With today's announcement that Google Wallet would be preinstalled in Verizon Wireless, AT&T and T-Mobile USA, it is worthwhile to review this and other changes from the franchise owners' point of view.
My Business Model is Obsolete, in the February 25, 2013 issue of Fortune Magazine by Geoff Colvin describes how an increasing pace of innovation is having a significant effect on the business models of institutions that have been in existence for decades.
Unlike the larger and better known corporations identified in this article, my focus is on how smaller organizations are affected by these same changes.
Without the financial resources of larger and more profitable organizations, smaller businesses are at greater risk of disappearing in a shorter period of time.
Smaller businesses are being forced to adapt to these changes in the pace of innovation and their core business models -how they earn profits- are been strained.
1.Payment Acceptance Systems
Business transactions used to be simpler when paid in cash. Then there was the convenience of cheques. Today we have credit and debit cards, often with reward programs, and Paypal. The sad reality is that most businesses probably do not even know the cost of accepting these varied payment systems.
With these conveniences come costly equipment and acceptance fees. An entirely new middleman has emerged to support noncash transactions in the name of convenience.
Let us not forget, however, that this is an added cost to business. The business cannot always pass on these costs due to the competitive environment which results in reduced profit. Then there are the costs of technology that must be absorbed.
Business accepts these charges as a cost of doing business but many fail to give proper consideration to the implications of taking on these costs - maintenance, support and replacement - to the overall profitability (and sometimes viability) of the business.
The overall result of just these two changes to the business model is twofold. Business owners need to know more about technology and marketing than ever before. They must also charge more for what they offer or accept reduced income. This puts the small business owner, who lacks the knowledge and resources to properly invest in technology or experiment with alternative marketing vehicles, at a disadvantage.
2. Marketing
At one time marketing by smaller businesses was generally limited to Yellow Pages, local newspaper and/or magazine advertising, and/or direct mail. Today the reality of marketing is quite different.
- Yellow Pages are no longer a primary advertising vehicle.
- With the advent of cellular networks, phone numbers are no longer centralized so a single telephone directory no longer exists.
- Add in access to online directories and the value of Yellow Pages advertising is now questionable.
The collapse of virtually all print media in place of Internet options requires businesses to seek out alternate ways to promote their offerings. It also requires a greater level of knowledge into marketing and technology which typically does not exist within smaller businesses. Into the void comes a range of Internet vehicles that include Internet web sites, online advertising, social media and blogs.
These marketing vehicles lack any form of reliable or verifiable results on which to evaluate success yet they seem to be the only alternative for the moment. Businesses feel they must have a presence in these areas to remain viable.
The amount of time and money spent on these marketing vehicles is a significant change in business model typically not considered by businesses using the traditional cost-benefit analysis.
In fact, many promoters of these new age vehicles argue (incorrectly, in my opinion) that traditional measurement systems do not reflect the value inherent in these investments. This is not to suggest that online marketing is not effective when done properly. Only to beware of the high tech snake oil salesman promoting unproven methods without a means of measuring results.
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Payment charges are well done the P&L chart, so it is hard for a small business owner to get properly educated and take the right action.
This is something you need a payment co-op for - charge yourself as a group a little more now to save a lot in the future.