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Switchboard Model
Switchboard Model
• In order for the switchboard model to be effectively implemented, a business must be able to
offer a package of services within an industry, thus allowing all the consumers need to be
taken care of by a single company. To do this the company must create a near monopoly
within the market, meaning that any potential transactions must flow through their company,
like a switchboard, hence the name. They must also hold a critical mass in the supply chain of
the market, thus giving them dominance over the market.
• In order for this profit model to be successful the industry must have enough moving parts
that a streamlined option would be valuable to consumers. The profit for the company is
derived from the fact that it controls enough of the market, if not all of the market, that all
agents are forced to do business with them, thus giving them a key advantage for negotiating
price.
• Example - Wal-Mart. They dominate so much of the market that a producer has no choice but
to go into business with them, and in return Wal-Mart can negotiate the prices as low as they
want. They also offer everything under one roof, everything from groceries togetting an oil
change.
Switchboard Model
It is characterized by 3 aspects
One of the examples mentioned by the author is the business of bringing of set of actors,
musicians, etc to a recording studio and providing a platform to come up with a TV Opera /
Movie by bringing in Good content to the entire set up.
The actors, actresses, directors are always in need of people. Hence switchboard model
works by first bringing together and satisfy their need of great writers and stories. Thus once
the packaging and concentration aspects are taken care of, the set up is scaled so that it
reached a sustainable mass where by it can bargain with both ends of the parties
Switchboard Model – Different Types
The examples which follow these models are
• Ovitz' first step was to assemble talent; the second, to find a source of stories through a
great literary agent; and third, the creation of critical mass. In the author's words, "The
more critical mass you build, the higher your probability of putting together a package
that works. That, in turn, means that a star, a writer, or a director will be better off being
represented by you rather than any other agent, because the odds of being part of a
winning combination are so much higher. …So now the studios have to deal with you, and
the stars want to deal with you." Thus the analogy of the oldfashioned switchboard Ovitz
became that all his various contacts needed to plug into.
• The lesson, of course, isn't that simple. Predictably, much work is needed to arrive at the
numbers constituting the critical mass that is required to generate revenues seven to ten
times greater than in the traditional model for that industry. And Zhao coaches Steve
through the mental ordeal of working out how Ovitz arrived at this successful profit model
Further Diversification
Case Study
• The Charles Schwab Switchboard
How it all started
• 1971 - Charles Schwab started ‘First Commander’
• Customer-centric service-design:
• Increased profits
The Next Leap - OneSource
WHY?
• Enormous expansion in the Mutual fund marketspace
• both in investments and rising of numerous fund companies
• Caused mainly 2 problem to customers:
• Dizzying array of mostly unbranded fundoptions
• High overall transaction fee (load fee + brokeragefee)
• The transaction fee proved to be not just a financial barrier but a
psychological one
• Complexity for customers to relocate assets amongfunds
• Also Schwab focused on business model that had a floor of
recurring revenue
OneSource
WHAT?
• “There were thousands of salespeople out there selling load
funds, with huge commissions,” explains Chuck Schwab. “We
wanted to create a way for people to buy a variety of mutual
funds directly through us —have lots of choice,diversification
— in a way that they could do it conveniently and at low cost.”
• Be proactive