Payments Innovation

Has Unbundling Lost Its Cool?

Is unbundling the future? So it would seem.

Banking is being unbundled.

Open banking, set in motion globally by a regulatory fiat called PSD2, gives licensed third parties access to banking infrastructure so that they can make their services available to existing bank customers. The intent of the regulation is to level the playing field for innovators by offering consumers an expanded number of point solutions that are different than what’s offered now by their existing bank.

Television programming is being unbundled.

Spurred on by a generation of cord cutters who decided it was better to cut and run instead of paying for 85 channels of programming to get the 16 channels that an ex-FTC commissioner once remarked consumers cared most about, content providers are unbundling their services to compete with streaming services like Netflix and Amazon Prime. YouTube, Amazon and Twitter already offer unbundled access to NFL games, and analysts say that by 2022, four short years from now, pretty much all TV networks will offer consumers the option of à la carte programming through a streaming option — something that nearly two-thirds of consumers surveyed in 2017 said they wanted.

Digital music has been unbundled since the iPod and iTunes got a head of steam in 2001.

Music is sold by the song — for those who still buy digital music — but more likely those songs are streamed, one song at a time, from services like Spotify and Apple Music. Today, producing and then selling a bundle of songs called an album as a prerequisite to becoming a top-selling recording artist is as anachronistic as James Patterson and Bill Clinton using pencils, paper and a typewriter to write their latest bestseller.

They didn’t.

Album sales in all forms were down another 17 percent in 2017 to $169 million, compared to $939 million in CD sales alone in 1999. Album bundles have given way to a whole new bundle: the album/concert bundle. Experts say that but for Taylor Swift’s own bundle of her new album plus a concert ticket, Swift would have struggled to sell the 1.9 million copies of “Reputation” that made it last year’s top-selling album. It was concert ticket sales and endorsements that earned Swift $170 million last year, making her one of the industry’s wealthiest performers.

Newspapers have been unbundled for a long time too.

When was the last time you handed a $10 bill to the newsstand guy to buy The New York Times just because you needed your weekly fix of the Sunday Style or Sports section? Once upon a time when newspapers were making money, the physical newspaper business model was all about packaging and selling a bunch of themed sections together — with lots of advertising in those many printed pages that people were willing to wait all week to read. The theory of the newspaper bundle was that everyone who bought the paper got something that was of interest to them while maximizing newspaper profits. Today, many people, if they read the Grey Lady at all, open Apple News or Flipboard and get a selection of articles, including some free ones from the New York Times. Or they just check out articles at PYMNTS.com.

Shopping, which used to be bundled at malls, has been unbundled by the internet.

Weekends used to be defined by the ritual known as shopping: packing the kids in the car and heading to the mall to make one stop to buy a variety of things from the variety of stores there.

Not today.

Call it by whatever term you wish, but aside from those in affluent city centers, malls are either dead or dying. All of the things that stores and malls used to aggregate are available at one of literally thousands of places online, where they can be bought and shipped home, one product at a time, when and wherever the consumer’s impulse to purchase strikes.

Credit is being unbundled from the traditional line-of-credit, card-based products.

Store-based installment plans have existed for decades, but now point-of-sale credit innovators offer consumers the chance to finance the purchase of individual products in-store and online, via white label or branded solutions. Consumers are extended credit based on their ability to repay the cost of the $349 handbag on Tradesy in six easy installments over six consecutive months — not whether they are creditworthy enough to get a $2,500 line of credit with a traditional credit card issuer.

And so on.

Unbundling, experts say, is the future — the ultimate in giving consumers the choice to pick and choose products that are suited to their own needs, preferences and comfort zones. Optionality is the new norm, and consumers will take their business to those who can give them choice on their terms.

Consumers, today, have the right tools, quite literally, at their fingertips to help them find those options: their smartphones.

A study published earlier this year by USC Annenberg reports that consumers now spend 24 hours a week online; 82 percent of that time is online via a mobile device — playing games, stalking friends, sending texts and looking for things to do, places to go, things to buy.  That’s 24 hours of sheer, unadulterated capacity to use mobile devices to hunt, peck, tap and swipe for anything they might want to buy. In case you were wondering, only three hours of that online use each week is at home, and 10 hours is at the office on non-office related tasks (so much for workplace productivity). That leaves 11 hours a week online via the mobile — while mobile — where the lines between on and offline really blur in the search for that perfect anything.

All of this is the perfect recipe for a perfectly unbundled world.

All except for one thing: Most consumers often don’t really like living in an unbundled world. And really successful businesses these days are figuring out how to give consumers better bundles — not unbundles.

 

There’s Beauty in Those Bundles

Twelve years ago, I co-authored a piece with David Evans on the architecture of product offerings. It was published a year later in the MIT Technology Review.

Time flies when you’re having fun.

The product offering architecture, or POA, framework was created after examining how product bundles were constructed across a number of industries and by researching the impact of those bundles to the overall performance of those products — measured by profits and not by sales.

