Peter Diamandis’ Seven New Business Models for the 2020s

January 28, 2020 – The latest missive from Peter Diamandis looks at how business is being pushed into seven new models of operation rather than continuing the status quo. It seems the number seven is receiving lots of attention this week considering that yesterday’s guest posting also described seven technologies. Who knows if the posting that follows this one will continue the seven theme.

In Peter’s discussion about the evolution of business models in the 2020s, he begins by looking back at earlier business practices from the 1920s, through the 50s, and 60s before arriving at the invention of the Internet, and then….

But rather than me telling the tale I will let his words with some of my amendments and additions describe the change that is occurring with seven emerging models he believes will redefine business in the coming decades.

Enjoy the read, and as always, add to the conversation through your observations and comments.

Some of the most potent innovation taking place today does not involve breakthrough technologies…. but rather the creation of fundamentally new business models. For most of history, the models for business practice were remarkably stable, dominated by a few key ideas, with a few upgrades and variations on themes from time to time.

In the 1920s, it was the “bait and hook” model, where customers were lured in with a low-cost initial product (the bait: a free razor) and then forced to buy endless refills (the hook: blade refills).

In the 1950s, it was the “franchise model” pioneered by McDonald’s.

Or take the 1960s, with the “hypermarket” model epitomized by Walmart.

But with the arrival of the Internet in the 1990s, the business model began to undergo significant reinvention. In the subsequent two decades, we have witnessed the network effect of this global medium leading to the birth of new ideas and business models from bitcoin to blockchain, the undercutting of existing “trusted third-party” financial models, and crowdfunding and initial coin offerings (ICOs) upending the traditional way capital is raised.

Seven emerging models are slated to redefine business in the coming decades. And while today, countless businesses remain anchored in a mentality of maintaining the current state of operation, revolutionary new ways of creating value are bound to disrupt the status quo.

Seven Business Models Will Rule the 2020s

1. The Crowd Economy

The term crowd economy covers crowdsourcing, crowdfunding, ICOs, leveraged assets, and staff-on-demand, all the developments that today are leveraging billions of people already online and the billions to follow.

The crowd economy has revolutionized business operations. Just consider leveraged assets like Uber’s vehicles and Airbnb’s rooms which have allowed companies to scale at speed. These crowd economy models use the staff-on-demand model providing companies with the agility to adapt to rapid change in the business environment. The crowd economy covers everything from micro-task laborers behind Amazon’s Mechanical Turk to Kaggle’s data scientist-on-demand services.

A good example of the crowd economy is AirBnB which has become the largest “hotel chain” in the world, yet doesn’t own a single hotel room. Instead, it leverages the assets of the crowd from spare bedrooms to empty apartments, condos, and homes in over 81,000 cities across the globe.

2. The Free Data Economy

This is a version of “bait and hook,” essentially baiting a customer with free access to a service and then making money from the data gathered about the customer. It also includes all the developments spurred by big data allowing for the exploitation of micro-demographics.

A good example can be found in the operations of Facebook, Google, and Twitter, transforming such dorm-room startups into global giants. Google’s search queries per day have risen from 500,000 in 1999 to 200 million in 2004, to 3 billion in 2011, to 5.6 billion today. While users are becoming more aware of the personal data they exchange in return for Google’s “free” search service, there is growing resistance calling for some form of regulation in the future. But it appears unlikely that this model will be constrained enough not to continue to succeed throughout the 2020s.

3. The Smartness Economy

In the late 1800s, if you wanted a good idea for a new business, all you needed was to take an existing tool, say a drill or a washboard, and add electricity to it, thus creating a power drill or automatic washing machine.

In the 2020s, AI will be what electricity was back in the 1890s. In other words, take any existing tool, and add a layer of smartness to turn cell phones into smartphones and stereo speakers into smart speakers and cars into autonomous vehicles.

Some good examples of companies incorporating AI into their business models include Amazon and Salesforce. But more AI startups are arising each day. In the first nine months of 2019, 965 AI-related companies in the United States raised $13.5 billion in venture capital according to the National Venture Capital Association. The most highly valued of them was Nuro, a driverless grocery delivery service valued at $2.7 billion. Although substantial the AI phenomenon is just at the beginning and will continue transforming existing businesses and creating new ones throughout the 2020s.

4. Closed-Loop Economy

In nature, nothing is ever wasted. The detritus of one species becomes the foundation for the survival of another species. The term biomimicry describes our attempts to create waste-free systems. You will hear terms like “cradle-to-cradle” and “closed-loop economy” from companies that are addressing environmentally-conscious consumers and reaping the benefits.

A good example is The Plastic Bank, founded in 2013, which allows anyone to collect waste plastic and drop it off at a “plastic bank.” In return for the plastic trash, the collector receives anything from cash to WiFi time. The Plastic Bank sorts the collected material and sells it to appropriate recyclers creating a closed loop in the life cycle of plastic.

5. Decentralized Autonomous Organizations (DAOs)

At the convergence of blockchain and AI sits a radically new kind of company, one with no employees, no bosses, and nonstop production. A set of preprogrammed rules determine how the company operates, and computers do the rest. A fleet of autonomous taxis, for instance, with a blockchain-backed smart contracts layer, can run itself 24/7, including even driving to the repair shop for maintenance, all without human involvement.

The platform DAOstack has been created to provide businesses using this model with the tools they will need to succeed including reliable crypto-economic incentives and decentralized governance protocols. DAOstack aims to create businesses where the only external influence is the customer.

6. Multiple World Model

In the world of the Internet, we are no longer defined by where we live. Our real-world persona and online presence are creating a delocalized existence that will only continue to grow. With the rise of augmented and virtual reality, more layers are being added to this new personal paradigm. Expect to have avatars for work and for play, and every version of yourself will represent an opportunity for new business.

The best example of the multiple world model is Second Life which first appeared on the scene in 2003 and gave rise to a multimillion-dollar parallel world economy. People paid others to design digital clothes and digital houses for digital avatars.

Every time we add a new layer of digital strata to our world, we’re creating the potential to build an entirely new economy. Hence we are living in multiple digital worlds at once.

7. Transformation Economy

From the Experience Economy of Starbucks, the coffee franchise that turned into a caffeinated theme park, we are moving to the Transformation Economy where we are paying not just for the experience, but also for its transformative value.

Early versions of this model are visible at “transformational festivals” like Burning Man, or fitness companies like CrossFit where the experience isn’t about physical ambiance but about the end goal. CrossFit doesn’t care about the physical place but rather works with its customers to help them achieve transformation, better health and fitness.

Final Thoughts

What the above tells us is that “business as usual” is becoming “business unusual.”

Harvard University professor, Clayton Christensen explains. “Most [organizations] think the key to growth is developing new technologies and products. But often this is not so. To unlock the next wave of growth, companies must embed these innovations in a disruptive new business model.”

For those on the receiving end of these disruptive models, it will lead to better, cheaper, and faster experiences.

Better means new business models will do what all business models do, solve problems for people in the real world but do it better than anyone else.

Cheaper means we will get more for less.

And faster means businesses will be designed for speed and agility.

And none of these business models are in any danger of seeing their acceptance and growth slow down.