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There are two lessons to be learned from the story told in this article. First, any company can transform itself by changing its business model. Second, even brilliant business models eventually fade. As technological, economic and social change picks up pace and competition intensifies, the lifespans of business models across industries are shrinking. In this whirlpool, the ability to create business models is necessary for both leaders and those who want to become leaders.
This story is from Business Models for Teams. The book includes a business model template: a useful tool that captures the logic behind how companies create value, deliver it to customers, and get rewarded for it.
Change of logic that spawned a revolution
Over a century ago, Haloid Photographic was founded in Rochester. Now few people remember this name. But there was a turning point in the history of this company. A simple change in business model literally transformed it into a global technology giant, revolutionized the way we communicate, and created the brand that everyone knows today.
In 1958, Haloid invented a copy machine for plain paper. According to the creators, this was supposed to turn the idea of information reproduction.
However, the invention, called the Model 914, proved to be expensive and cumbersome. It was the size of a freezer and weighed almost 300 kilograms. IBM, one of Haloid’s potential partners in this project, commissioned well-known consultant Arthur Little to explore the machine’s potential. The conclusions were disappointing: “The Model 914 has no future in the office copier market.”
Read more: Seasonal demand
The second study was conducted by Ernst & Ernst.
The results were almost as pessimistic. But Haloid was convinced that the invention had enormous value for far-sighted customers.
Soon, John Glavin, who was in charge of new product planning, came to the conclusion that the approach needed to be changed. Instead of trying to sell companies an expensive machine, offer low rent, put up a meter, and charge for a copy. This will drastically reduce the initial investment and allow customers to appreciate the benefits received.
Haloid management decided to give it a try. Both the device and the clients remained the same. New was only the possibility of rent.
However, changing the logic of the value proposition has revolutionized the industry.
In 10 years, Haloid sales skyrocketed from $30 million to $1.2 billion. Along the way, the company changed its name to Xerox. The new copier gave organizations a huge advantage: the ability to quickly and cheaply reproduce and exchange information. Do not forget that personal computers and the Internet did not yet exist.
Customers have embraced the amazing device with open arms, made billions of copies, and generated billions of dollars in profits. The new business model—low-cost rentals and monthly fees for copies made—worked brilliantly for decades.
Read more: Seasonal demand
But there were problems on the horizon. Japanese competitors began to produce more compact and economical devices. In the early 1990s, Internet access appeared, and in 1993, Adobe Systems provided a PDF file specification for free. Gradually, paper began to be replaced by digital media, and the Xerox business model became obsolete.
The company met the digital revolution very actively. The most important technologies were invented and developed here: personal computers, laser printers, computer mice, graphical interface, Ethernet. However, all this could not be commercialized, and other companies used the achievements – including Apple Computer – whose business models were very different from the logic of renting copiers.