Much discussion has emerged in recent years about the concept of business models, and how companies with the same or similar products can operate very differently, thereby significantly impacting revenues and profits. RyanAir and Southwest Airlines operate on a low-cost model in the airline industry, offering the same product (air travel), but with different cost and pricing structures than major operators. Similarly, iTunes, YouTube, and Spotify all deliver music to consumers online, but in very different offerings. It is these differentiators that impact a product or service’s uptake, as well as financial success.
The core function of business modeling is to describe the set of choices a firm makes that determine its ability to create value and generate profits. Business models can be complex to explain, as they encompass many kinds of choices. Successful business models have a few notable qualities:
– First, all choices are consistent and contribute to a larger story that makes sense.
– Second, successful business models are designed to address concerns of all stakeholders, and effectively create value for all partners. Without creating value, firms cannot generate profit. If clients appreciate the value generated by a business model, their willingness to pay (WTP) increases, which in turn generates revenue.
One way to conceive of a business model is through the RIVE model. The RIVE model explains a business model in four interrelated sections – resources, internal activities, external activities and value proposition. Resources can be considered as anything the firm contributes towards delivering its value proposition, its central offer to consumers and customers (often, the value proposition is different for the consumer and the customer, who are not always the same parties). Internal activities are activities the firm performs within the company, whereas external activities are activities the firm chooses to outsource, a decision that is often made when a job is too costly or inefficient to perform within the organisation. Below is a visual representation of the RIVE model:
Choices on the left side impact the value created by a firm and willingness to pay (from either consumers and/or customers), resulting in revenue. Choices on the right side impact a firm’s costs, and the difference between these two sides result in a firm’s ability to make revenue.
In a music industry where disruption has become the norm over the past 15 years, business model structures are more important than ever as musicians, publishers, labels, and others struggle to make money on a product that has been shown, again and again, to be indispensable in consumers’ lives. Using a business model approach, artists, investors, and innovators can assess their resources, value proposition, and costs to determine the best allocation of resources. This further allows better evaluation of the viability of current and proposed business ideas, leading to a healthier, creative, global music environment.
Athena Koumis contributed to this article.
This Friday, Rethink Music, an initiative between Berklee College of Music and midem, presents its first-ever public music business workshop, at Berklee College Valencia, Spain. More information is available at www.rethinkmusicvalencia.com and complimentary passes are available before Tuesday, April 23 by using code “RETHINK26ABRIL” at checkout.