How Can Operating Only on the Internet Enable a Low-Cost Minimum Business Model?

I was inspired to consider this question in 2008 when the two largest newspapers in Boston featured a headline that the larger of the two, The Boston Globe (which was owned by the same company that published The New York Times), had threatened to shut down the print version of the paper and to operate online only unless employees agreed to cut their salaries and benefits by over $20 million a year.

That threat brought to mind a conversation with a senior executive at The Boston Globe. The executive's view was that much classified advertising, especially for jobs, would eventually go online and that some material (such as the stock-price lists) would no longer need to be printed. Never once did he consider that online publishing would become a total replacement for holding a printed newspaper in your hands to read the news.

Having seen how things turned out, I can't help but think that the newspaper executive would have benefited from this article. I aim to help you avoid his myopia.

I encourage you to ponder two hypothetical cases for your business before reading further. The first case involves replacing every single thing your business does now with Internet-only activities, much like the option that the newspaper executive should have considered at some point. In the second case, identify a business that you cannot initially imagine could ever be run solely on the Internet... and then design a business model for such a business that would be superior to what at least some customers receive today. After you've come up with your best thinking in both cases, start reading the next paragraph. If you would like to sleep on these two cases before proceeding, that's fine.

Here's an example that I initially found daunting to provide over the Internet: being a golf caddie.

If you don't play or follow golf, let me describe a little of what golf caddies do. The golf bags and clubs that many players use are pretty heavy, and there's about four miles of walking involved in playing eighteen holes. Most older golfers don't feel up to carrying their own clubs. In addition, a good caddie will often be helpful in reading putts on the green so that strokes are saved. Great golf caddies can also give advice on club selection and help keep a golfer in such a relaxed mood that it's easier to play well. Some caddies are also good storytellers and bring a lot of enjoyment by being delightful companions.

Naturally, providing all of these benefits depends on being there with the player and carrying the bag and clubs. Well, you can't carry a bag and clubs over the Internet. What could an Internet caddie do instead?

Let's start by looking at what many golfers are interested in: having a better experience while taking fewer strokes. Otherwise, if the course allowed it, golfers could just put their clubs in bag atop a pack animal and lead it around the course.

In practice, there's an easier solution: buy an inexpensive pull cart for about the cost of hiring a caddie for a round or two. If pulling a cart is too much work, you can instead buy a battery-powered version to carry the clubs for the cost of about six or seven rounds of a caddie's services. Most courses will also rent you electric- or gasoline-powered riding carts for two that also carry bags. A cart rental often costs the same or less than a human caddie does.

So being there to carry the clubs and bags can be pretty easily done away with. In fact, the Internet caddie could sell pull and battery-powered carts to golfers (or arrange for rentals when golfers are traveling).

For golf purists, I am happy to agree that many of my next solutions would require changes in the rules of golf. In the meantime, many casual golfers might be happy to use such alternatives during noncompetitive rounds.

Most caddies are pretty useless for lining up putts. If an Internet caddy developed detailed information about each green and provided directions for what to do based on where the ball lands and where the cup is, the golfer could gain such better advice electronically over the Internet through cellular telephone or wireless Internet connections.

Some golf courses already offer a variation on such advice by putting GPS devices on their riding carts that tell golfers how far it is to the pin, the front of the green, and the hazards (water and sand traps) ahead. It wouldn't be hard to supplement such electronic information with copyrighted instructions for aspects of playing a hole that aren't covered by the GPS-based information and to distribute the information along with the distance information that is provided now.

If a golfer input information about what clubs had been used throughout each round and the results, an Internet caddy could also make increasingly accurate club recommendations during the round. Receiving this information would be like having the same expert caddie helping you every time you played golf.

Most golfers enjoy being amused while playing. The Internet caddie could archive lots of stories, legends, and jokes that golfers could select depending on their circumstances and moods. For those who wanted to pay more, a knowledgeable caddie could be available for conversations using Voice-over-Internet Protocol technology. Thus, even if your favorite caddie was 3,000 miles away, you could arrange to chat with her or him while you played.

Playing a great course often costs $600 to $700 a round. Fine caddies on such courses earned $120 to $200 a round for their services. The Internet caddie could assist 72 golfers simultaneously on such a course. At a price of only $10 a round, the Internet caddie could earn revenues of over $2,000 a day... far more than any other golf caddie did except those who worked for top pros in tournaments (usually receiving 10 percent of the prize money the pro earned). Provide this kind of caddying seven days a week for a busy, expensive course, and you could receive over $700,000 a year in revenues. Naturally, there would be some set-up and operating costs. But there's no reason to stop at serving just one course. You could provide such services for the top one hundred courses in the world and potentially make $70 million a year in revenues. Is anybody interested?

Let's take the thinking process I used in the golf caddie example and describe how to develop such an Internet-based minimum business model:

1. Identify how the product or service is provided now.

2. Locate the highest value-added aspects from the customers' perspectives.

3. Construct alternative ways to deliver even higher value-added at much lower cost over the Internet.

4. Be sure that all needs are met in flexible ways that will please the customers you want to attract.

5. Build on what you already know how to do well, and find ways to accomplish even more by working with suppliers to write the software and to provide Internet interfaces.

What are you waiting for?

What's the key cost-reducing point about only operating on the Internet? You can reduce your and stakeholders' costs by 96 percent in ways that will expand your profits after implementation through revising your business model to the minimum best practice by operating only over the Internet.