During the internet boom, the phrase "new paradigm" was passed around like a flask at the prom, leaving everyone exhilarated but slightly muddled. Although many of the business models from that heady era proved unsustainable, we have seen significant shifts in business models over the last century. In this article, we will look at four new business models that are here to stay.

In Pictures: 8 Tips For Starting Your Own Business

Mass P Vs. JIT
Although it sounds like a freestyle rap battle, the move from mass production to just in time delivery (JIT) has been a huge shift. Back when companies like Ford (NYSE: F) and GM were dominating the vehicle market, the most important thing was to have tons of product out there for consumers to buy. This meant storing excess production, and often selling old inventory off at a loss if too much was produced. When the economy is roaring and everyone is buying, the extra costs of mass production aren't noticeable. When things slow down, inventories grow and plants are mothballed, then problems start.

JIT addresses these problems by keeping production closer to actual demand. Inventories don't build up and there is less excess product going to waste in slow downs. This system is more responsive to change than mass production. Toyota brought this concept to the automotive sector in the U.S., but Sam Walton, the founder of Wal-Mart (NYSE: WMT), was using JIT inventory management long before then. Both of these companies turned their inventory advantages into huge competitive edges. (Learn more about finding winners in the retail industry, read Measuring Company Efficiency.)

Standardization Vs. Customization
This is one business model war that is far from over. Standardization made mass production possible, and the concept of copying a good thing over and over again makes sense. That said, the pitfalls of standardization – a cookie-cutter product – open the market to customization. This is true in many industries, but the most compelling example is Dell Computers (Nasdaq: DELL). Dell's model is based on allowing consumers to customize their computer within certain overall standards.

Dell's success has spread customization throughout the industry, even bringing some flexibility to Apple's (Nasdaq: AAPL) production. Apple has traditionally taken the Henry Ford approach of "consumers will like what I tell them to like." The integration between Apple's products is very attractive, but it remains to be seen if their inflexibility will one day be a weakness. Then again, too much customization can lead to a consumer backlash against featuritis. As mentioned, battles between these business models are won and lost in different industries, but the war rages on. (For more on the Ford approach to business, read Henry Ford: Industry Mogul And Industrial Innovator.)

Shopping Vs. Browsing
Touching again on the theme of customization, there is a shift in shopping habits between brick and mortar versus online buying. Traditional retailers have long sought to make their stores as broadly appealing to the most customers possible because they want to maximize foot traffic. The idea of designing a store to meet a particular customer's taste is impractical and ridiculous. Online retailers, however, can pinpoint a specific browser's interests and design a page around them. This increases the chances of impulse buys, as anyone who uses Amazon (Nasdaq: AMZN) can tell you.

The internet has made certain types of shopping much more enjoyable and efficient when done from home. Amazon is the current leader in this area, but there are other examples. The troubles facing Blockbuster (NYSE: BBI) have a lot to do with the success of Netflix (Nasdaq: NFLX). With so many choosing Netflix's direct-to-home model, Blockbuster was forced to open an online shop while closing many of their brick and motor locations.

As of right now, the attraction of online shopping seems limited to smaller consumer items with lower prices – books, DVDs, etc. – rather than large, expensive items like furniture, appliances and cars. This may change as the more internet-savvy generations push brick and mortar retailers out. Or it just might be that people will always want to physically sit on a couch or try on a shirt before buying it.

In-House Vs. Outsourcing
One war that is clearly over is the choice between doing it in-house or outsourcing. A company or individual gets the most benefit from focusing energy in areas that provide the best return. The idea of a brain surgeon spending a week rebuilding his engine instead of going to a mechanic is plausible if that's the surgeon's hobby. As a society, however, we're best served when the surgeon performs brain surgeries – an area of specialization he is highly trained and highly paid for – and leaves car maintenance to a mechanic – an area the mechanic is highly trained and paid for.

