Bundling and Unbundling

What is it?

Bundling is the integration of a number of features, services and accessories into one purchase.

Unbundling is the separation of these components out into separate purchases and options.

In general, products are bundled at the beginning of an industry lifecycle. No viable market for selling complements exists and no ubiquitous standards have been set, so new start-ups have to include everything the customer will need in one purchase.

As the products and industry mature, opportunities emerge for specialist to focus on the part of the bundle where they have a competitive advantage, and leave the rest of the bundle for other products and companies.

Before digital media, the new business was bundled. Driven by the economics of physical paper delivery, newspapers had to appeal to the widest audience possible, and so bundles sports, local news, breaking news, business, classifieds, politics, cartoon ans opinion together into one product.

The internet changed all this. Distribution was now free globally, but global competition was only a click away. Barriers to entry fell, destroying the profitability of the old newspaper model. Only the very best specialists in each area are able to carve out profitable niches, unbundling the old news industry.

When is it useful?

During strategic analysis, ask yourself 3 questions:

  • What is currently bundled that could be unbundled?
  • What is currently a separate product or service that could be absorbed?
  • How will bundling and unbundling lead to different future industry scenarios?

An Example?

When you buy a mobile phone, you don’t just buy the hardware. You buy a bundled product, that includes:

  • The hardware
  • The operating system
  • Some pre-installed apps
  • A subscription contract to a mobile network
  • Accessories like charger, cable, protective cover, earpieces
  • Access to app stores
  • Online/paper manual
  • 12 month guarantee

B2B example: An automotive company buying drive train components buys a bundled product including:

  • The components
  • Design and development engineering services
  • Inventory management service
  • Technical support on the assembly line
  • Ongoing warranty
  • Parts contract

How-to tips

You can predict bundling and unbundling by looking at the changing economics of joining products together or separating them.