There’s a famous Jim Barksdale quote that says there are “only two ways to make money in business: one is to bundle; the other is unbundle.” Barksdale first said the phrase to an investment banker at the end of a Netscape IPO roadshow when asked, “how do we know Microsoft won’t just come along and add web browsing to their product?” Talk about prescient. Barksdale’s answer is full of truth – in both directions. The key is knowing which direction you’re headed in and what is working for/against you.

When a company or industry is unbundling, it’s typically presented as “why pay for all of these things when you could just get the one thing you need?” Think of the music industry 20 years ago: after years of selling albums, the mp3 came along and unbundled it down to songs that could be individually bought/downloaded. Conversely, when a company or industry is bundling, it’s presented as rolling up features or benefits.  Think of the current music industry: after years of selling mp3s, today we have streaming services enabling playlists/grouping/sharing via a paid subscription model.

The point is that bundling and unbundling tends to have a trend (aka a direction), so we should learn to follow how markets, products, and services are bundled up and then unbundled down in order to understand our current environment. Barksdale also warned that a lack of awareness of one’s direction and the broader trends are how profits and market share are lost. Since both strategies are viable, all value propositions comes out of knowing your direction and how that stands with or against the prevailing trend.

Financial services are currently in an unbundling trend as robo-advisors (ex. Betterment), discount brokers (ex. E*Trade) and passive strategies (ex. Vanguard) bring low-cost solutions to the proverbial masses. This comes after a long trend of bundling themes like separately managed accounts, financial planning-based advice, and asset-based management fees. While the old themes and values are far from dead, holding onto them requires a modernized approach.

When we study cycles across various industries, it seems that we should seek to embrace the sentiment while making sure we align our core values with the customers we seek to serve. That currently requires having ready answers for bundling at what is likely to be a premium. Specific to finance, examples include addressing robo-investment strategies vs. personalized discretionary management strategies, discount brokerage vs. fee transparency, and fitting passive strategies or themes into an implementation plan where appropriate.

Don’t fight sentiment. These trends change over time, and we need to stay focused on where and how they are creating opportunities. The more people that attempt to fight the trend with the old “proven” marketing tools that fail to address the new environment, the bigger our opportunity is to gain share.

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