Standing this weekend in the Oxbow Public Market in Napa, I realized that industries (online and offline) really do go through cycles of bundling and unbundling. In the food retailing industry, for much of human history groceries were sold in public markets with independent stalls and merchants.
Perhaps most famous among these markets in modern history, Les Halles in Paris was a monstrous labyrinthine of alleys full of independent sellers of fish, meat and vegetables. It eventually shuttered in 1971 though even by then, the rise of the supermarket was underway.
Here’s a brief history of supermarkets from Wikipedia:
In the early days of retailing, all products generally were fetched by an assistant from shelves behind the merchant’s counter while customers waited in front of the counter and indicated the items they wanted. Also, most foods and merchandise did not come in individually wrapped consumer-sized packages, so an assistant had to measure out and wrap the precise amount desired by the consumer. These practices were by nature very labor-intensive and therefore also quite expensive. The shopping process was slow, as the number of customers who could be attended to at one time was limited by the number of staff employed in the store.
The concept of an inexpensive food market relying on large economies of scale was developed by Vincent Astor. The concept of a self-service grocery store was developed by entrepreneur Clarence Saunders and his Piggly Wiggly stores.
Historically, there was debate about the origin of the supermarket. To end the debate, the Food Marketing Institute in conjunction with the Smithsonian Institution and with funding from H.J. Heinz, researched the issue. It defined the attributes of a supermarket as “self-service, separate product departments, discount pricing, marketing and volume selling.”
Supermarkets effectively bundled all the foods you wanted to buy in an incredible convenient form in one location. They used their scale to deliver the bundle at a much lower price altogether but also more profitably for the merchant. You trusted the brand of the overall store rather than finding category leaders in each sub section.
Now, starting with open air farmer markets nationwide and more and more curated indoor markets (Eataly in NYC, Ferry Building in SF, Oxbow in Napa), we’re seeing the reverse - a move towards unbundling services. There are specialists hawking their superior wares directly to consumers, and consumers love it. It’s possible this model is succeeding now because search costs of buying in these types of markets are lower through trusted curation and better direct marketing/research via the Internet. Also, the success may be rooted in general backlash against the modern supply chain which for concerned consumers requires too much search costs to know what’s inside what they’re buying.
Looking at that one insight, it’s clear there are business opportunities in attacking massive e-commerce aggregators like Amazon who don’t control production supply chain or curate. Honest is a niche (though fast growing) company that curates the supply side and certifies its family products to be non-toxic — though it has massive opportunity to expand into new verticals as the leading “non-toxic” brand. Clearly, they’ve successfully unbundled the offering of a much larger retailer by focusing on this one case.
It’d be great to see a breakdown of Amazon (and other major aggregators) by how people are unbundling it. One famous similar example is the graphic of Craigslist, which was the first to successfully unbundle classifieds from the newspaper industry (which themselves were a bundle of information goods). In the graphic below, you can see how different startups are now unbundling even Craigslist:
With all these examples, I’ve come around to viewing all businesses through this lens to understand certain strategies and decisions. Even companies that start off by unbundling may over time bundle goods (Zillow’s unbundling of real-estate but bundling of related services like home design). I think the critical factor for whether they succeed in their strategies is how “search costs” are changing based on technology and the business model used in the bundling/unbundling.
For PaperG, we’ve unbundled advertising creatives from the general design bundle that Adobe and others offer. At the same time, in our new “creative management platform” product, we’re effectively bundling many of the technology solutions for problems stemming from advertising and marketing creatives: asset management, ad building from assets, getting approvals/feedback, optimization of creative, and reporting from the creative. These functions all used to have specialist softwares but as enterprises (brands, agencies, etc.) have needed to be more agile and responsive due to faster marketing cycles and more data, they need to get rid of the inefficiency of going to each software separately. We’re providing a common destination for all departments for advertising to get all their needs met for creatives.
So, after thinking about these cycles of bundling and unbundling, I suppose you can’t even say there are only two types of companies in the world: bundlers and unbundlers. Every business does both but the question is “to what?”