The POA framework breaks product design into four key strategies for creating the optimal product bundle across a spectrum for how product features could be packaged, priced and presented to the consumer:

An “à la carte” product strategy gives consumers the ability to create their own bundles from features they make available to them. Alexa and Echo come bundled with access to basic services. Adding skills from Alexa’s skill library allows consumers to create bundles of features that best suit their needs and use cases for Alexa.

A “specialization” product strategy offers only one feature. To get other features to expand the breadth of the offering in that same category, consumers must buy other features from other companies and expand the bundle themselves. LinkedIn is a networking site for professional comings and goings, but to keep up with any of the personal comings and goings of LinkedIn network members who might also be personal friends, consumers go to social networks such as Facebook, Instagram or Snapchat.

The “all-in-one” product strategy offers only the features together. Buying that product means consumers get all the features regardless of whether they use all of them. Buying a digital subscription to The Economist means a consumer gets access to everything it publishes, not just the quarterly “Technology Review” section.

The “and/or” product strategy offers a combination of features plus one or more features à la carte. This is a common cable and/or software product development strategy in which bundles of features are wrapped into the base software package, but options such as enhanced security/malware upgrades or premium stations are also offered for an extra fee.

Our thesis then, and now, is that all products are bundles, incorporating features most consumers want in that product that make it easy for them to buy and profit-maximizing for the producer to sell.

Savvy product developers, we pointed out, understand how the strategic use of features to test consumer demand can inform how innovative bundles can be constructed by incorporating certain features into the products as a standard part of that product bundle once demand matches supply chain efficiencies.

Profits, not sales, are POA’s success metric.

So is something else that’s perhaps even more relevant today than it was 12 years ago: the value of the consumer’s time.

Consumers like bundles because too much choice among unbundled features costs them time and creates uncertainty over how things might turn out when choosing among them.

And time and uncertainty can cost businesses sales, since people tend to stick with what they know, rather than buy an unbundled something they don’t know.

 

Familiarity Breeds Sales

Barry Schwartz introduced us, in his classic book, “The Paradox of Choice,” to the downside of an unbundled world with seemingly unlimited choice using his own experience when buying a new pair of Levi’s.

In the book, he describes going into the store and giving a salesperson his measurements. She then asks him the following questions about the jeans he wanted to purchase: stonewashed, acid-washed or distressed? Faded? Zipper or button fly? Straight leg or boot leg?

Just regular jeans, he wrote in the book, the kind that used to be the only kind.

At least Schwartz had already narrowed his option to Levi’s.

Today’s consumer shopping for jeans doesn’t shop for jeans; she shops for denim among dozens, maybe hundreds of brands offering endless permutations of makers, styles and finishes across any number of online and in-store options.

That’s a problem for consumers, denim producers and the stores that sell them.

Too many choices introduce risk by increasing the level of uncertainty consumers have with making a purchasing decision. Too many choices also chews up too much of the consumer’s time getting and absorbing information, comparing and contrasting all options before making one.

Which shade of faded is really just right when faded now comes in five different shades? Is the fit with my usual size in this brand of jeans the same in the same size with another brand? Distressing that produces holes, holes that have been patched or holes that aren’t quite holes yet? Will a stepped hem still be in vogue next year, and should it be frayed? Does distressed plus a frayed hem on a boyfriend style just look too messy?

Rather than experiment, I’ll buy the same pair I have now.

This endless aisle of unbundled choices may give consumers more options, but it may not optimize the one thing that consumers value more than they ever did: their time.

Consider the unbundled digital-only bank.

The anecdote to the millennial’s so-called hatred of traditional banks hasn’t really taken off as investors envisioned. Even the largest and oldest digital banks have only converted a few million customers.

Turns out that consumers, even millennials, want more from banking services then just a prepaid card that works just like a debit card product offered by their bank. Why? Because there are many other services wrapped around debit products that consumer’s value — peer-to-peer payments, bill payments, alerts, to name but a few that don’t always come “standard” with a digital banking product but do with what most banks provide with a checking account.

So, traditional banks, like Chase, are launching their own mobile/digital “banks,” which include offerings that leverage the robust set of services they have now — just tailored to a mobile-centric user, which today is nearly everyone.

At the same time, these digital neo-banks have come to realize that bundling services is the only way they can optimize their own profits and are exploring features that would make them look more like a traditional bank. Even though it’s true that most consumers have multiple financial services relationships, particularly if they have a mortgage or a car or a personal loan, unless consumers have access to a dashboard that keeps things organized, too many options requires too much of the consumer’s time to monitor and track.

It’s why consumers, as Schwartz’s own anecdote shows, often default to what they know or decide not to decide and stick with the status quo.

Or buy bundles wrapped around a value proposition that gives them a more curated set of choices that eliminate uncertainty and optimize their time.

They just aren’t called bundles.

 

A Bundle by Any Other Name

The irony of video streaming services is that they are big bundles of individual programming options from which consumers can pick. The user interfaces make selecting those options less friction-filled, and the pricing of those bundles reduces the risk and uncertainty that consumers have in worrying that they’ll run out of things they might want to watch. It’s the newspaper bundle theory on steroids, gone digital, with something for everyone.

