Getting To Know Business Models
While doing some research on my MBA assignment I have came accross this interesting article. I thought I would share it with you guys. It discusses about how different business models are adopted by various companies, for example Gillette makes money on the razors and gives the razor handle at a lower price (looses money on the razor handle) or how General Motors makes majority of their money from finance payments and not from selling cars.
Ben McClure writes: “When evaluating a company as a possible investment, learn exactly how it makes its money. Then think about how attractive and profitable that business model is. Admittedly, the business model doesn’t tell you everything about a company’s prospects, but investors with a business model frame of mind can make better sense of the financial data and business information. It simplifies the job of identifying the companies that are the best investments.”
Full Article: www.investopedia.com/articles/fundamental/04/033104.asp
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By nurba on Jul 28, 2006
“Gillette makes money on the razors and gives the razor handle at a lower price”
Microsoft does it by selling the OS cheaper than the applications. Example: XP Home probably costs around US$80, while the Ms Office is much more expensive.
Here’s a related article by Joel Spolsky http://www.joelonsoftware.com/articles/StrategyLetterV.html