. Five of the top six apps on Android phone are Google-owned apps, and Android users spend twice as much time engaging with Google owned apps as iPhone users, giving Google a clear advantage in understanding demand.

Mobile advertising revenue is already $2.5 billion for Google (only 7% of total revenue, but growing at 250% last year). As more and more consumers around the world leverage the smartphone as a primary internet access device, succeeding on mobile devices is crucial for Google to protect its core online search profit pool by entering mobile phone profit pool in order to ultimately create the mobile search profit pool. Without the MBM strategy, Google would have been at the mercy of Apple, Microsoft, Verizon and others in negotiating for the limited screen real estate on smart devices.

The media industry has always been a fertile ground for mixed business models. Disney's business models span the media, entertainment, toy, apparel, and travel industries. Companies like Netflix, Hulu, HBO and Google's Youtube are creating entirely new models to blur the lines between content owner and distributor.

We believe more consumer facing companies beyond technology and media will adopt MBM going forward, and that single business model companies in many industries will find it hard to compete. Here are a few MBM trends we expect to see:

Manufacturer & Retailer integration. Apple has the highest annual sales per square foot ($5,600) of any retailer in the world. (Tiffany is next at $3,085.) Apple's retail outlets yield them additional margin on their core products and more sales of high-margin accessories, but also yields huge strategic advantage via deeper customer insights and stronger customer loyalty. Nestle is pursuing a similar strategy with its chic Nespresso retail outlets. Retail is very helpful in getting manufacturers closer to the end consumer and their demand.

Analytics and Advertising models. Some reports say that Amazon is quietly collecting $1 billion in high-margin advertising revenue. This is a great profit pool, and a funding source for core initiatives. More businesses, particularly retailers, will leverage consumers' digital transition to build advertising and analytics add-on's to their core businesses.

Services models. Consumer brands in categories with high lifetime value economics can also use service models to drive loyalty and create new profit pools as well as providing a rich stream of analytics into demand. Microsoft has done a great job of this, with xBox Live, which allows gamers to play other gamers around the world for a $50 annual subscription fee, which is now $2.4 billion in high-margin revenue. P&G has launched Mr. Clean-branded car washes and Tide-branded dry cleaners, which is a departure from its historical manufacturing business model into retail/services. .Perhaps the highest-stakes MBM "cage match" currently underway is the collision course of the Telecom, Media and Technology industries. In particular, think about the MBM strategies of three of the companies highlighted above.

Google secondarily invests in hardware (Android) and content (Youtube) to primarily make money on its core of advertising.

Apple secondarily invests in on content (iTunes/App Store) and advertising (iAd), to primarily make money on its hardware.

Amazon secondarily invests in hardware (Kindle) and advertising in order to primarily make money on content (and other goods).

Who wins is anyone's guess. But since we'll never get to see Bruce Lee and Mike Tyson duke it out, we are happy to watch this fight unfold.