Music streaming services, of course, operate the same way. They, too, are an enormous bundle, since a single subscription gets you access to most of the recorded music in the world. Instead of buying Taylor Swift’s latest album, you get access to all of Taylor Swift’s albums and everyone else’s. Then, if you want smaller bundles like CDs, you can get that too.

Streaming services don’t call those bundles. Instead, they call them playlists, and consumers can create their own and share them. Music streaming services offer users suggested playlists based on their music preferences and the vast library of songs available. Seventeen percent of users on music streaming platforms opt to listen to these curated playlists, up from 15 percent the year before. Spotify not only lets consumers assemble their own playlists and suggests ones that might suit them, it also lets users buy branded gear from the artists they are listening to without leaving the site. That enriches the bundle for everyone: consumer, artist and Spotify.

Embedding commerce into discovery platforms offers consumers the chance to assemble their own bundles in the context of their visit. Google Maps now offers restaurant recommendations based on where consumers are when searching — and allows them to make a reservation at that restaurant. Travel and event sites bundle related services to the event or the trip that a consumer may want to take. Wedding and parenting sites offer specialized, one-stop ecosystems where features like content, travel experiences, registries and relevant products can be assembled and reassembled based on a couple’s or a parent’s needs and preferences over time.

Online fashion sites, the good ones anyway, also recognize the perils of the endless pages of products begging to be bought. Outfit views on sites like Net-a-Porter show would-be buyers the item they may be looking for on models, styled with other items. Fashionistas can buy the skirt they really wanted, with a top, jacket, shoes and clutch — a collection of features that creates a bundle called a new outfit, makes a sale for those designers and reduces the time and risk of creating a new outfit.

Stitch Fix and Amazon Fashion actually create the outfit bundle for consumers based on preferences and past purchases and returns.

Speaking of a collection of features that come in a box, meal kits and prepared foods take the risk and uncertainty out of organizing dinner. Why spend the time reading a recipe, building a shopping list and then shopping for the ingredients and making dinner when a chef in the know has done all of the hard work by creating a bundle of the right ingredients to prepare it? Meal kits and prepared foods are bundles wrapped around convenience in a world where making dinner is often a friction-filled experience.

Walmart’s “Buy the Room” feature is a curated selection of home furnishings arranged by stylists that give consumers the benefit of a decorator’s touch without having to hire one. Consumers can see how a collection of items looks in a room and then select the items they want without spending the time themselves figuring out which lamps and accessories would look great in their living room — or wasting money on things that won’t work.

Nike opened a pop-up store in LA last week that curates training experiences with education with the sale of gear that supports those athletic pursuits. These bundles of Nike gear plus complementary services that help athletes reach peak performance give consumers access to things that a brand they trust has assembled for them to experience and buy.

Credit cards that come bundled with rewards programs show the power of that bundle too. Consumers eschew merchant-specific loyalty programs for those that come with the cards they like and use the most. Even the Bridge Millennial, the first generation of connected consumer that we profiled, said merchant rewards don’t move the needle — in fact, it ranked near the bottom of the list as features they valued most in the stores they shopped.

Amazon’s product recommendations — people who bought this, also bought that — give consumers the option to create their own bundle of related products, without the time or the risk in hunting down what other products may complement that purchase. The option to then add some of those purchases to an auto-replenishment system locks in the purchase of that bundle going forward.

PayPal’s Checkout with Smart Payment Buttons was created to give consumers a payment choice when buying cross border, while minimizing the integration requirements for merchants that want to offer that choice. In addition to the PayPal button, consumers will see their local payment method offered, instead of a long string of logos from which to pick.

I think you catch my drift.

 

Platforms as Bundlers

An unbundled world sounds great in principle, but it’s unwieldy by design. That’s not what consumers value nor what most businesses can support profitably.

In a world where consumers place a high price on their time, they also value choice — but only to a degree. Too much and it’s paralyzing; too little and it’s limiting. Businesses that feel compelled to offer an endless supply of unbundled options may end up driving consumers away by giving them more of a reason to stick with what they know rather than to take the time to sort through options that they don’t know.

In an era of unbundling, choice and unlimited options, platforms are natural enablers to creating bundles that consumers value.

Platform ecosystems give buyers the chance to discover suppliers in the context of their own needs, create their bundles from a vetted selection of suppliers and then make a purchase. Suppliers get to see what consumers value and adjust their products and strategies accordingly.

Platforms will use technology to narrow those options further and payments to close the sale. Vertical ecosystems will emerge — in fact, they already have — within existing platforms that leverage a critical mass of consumers with suppliers that offer use case expertise or products. Voice-enabled platforms will outsource the friction of endless searching for features and bundles online by making Alexa or Google do it for them. Predictive analytics will suggest features and products that become bundles, and options to replenish them will eliminate the need to find and create new ones.

Consumers can get the best of all worlds, an option without the risk or friction that an unbundled world creates for them. Businesses win by profit-maximizing the features they take to market to the consumers who really want to buy.

The platforms that enable that experience securely and without friction will win by making it possible to bundle the things that innovators have spent the last five years pulling apart.

They just won’t call it bundling. Instead, they will call it success.

Long live the bundle!

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