Bundling and Unbundling - Two Key Strategies

17 May 2021

A brief quip at Netscape’s 1995 IPO roadshow fortold the importance of these high order strategies in today’s digital economy

One moment in the lore of internet history came during the run-up to Netscape’s 1995 IPO. Jim Barksdale and other executives participated in a roadshow to educate investors. Going from city to city, country to country, they finally come to London, the very last stop. Though exhausted, the team puts in a nice presentation. The crowd is engaged. Inquiries begin to flow from the audience. Eventually, Barksdale says “I have time for one more question.” A man in the room speaks up: “How do you know that Microsoft isn’t just going to bundle a browser into their product?”

Barksdale’s reply was something between a joke and an aphorism. “Well gentlemen,” he said “I know of only two ways of making money. Bundling and unbundling. I have an airplane to catch, so…thank you very much.”

We hear of bundling a lot these days. Sometimes the concept seems a bit mysterious or vague. But all bundling means is to combine separate things into one. Bundling becomes technical when we consider what these separate things are, whether they are truly distinct, and if so how they might be integrated together. Let’s forget about those details because they can cause us to lose the forest for the trees.

Business value creation can be said to involve two opposing ideas: making distinctions and making connections. When you hear the word “Suite” as in the Microsoft Office suite or NetSuite, you are hearing about connecting separate products. Presumably this conjunction provides more meaning and greater value than maintaining product distinctions at a lower level. A suite is a variant of a bundle.

But when Facebook buys Instagram, or when Salesforce buys Slack, or when hundreds of small companies are acquired by a few tech juggernauts, this is also just a way of combining or connecting previously separate elements. It’s bundling. Bundling at the organization level can serve to make possible a larger mix of products available to customers, often complementary ones. At other times it is a way of aggregating subscribers to feed an existing offering to a larger audience. It can allow a company to achieve network effects. We have more specific terms for a business form such as conglomerate, or a market strategy, such as vertical integration but it comes down to the same idea of connecting things to obtain some kind of business advantage.

Let’s turn our attention to the opposite phenomenon - unbundling. This trend is equally as important but less talked about. Unbundling is happening alongside bundling in the same economic sectors. The spin-off of a business, the decoupling of products, the quest to build value through specialization.

In enterprise software there exists both large suites and smaller, best of breed providers. As software has moved to the cloud, we find new entrants succeeding with narrower focus in better defined segments. CPQ was once ho-hum bills of materials and configure-to-order features of ERP packages. Now CPQ is a separate domain, an example of unbundling, even if it is (ironically) software intended to help you sell bundled products.

If only business success boiled down to a simple choice between x and y, right? Bundling and unbundling take many forms, but none are mysterious. They are powerful, high-order choices that businesses find themselves making. The real devil lurks in the details, in the implementation. In future posts I’ll get into a case or two, and see what there is to learn.