Unbundling Definition, How It Works, Benefits, Example


Investopedia / Paige McLaughlin

What Is Unbundling?

Unbundling is a process by which a company with several different lines of businesses retains core businesses while selling off, spinning off, or carving out assets, product lines, divisions, or subsidiaries.

Unbundling is done for a variety of reasons, but the goal is always to create a better-performing company or companies. Unbundling may also refer to offering products or services separately that had previously been packaged together.

Key Takeaways

  • To improve its operations, a company may “unbundle” by selling off assets, product lines, subsidiaries, or divisions. 
  • Unbundling may also refer to offering products or services separately that had previously been packaged together.
  • If a company’s share price is performing poorly, the board of directors may call for unbundling to raise capital or distribute cash to its shareholders if they believe the process will help improve its performance.  


How Unbundling Works

The decision to "unbundle" may be called for by the board of directors or by company managers. The board of directors may call for it if the company’s stock is performing poorly, the company needs to raise capital, and/or the company wants to distribute cash to shareholders

Unbundling might help the company to become a pure-play for analysts to evaluate. This means focusing on a core offering and can be compared easily to comparables in the industry for benchmarking. This might improve analyst coverage and stock price.

Management might call for unbundling if it thinks the result would help the company perform better. When the board or managers call for unbundling, it often improves the company’s stock price. Unbundling might also occur when one company purchases another for its most valuable divisions but determines it has little use for other aspects of the business.

In some cases, unbundling doesn’t mean a company has sold off its bundled product line, division, or subsidiary. It could mean it has split operations into different businesses while still maintaining control of each business. When this type of unbundling occurs, the newly-formed companies usually have a great opportunity for success in the future. 

A great example of product unbundling is the trend in the mobile phone space where cellphones and cellphone plans are no longer packaged together. 

Benefits of Unbundling

Product unbundling may be beneficial for a company looking to expand options for its consumers. For example, a company may offer package deals on products at a discounted rate, but finds not every consumer benefits from the package. The company will decide to unbundle these products to give its customer base a larger selection of items that meets the needs of the consumer. 

When a customer wants less than a bundled package deal, the company may unbundle to meet the needs of the consumer. Whether the company is planning to launch a new offering or unbundle packaged products, it may see an increase in revenue by offering its consumers more. The business may continue to experiment with its unbundled products, while still analyzing its market on recently-bundled products or new offerings based on the needs of the customers. 

Unbundling your products or services offers more choices for your audience by splitting them into multiple offerings tailored to meet the needs of your audience. This helps a business reach different consumers by offering just what they want. Unbundling can also increase revenue in certain cases.

Example of Unbundling

When a company unbundles, it may maintain a significant percentage of ownership in the new firm(s). In 2001, Cisco unbundled a division that became Andiamo, but it retained some ownership because it wanted to be involved in the development of a new product line that would give it a competitive advantage.

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