Want to sell value? Bundle. Want to create value? Unbundle.
Summary: Bundling helps you sell something good alongside something not as good. Unbundling helps you distinguish between the two.
The smartest decision Ringo Starr ever made was joining the Beatles. On his own, Ringo wasn’t much. As the drummer for the Fab Four he was, well, fab.
The smartest decision John Lennon and Paul McCartney made wasn’t forming the Beatles. It was allowing Ringo to join the Beatles. Stars need players on the team to distribute the wear-and-tear of interaction and create the right form factor. Adding Ringo was an insulation factor for the duo. It enabled them to be stars and focus on the core asset that people were paying for.
The bundle
That’s the power of the bundle. The bundle enables the less-than-stars to be sold alongside the stars, insulates the stars from the cost of interaction, and adds the appropriate form factor to make the bundle attractive for consumption.
Bundles explain just about everything in the marketplace. Albums bundle two great songs with eight so-so songs. Neighborhoods bundle three great streets with ten mid-list streets. Cars bundle a beautiful shape with a crappy engine. Cable companies bundle good internet services with not-so-good VoIP services. And so on.
Bundling is a fact of life. Most things in life are average. Few things in life are exceptional. Bundling the latter with the former means you can sell more things that people might otherwise not buy. To sell value, bundling is the way to go.
But to create value, you unbundle.
Unbundling is the mechanism to find the real value within a system.
The unbundle
Shawn Fanning unbundled the music industry with Napster and discovered that fidelity mattered less than distribution efficiency. The MP3 is a crappy music format, but it’s frictionless distribution quality revealed gaping holes in the music industry.
Larry Page and Sergey Brin unbundled paid links from organic linking. Pagerank revealed the true value of the citation and radically changed the efficiency of search.
Stewart Butterfield and Caterina Fake unbundled the meaning of photography. Flickr revealed that photo storage and printing were inconsequential next to public photo sharing.
Unbundling provides you with important insights:
-it highlights the real star of the system
-it spotlights the flaws in the system
-it reveals how the system evolved
What do you do once you’ve cracked the code?
You bundle. You extract the star feature/idea/offer, insulate it with a new cast of complimentary features/ideas/offers, and craft the right form factor.
Un/bundle
If “public photo sharing” was the flickr insight, then their interestingness algorithm is the #2 feature of the flickr bundle. It supports the key notion and makes it better by removing friction from the system. (Interestingness is the citation and tracking system that surfaces the most intriguing photos in any tag category. ) Interestingness is to flickr what Paul McCartney was to John Lennon: a vital counterbalance that made the star asset accessible and scaleable.
Google bundled Pagerank with Adsense and Adwords. Search is the star—but Adsense and Adwords are the brokers. They ensure the system’s sustainability, synchronize the connections, and keep everyone talking about Google. They insulate the star by distributing the cost of interaction (ie. they generate the revenue so R&D can continue exploring search innovations).
Shawn Fanning didn’t get to bundle MP3s with a new system, of course. He was sued out of existence. The job of bundling MP3s with several supporting “features” went to Steve Jobs. Today, iPod, iTunes, and the store are a massively successful bundle around the MP3.
Strategy vs phenomena
The trick with un/bundling a system is that sometimes it’s a natural phenomenon and sometimes it’s a strategic initiative. In other words, sometimes you can do something about it and sometimes you can’t.
In flickr’s case, the founders knew sharing would distinguish the service. They also knew the need for interestingness. They may not have expressed it as such (who would?), but they were making strategic decisions about bundles.
Google knew they were unbundling search with Pagerank. But they didn’t grasp how to bundle their new asset until years later.
Fanning didn’t understand his role or the importance of Napster. He was part of a phenomena that only later was bundled into the right form factor by Apple.
No worries, though. If you miss an opportunity to bundle, you might have the chance to unbundle. They’re a bit yin and yang, a little recursive and repeating.
Right now, the grid is creating perpetual opportunities to un/bundle new products, services, and industries. Friendfeed is unbundling Facebooks’ News Feed. ETSY is unbundling Wal-Mart. Ponoko is unbundling traditional manufacturing. Etcetera and so forth.
