What you need to know about the ‘funnel’ business model
Before savvy marketing, we need a savvy business model. And a company that is built on the ‘funnel’ business model does just that. When a company grows by funneling customers from product categories seen to be complementary to its main offering, it is essentially funneling demand from other categories. By offering products and services at cost or at a very low price in these categories, the company creates an unfair advantage over competitor — both in the complementary category and in its main business. For example, Google’s main source of revenue is advertising and it is growing this business by:
1. Increasing Internet penetration and reducing the cost of Internet access (Google helium balloons are set to deliver Internet access in remote areas) and making home Wi-Fi stable
2. Increasing mobile phone penetration by providing mobile OS for free and urging phone manufacturers to make a wide variety of affordable phones available
3. Making it easy to surf the web and providing Chrome web browser for free and providing Chromecast media device at affordable prices to watch videos on TV
4. Making it easy to experience VR and providing VR ready mobile handsets and a VR device
By doing the above four, Google owns majority of its user’s online behavior. And in today’s data-driven world, it is a strategic advantage if your business commands a dominant share of your user’s online behavior.
The funnel business model is disruptive in nature because it makes operating in the complementary category markedly less profitable if not completely unprofitable. In this case, Android phone manufacturers are coming under massive price pressure as phones become cheaper, wireless access becomes increasingly ubiquitous and more people expect web browsing software to be free.
As price of the complementary product decreases, the demand for the core product increases creating a ‘funnel’ effect.
3 steps to the ‘funnel’ business model
1. Find markets that are complementary to your core products.
2. Boost demand in those markets by making products radically cheaper or more accessible for customers.
3. Create an advantage by bundling your core products with this new demand.
Google is just one example. There are other platform companies that are doing the same. For instance Tencent and Alibaba are doing this in China while Facebook, and Amazon are doing the same in the rest of the world.
What is important for product marketers, is to be able to spot the funnel opportunity in their business and make it happen fast. This is vital because if they do not do it, others will come and do it.
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