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  • Writer's pictureDaywey Chen

The Decoupling of the Business Industry

Updated: May 26, 2020

Businesses today are decoupling. Decoupling is the separation of the customer value chain. Decoupling is the critical business model that is disrupting the industry today. In fact, it may play a more important role than technology

Technology plays an important role when it comes to business disruption. However, often it is not the most critical factor. Think about Netflix, Amazon, Zynga... Is it the technology that they possess help them to separate themselves from the competition? or is the decoupling business model behind that caused them to become so successful?

Technology is a support to make a business model possible or to make things happen faster, but most often technology is not the deciding factor for a successful business.

Undeniably that technology can be the most critical factor for success in some cases. For instance the search capability of Google, the Battery technology of Tesla are cases where technology helped them to built a moat against their competitions. However, more often it is the business model that plays the most critical role. Technology is more often a support of the business model. Technology enables the business model to be possible. For instance, the rise of the internet and the rise of the 4G and now 5G network enabled communication and information to happen at a much lower cost, at a much higher volume and at a much faster pace. This in turn became the backbone that allowed many business models to be feasible. The internet and the 4G network are not exclusive to a few, in fact they are widely available. Myriads of businesses have the access to these technologies. However, why does some businesses fail and some became successful?

To talk about decoupling we first need to understand what the customers have to go through during the purchase cycle. In general, the purchase cycle consist of 4 Steps.

1. Search

2. Evaluate & Choose

3. Purchase

4. Consume

For example, when a customer wants to by a coffee machine, they could first go to the department store or go online to search for the product. Then he starts to compare the information that he has gathered. Comparing the price, features, reviews, looks, sizes...Then after choosing the coffee machine that he wants to purchase, he has to goes through the purchase step. During the purchase step he could go to the counter and take out his cash or credit card if he choose to buy it at the department store, or if he choose to purchase it online, he will then have to take out his credit card and fill out his personal information and delivery information on the web. The last step is to enjoy the coffee machine, this includes cleaning every time after usage and fixing it if the coffee machines breaks.

During each step of the purchase cycle, value could either be created or not. For some steps customer are looking to minimize, some steps customers are looking to enjoy it more. For instance, many men find cloth shopping tedious and boring process and would like to minimize the time and effort of this step as much as possible. Therefore, many choose to shop online so they don't have to spend an afternoon at the department store. For many the purchasing step of an online shopping process can be annoying. You first have to register as a member, and then you have to fill in your personal information, credit card information, delivery information. That is a lot of information to fill out for some. That is why many choose to pay with PayPal, so they don't have to enter the same information repeatably.

Decoupling is the separation of the purchase cycle.

Decoupling is the separation of the purchase cycle. A business may generate great value in one step of the purchase cycle but can be less valuable in the other. Therefore, creating opportunities for other businesses that are able to generate greater value to enter the space. Lets look at some example of what I mean.

First take Best Buy as an example. Best Buy are filled with people, and that may seem like a good thing, but at the end of the day, Best Buy are not making money. How can that be? People are comparing and experiencing products at Best Buy, then purchasing on Amazon for a better price. Yes, people are window shopping at Best Buy. This is the decoupling of the "Evaluate and choose" step from the "purchase" step. Best Buy is generating value at the Evaluation step because it allows people to touch, feel and experience the product at its physical store. However, it is not generating enough value at the Purchasing step for many of its price sensitive consumers. As result, Best Buy went into constructing its own eCommerce website, generating bar codes unique to Best Buy to prevent people from using bar codes to search for the product on Amazon. Best Buy even released a few items that are exclusively on the Best Buy channel. However, at the end of the day, people have ways to bypass Best Buy's effort to stop them from purchasing on Amazon. Even though Best Buy now as a eCommerce platform, it is unable to match Amazon's price, because it hasn't got rid of its physical store. Yes, unique bar codes are created. However, it has become very easy to search for products on Amazon with a few keywords, therefore doesn't prevent people from finding the product on Amazon. Yes, there are unique products on the Best Buy platform that couldn't be found elsewhere, but the amount isn't enough, and most often there are replacement for it. So how do Best Buy maintain in business? Take a guess!

Take Netflix as another example. It has decoupled the business of movies and TV shows. Traditionally if you want to watch a movie, you have to go to the Blockbuster down the corner or you would have to go to the cinema to watch it. Netflix has decoupled the "purchase" step from "consume" step in the purchasing cycle. You don't need to purchase the movie to watch it. You can subscribe to Netflix and then choose any movie that you like on the Netflix platform. If you don't like the movie just switch to another movie. Traditionally, the purchase of the movie and consuming of the movie is tied together. Once you brought or rent the movie from Blockbuster, you can't change the movie. Once you brought the movie ticket from the cinema, you can walk out halfway though the movie and request to view another movie.

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