The Strategy of Bundling & Unbundling
This would be their last stop on what had been a long and exhausting road show through Europe. Accompanied by Marc Andreesen (Cofounder) and Peter Currie (CFO), Jim Barksdale, Netscape’s CEO, gave the same old pitch to their final audience of investors in a ballroom at the Savoy hotel in London.
Netscape was going public. And in this shark-infested crowd, there was a lack of optimism and an outpouring of questions.
As Jim finished the pitch, they took a few questions, but before they knew it, time was up and the Netscape execs would have to leave in the next five minutes if they wanted to make their flight home.
Jim started moving towards the exit, he told the audience that he would take one final question on the way out.
From the crowd, someone asked:
“How do you know that Microsoft isn’t just going to bundle a browser into their product?”
Before we move on, you need a little bit of background on this question . Netscape’s flagship product, a web browser, was a standalone product. Sure, it could be installed and used with Microsoft’s operating system, but this question hit on a huge risk that the Netscape team was already well aware of. They knew that, if and when Microsoft decided to pre-install a default browser in their upcoming release of Windows, it would have a massive impact on adoption and market share potential for Netscape.
Their product had an expiration date, the clock was ticking, and the IPO couldn’t come soon enough.
Needless to say, this question caught everyone’s attention. It was a question that deserved a well thought out, well rehearsed, detailed response that would (hopefully) give investors confidence.
Unfortunately, time was up and they couldn’t afford to miss their flight.
Jim was halfway to the door when the question was asked. He stopped, turned and looked back at his audience of investors in the ballroom, and without a hint of hesitation he responded:
“Well, Gentlemen, there’s only two ways I know of to make money: bundling and unbundling…Now excuse us, we’ve got an airplane to catch.”
The audience fell completely silent. And Jim, Peter and Marc proceeded to exit the building.
It was an epic, ‘drop the mic’ sort of moment. Because Jim’s response was not only true in terms of Netscape’s current market position, but that the concept of companies bundling and unbundling in order to grow is a timeless one — spanning the history of commerce.
Businesses have always bundled and unbundled their supply chains, service offerings, and product lines in an attempt to gain a competitive advantage in their market or industry.
For example, in the industrial era, you would primarily see this happening through scenarios of acquisition (bundling) and divestiture (unbundling). The thought process was, and is, that acquiring a new business can quickly expand marketshare, skill-sets, and reach. On the other hand, the divestiture of a standalone business unit would be, and still is, one of the quickest ways to raise your company’s stock price.
Another example would be the conglomeration and disintermediation within a product supply chain. The bundling mindset is, the closer we get to owning and managing the end-to-end supply chain, the closer we will be to quality control, price control & ultimately, market control. On the other hand, the unbundling thought process is, if we leverage the right partners throughout our supply chain, we can drive down costs and everyone can focus on what they do best.
Today, we see bundling and unbundling strategies all the time, primarily due to the constant shift and opportunity that arises from the rapid growth and shifts in technology and corporate innovation.
Here’s an example of how this has played out in the digital era:
We were once told that, in order to get the top hit song we wanted, we’d have to buy the entire album that surrounded the hit as well.
Then, thanks largely to Napster, we were introduced to mp3s and the era of a la carte audio. And the unbundling ultimately unraveled the music industry at it’s core.
The music industry is, in fact, still undergoing changes today as music is re-bundled into services like Pandora, Spotify, and Apple Music.
This is just one example, but make no mistake — every single business inevery single industry will have to make these tough decisions, to bundle or not to bundle, throughout the course of their existence.
Both paths can be right and both paths can be wrong (Timing and technology factors typically have the biggest impact on success or failure, and should be examined closely.)
Either way, the decisions each business makes, to bundle or not, will impact their market potential, profitability, and ultimately, their level of success.
So, how about your business? Are you bundling or unbundling?
