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Business and change

Updated: Jul 27, 2020

Original post here.


Q. What are business models that people thought would change the world but didn't?



A. Failure of one-time behemoths like Blackberry, Blockbuster, etc. often feature in prominent case studies. But in terms of their respective business models, the core idea is generally carried forward by competition, albeit in a more efficient manner. I'd argue that these 'failed' business models did play their part in changing the world.


Coming to examples where the model fell ridiculously short of expectations, the following come to mind:


Iridium:


It was meant to be the one wireless service provider to rule them all.

Once a pet project of Motorola (MOT), Iridium went public in 1997 with an ambitious plan to use a 66-satellite constellation of low earth orbit satellites to compete with the mobile phone companies in the market for wireless communications.

Things didn't quite go according to plan. The feasibility numbers didn't work out, for instance.

But for a host of reasons, the original business plan was fatally flawed: the phones were bulky, the service was too expensive and there were a host of regulatory, marketing and technical complications. By 1999, the company had filed Chapter 11. [1]

The company managed to survive though. They're even profitable today. Revenue for the full year 2012 was US $383.5 million with operational EBITDA of US $250.7 million[2]. But they had to limit their initial plan of world domination and target business customers instead.


The service revenue to governments made up 23% of Iridium's revenues in 2012. Typical customers include maritime, aviation, government, the petroleum industry, scientists, and frequent world travelers.[2] Would-be competitors Globalstar followed suit, while Teledesic had to close shop.

The idea of a ubiquitous wireless services provider, though ahead of its times, is too enticing not be revived at a later stage. With technological progress, economic feasibility should follow.



Multi Level Marketing (MLM):


This is a marketing strategy which pays you for sales from other people you recruit, in addition to the sales you make (Think Amway, Tupperware, Herbalife, Avon). At one point, this was touted to be the model of the future, to replace most other forms of marketing and sales.


While MLM is a great platform for word of mouth marketing, it has been observed to foster pyramid schemes (where luring in other people takes precedence over selling the product).

The reason is simple - market saturation for any product / service is inevitable, but impossible to predict beforehand. Thanks to geometric progression (1 recruits 10, each of the 10 recruit 10 more and so on...), it's also more accelerated than one'd presume.


Once there's no more demand left for the product / service being sold, what do you sell? Most MLM companies / salesmen bank on customers' greed to deal with this situation (You only need to sell this to x people and you'll never need to set foot in an office again!). The early adopters make money, become poster boys for the scheme's success and vanish without a trace.


Given it's susceptibility to abuse, the MLM strategy's now viewed with suspicion by people and regulatory bodies alike. There has been limited success through this model, but it hasn't quite had the imagined impact.



Segway:


Following a highly secretive development period, it was launched in 2002 to revolutionize personal transportation.

When the product was launched, the head of Segway said it "will be to the car what the car was to the horse and buggy". Famous venture capitalist John Doerr said that Segway sales might hit $1 billion as fast as any company in history. The company spent about $100 million developing the product. [3]

It even had godfathers who'd been there, done that.

It had the blessing of Steve Jobs, Jeff Bezos and John Doerr and was amazing. [4]

While it's failure might seem obvious in hindsight (Have you seen one of those?), lack of a strong value proposition, price, regulations, etc. all played their part. These reasons have been explored in greater detail here: Why did the Segway fail in revolutionizing transportation the way people had anticipated?


Thanks for reading. Will try to add more later.


Ref:

[1] Iridium: 7 Years Out Of Bankruptcy, Satellite Communications Player Eyes A 2009 IPO

[2] Iridium Communications

[3] The 10 Biggest Tech Failures of the Last Decade - TIME

[4] Why Segway Failed To Reshape The World: Focused On Invention, Rather Than Innovation | Techdirt

[5] What's Wrong With Multi-Level Marketing?

[6] Multi-level marketing

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