What are you dismantling?
:To sell value you bundle, to create value you unbundle.” Says who?
Music.
99.376% of the bands (random bundles of musicians) in the world are crap. They are all unsellable, bad bundles. Further bundling would only encourage them. A duet with Celine Dion and Tom Waits would create a bundle that no amount of selling could excuse. ‘The King’ was quite valuable unbundled. He would have been somewhat less valuable bundled with, say, the Bee Gees or Alice in Chains. “Value” is subjective – which explains the success of every boy band bundle in history (excluding, of course, the Monkees who were, and remain, musical gods). Did unbundling the Beatles create ‘value’ to anyone other than Yoko. Very few bands in history ‘created value by unbundling’ (remember the Kiss solo albums… ). I do agree that unbundling reveals value (Keith’s solo albums), or lack of value (Mic’s solo albums). (Apologies if most of my musical refernces are from the Pearson era.)
Business.
Bundling creates ‘value’ to the extent that you are O.K. with MicroGoogleMart owning everything in the world after a frantic M&A (business bundling) binge results in it being the only company left on the planet. (I suppose the shareholders would appreciate the high stock valuations.) Bundling to sell value is usually a sign that you’re on the wrong end of the product life cycle curve. How long can Rogers make me keep paying for the Womans Issues Channel. Corprate pirates like Carl Icahn ‘create value’ by buying and unbundling companies. “Sorry honey, we’re losing the house – my job just got unbundled”.
Life.
Half of all marriages end in unbundling. Value Creation? Perhaps. Bummer just the same.
In summary Mark, I think you’re full of crap. But it’s really, really well written crap. Keep it up.
Jimm Fox
March 29, 2008 at 1:52 am
Jim: I think you’re just cranky because I didn’t buy a copy of your Ringo Starr tribute band CD.
As for your examples, you’re excluding form factor. Successful bundling includes tweaking the package to make it attractive for consumption. Tom and Celine are like whiskey and wine: good on their own but they’ll make you sick if you mix them.
Love your marriage comment. I suspect my wife thinks I’m the weaker part of our bundle.
mark2one
March 29, 2008 at 2:11 pm
I think you made a boo-boo: mp3’s are actually very versatile and awesome file formats…I know a lot of DJ’s that use mp3’s in clubs (with sound systems that are better than top-of-the-line home theater setups) and there is no loss of sound quality…it wasn’t the fidelity that was the issue (most mp3’s you hear sound bad because they weren’t ripped properly…most on iTunes still aren’t ripped properly), the issue was you could only get what you want, not what the label wanted you to get. You may have an argument here, but your examples need a little work.
ramblebramble
April 6, 2008 at 7:06 pm
Ramble: The prevailing industry sentiment is that MP3’s have pretty much ruined music fidelity. Read Robert Levine’s Rolling Stone article from last year entitled “The Death of High Fidelity.” Money quote: “With all the technical innovation, music sounds worse,” says Steely Dan’s Donald Fagen, who has made what are considered some of the best-sounding records of all time. “God is in the details. But there are no details anymore.” http://www.rollingstone.com/news/story/17777619/the_death_of_high_fidelity
As for your second comment, I think you meant “the issue was you could get ANYTHING you wanted, not what the label wanted you to get,” which reinforces the point that by disregarding high fidelity and accepting a lossy format, Fanning flipped the power dynamic and destroyed the music industry’s grip on distribution and access.
mark2one
April 6, 2008 at 8:59 pm
You’re bang on, dude. Wow, lots to think about… in my current startup and in my current next life.
Alfredo C
May 1, 2008 at 12:12 pm
I wrote about this trend not too long ago.
All industries go through these different periods of unbundling and bundling. The internet has helped on both fronts.
1) Bundling all the worlds information into a readily accessible platform
2) Unbundling many industries, such as Music, Advertising, Video
I call it the dance, between the zig and the zag. (click my name for my original post).
Ben Young
September 16, 2008 at 4:34 pm