WhatsApp Valuation - New Business Model of "Value for Many"

Feb 24 2014, 3:45pm CST | by

There is an interesting correlation between wars and business models. As we have seen in history, an invention of a new weapon can provide unique competitive advantage in the battlefield and can be the difference between victory and loss for a nation. Similarly new, unique and sustainable business models can guarantee success for corporations over their rivals. One can also segment warfare broadly into five generations – linear (i.e. Napoleonic column formation), trenches and mass sieges (World War I and II), blitzkrieg (infantry and armour working together), guerrilla/insurgency (Vietnam War, Afghanistan) and now cyber warfare – one can also generally segment business models into five similar generations: conventional (Industrial Revolution era), convenience (McDonald’s), magnitude (hypermarkets and Wal-Mart), dot-com (eBay, Amazon.com, Netflix) and now Web 2.0 (apps). Notice the convergence that is taking place between the two, especially within the fifth generation.

A business model that I believe will rule the world in the coming decade is what I call the “value for many” business model. Not “value for money,” but “value for many.” With the  middle class expected to touch 3.9 billion globally, Internet penetration to increase to 5 billion, and with more mobile subscriptions on the planet than humans today, it has become important to “make one, sell and connect many,” more than ever before. The ‘make one, sell and connect many’ concept implies to produce and sell the same product or service to the masses in developing as well as developed countries or connect the market globally using a platform like the Internet or a mobile device.

Facebook’s market capitalisation of $104 billion with over 900 million  users at the time of its IPO in 2012 confirmed this business model and same is the case with its purchase of WhatsApp for $19 billion. You might even argue, comparatively, WhatsApp valuation is low with 450 million customers, but it trumps Twitter’s valuation. Furthermore, WhatsApp’s current business model is not to make money, but to connect people.

A “value for many” business model of connecting people on mobile devices can make a person a millionaire from day one. Yet it is not only meant solely for software based businesses, this business model also works very well for a hardware or service-driven model. Aravind Eye Care Hospital in India charges an average cost of $25 per cataract operation compared to costs of $2,000 to $4,000 in the West, and is able to do by applying techniques from the automotive industry to healthcare in order to achieve a profitable business. Their eye surgery is conducted similar to a car production assembly line operation with standardisation of equipment, staff and training across the surgery chain. It keeps its surgical equipment in operation 24-hours a day, and doctors focus only on performing surgery, while nurses handle pre-op and post-op care, thus increasing doctor productivity and keeps costs per surgery low.

Companies like Siemens and GE are now also applying the “value for many” business model by developing low-cost products in the developing world and selling them globally. Also, Ford’s survival strategy during the recession in 2009 was to make a limited number of models on global platforms and sell the same vehicles in all markets of the world. It reduced its platforms that produced its 90 different models of cars from 27 to 14 platforms producing only 50 models of vehicles.  The success reflects in its share price today. So if you are thinking of what business model to focus on in your organisation or your own business, think of the simple “value for many” business model. Do simple math of how many people you can sell to and connect with and if the numbers are in millions, you have the framework for success.

Source: Forbes Business

 
 

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