The Business of Bundling and 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 Clark, 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.

As 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?”

A little background – 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 really was out and they couldn’t afford to miss their flight.

Jim was already halfway to the door, and upon hearing the question, he turned and looked at the sea of captive investors in that ballroom…and without hesitation responded, “Well, Gentlemen, there’s only two ways I know of to make money: bundling and unbundling…Now, 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 market position, but that 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 business lines, service offerings, and focus areas in an attempt to gain a competitive advantage in their market or industry.

For example, in the pre-digital era, you would mostly see this happening through scenarios of acquisition (bundling) and divestiture (unbundling).  The thought process was, acquiring a new business would quickly expand marketshare, skill-sets, and reach.  While, on the other hand, divesting a standalone business unit would be (and still is…) one of the quickest ways to raise the company’s stock price.

Another example would be the conglomeration and disintermediation within a supply chain.  The bundling mindset was, 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 was, if we leverage the right partners throughout our supply chain, we can drive down costs and everyone can focus on what they do best, so everyone will win.

Today, we see bundling and unbundling 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 a good 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, iTunes Radio and Amazon Prime Music.

This is just one quick 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 are typically have the biggest impact on this, and should be examined closely…).  But either way, the decisions each business makes, to bundle or not, will ultimately impact their health, potential, profitability and existence.

SO…Are you bundling or unbundling? 

Please share your current state, the trends in your industry and the decisions you’ve made or are having to make in the comments section below.