Business Models 101

I just listened to a smart speech by Herbert Allison, CEO of TIAA-CREF, the big financial services firm for higher education, talking about how he turned that company around. And boy did it sound like a story about Avid. Same exact problem — the market expands because it’s being democratized, the company doesn’t see the new market because current customers are happy. The company’s business model was designed around their old definition of the customer — and it’s just too disruptive to change the business model to fit the new definition. Everything would have to change.

Old customer — facilities, broadcasters, rental houses. Able to write relatively large checks. Need excellent support. Willing to buy a variety of products to get the job done, as long as they all work well and fit into existing workflows.

New customer — individual film and video makers. Can’t write large checks. Don’t expect one-on-one support. Want an all-in-one product. Have no existing workflows. Workflows can be invented for them.

There are way more of those new customers than old customers. But Avid didn’t recognize them because its business was built on making the old customers happy.

Avid democratized post production in the early ’90s. Apple democratized it further in the early years of the new century. The question now is whether Avid can come back. They still hold the top of the professional world. They have to build from there, and they have to win on points, creating something that does more and works better than FCP. Tall order — but not impossible. And, make no mistake about it, the better they compete the better it is for all of us. Competition brings out the best in everybody.

Allison’s talk, delivered in December at Yale University, makes some interesting recommendations. It’s available as a podcast — item 98 on this page at the iTunes music store.

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