Question

How does the bifurcation of business models in digital industries challenge traditional practices?

The bifurcation of business models in digital industries challenges traditional practices by creating a divide between companies that sell products for more than the cost of production and those that offer subsidized products to sell customer attention and behavioral data. This divide is becoming increasingly incompatible as privacy becomes a core issue. For instance, Android phones offer a great product for low upfront costs but at the cost of privacy, while iOS offers a luxury privacy-conserving product for premium margins. This could lead to companies like Apple giving up lucrative contracts to develop competitors that align more with their business model. Similarly, companies like Shopify have leveraged exploitation by larger companies to offer simple products to sellers, allowing them to control the data, branding, and the customer while Shopify gets a simple fee.

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There are two fundamental business models. A company can sell a product for more than the cost of production. Otherwise, companies can offer subsidized products to sell customer attention and behavioral data. Most digital industries will bifurcate along this divide. Android phones offer a great product for low upfront costs but at the cost of privacy, while iOS offers a luxury privacy-conserving product for premium margins. These models will become increasingly incompatible as privacy becomes a core issue. Apple could give up its $12 billion a year contract to make Google the default search engine and develop a competitor. Similarly, Shopify leveraged exploitation by Amazon to offer a simple product to sellers. Sellers control the data, branding and the customer while Shopify gets a simple fee.

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