Blades and Razors / Razors and Blades

Posted by: Josh Walsh in Entrepreneurship.

Back in the 1890′s the Gillete Safety Razor Company, now a part of Proctor and Gamble, created a new business model commonly known as a Blades and Razors model.  They invented a razor with a replaceable blade, so that the expensive shaver  would not need replacing as often as it had.  The main shaver would last a long time, and the smaller razor blades would be replaced rather than sharpened.

The pricing model was new.  They began selling the shavers at low prices, actually losing money on each one they sold.  The blades were sold with high profit margins.  In the long run, they were highly profitable.

The video game business has used this same model for years.  Microsoft sold Xbox 360′s at a loss knowing that they would sell millions of games at huge profits.

Portable Music Players

When we think about MP3 players we automatically think of iPods, but that wasn’t always the case.   The Sony Walkman came to market in 1979.  While not an MP3 player, it certainly paved the way.  In 1998 I bought my first MP3 player, a Diamond Rio.   A few years later I bought a NOMAD, by Creative Labs.  It was huge, with 6GB of memory, it held my entire library in one hard-to-use device.

Apple was it’s own strongest competitor.  It took 4 generations of iPod’s before it finally reached it’s Tipping Point (Malcolm Gladwell).  It wasn’t the overnight success that it Apple wants us to think it was.

Apple Did the Opposite

Apple became remarkable in this space when it opened the iTunes store.  Now you can fill your iPod to the brim with music you love for very little cash.  It tipped the blades and razors model on its head.

Apple uses their superior design and market share to sell their device at huge profits.  Then they sell content for the device at tiny markup percents, counting on high volume to carry them.  Tens of billions of songs later, I would say they have been successful.

Would the same be true if the device cost $50 and the songs were $5 a piece?  Of course not.  In the razor business, the blades are proprietary.  In the music business, iTunes has to compete with Amazon, Walmart and others.

You can be successful mimicking the business models of other businesses, but you can be remarkable by spinning your own model.