The same is true for companies. An accountant's office benefits when it outsources carpet cleaning and maximizes the time employees spend practicing their specialty. Every company outsources to some extent. In the past, all elements of production were internal to guarantee steady supply and quality. Now, higher quality and more consistency can often be found by outsourcing. A company can take a low priority part of its business and outsource it to a company that specializes in it – that is, a company that considers that part the only priority. This shift in models has led to cheaper, higher quality goods for consumers, and better profit margins for producers.

The Bottom Line
Business models are always in flux, especially when it comes to the mechanics of production and distribution. There will always be people that argue that nothing has changed. They rightly point out that the only business model is providing a quality product or service at a reasonable price - and the rest is mere details. That said, it is how the details are handled that decide whether a company moves ahead of its competition or falls behind into obscurity.

Find out what else is making news this week in Water Cooler Finance: Everything Old Is News Again.

Related Articles
  1. Taxes

    Internet Sales Tax Vs. Brick & Mortar Sales Tax

    Learn about the differences between sales taxes and Internet sales taxes, and the goods and services that typically incur each type of tax.
  2. Entrepreneurship

    How an Internet Sales Tax Will Affect Your Small Business

    Learn about how the Marketplace Fairness Act may impact small business owners should it pass in the House and what the act requires from business owners.
  3. Investing Basics

    Internet Sales Tax's Effect on Interstate Commerce

    Find out how a national Internet sales tax could affect interstate commerce, and why some bigger online retailers are lobbying for such a tax.
  4. Stock Analysis

    Does TripAdvisor Offer Upside Potential? (TRIP)

    Will TripAdvisor's downside risk outweigh upside potential in 2016? It's most recent SEC filing offers some strong clues.
  5. Personal Finance

    Wal-Mart vs. Target: Which One Is A Bigger Threat To Amazon?

    Walmart and Target both revealed multi-year plans to grow their businesses. Which of these two retailers is the biggest threat to Amazon?
  6. Personal Finance

    Amazon Studios vs. Hollywood: Is Netflix the Better Pick?

    Amazon Studios is a relatively new division of Amazon that is trying to revolutionize Hollywood. While it may succeed, is Netflix actually the better option?
  7. Economics

    Understanding Electronic Commerce

    Electronic commerce is the buying and selling of goods and services over an electronic network.
  8. Stock Analysis

    Why Walmart's Stock Price Keeps Falling

    Learn about the factors that have led to Wal-Mart's stock underperformance and what the company's moves in 2015 could mean for its future.
  9. Personal Finance

    Is Wal-Mart the Next Amazon? 

    Amazon has recently overtaken Wal-Mart as the top American retailer. Can Wal-Mart regain that spot and crush Amazon and its expanding grocery business?
  10. Fundamental Analysis

    How Nasty Gal's Sophia Amoruso Built a Fashion Empire

    In 2006, Nasty Gal founder Sophia Amoruso planted the seeds for what would become an online fashion empire. Here's how.
  1. Does QVC charge sales tax?

    QVC, an American TV network, is registered with states to collect sales or use tax on taxable items. QVC is also required ... Read Full Answer >>
  2. Does Walmart take international credit cards?

    Foreign visitors to Walmart locations in the United States can use their credit cards issued by banks outside of the U.S. ... Read Full Answer >>
  3. Is QVC publicly traded?

    QVC, Inc., is a wholly owned subsidiary of Liberty Interactive Corporation. It is attributed to the QVC Group tracking stock, ... Read Full Answer >>
  4. How can I invest in electronic retailing (e-tailing)?

    Electronic retail is one of the fastest growing segments of the economy. Every year, more people are choosing to purchase ... Read Full Answer >>
  5. What countries represent the largest portion of the global retail sector?

    The United States and China are the world's largest and second-largest retail markets, respectively, by total retail sales. ... Read Full Answer >>
  6. How has electronic retailing (e-tailing) changed the consumer discretionary goods ...

    Electronic retailing has changed the consumer discretionary goods sector by increasing price transparency and product information. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center