Why Nespresso is the Next iTunes

When you look at how Apple completely disrupted the music industry with the introduction of the iTunes digital music store back in 2001, it's natural to ask: Which other companies or brands are capable of such wide-scale disruption? My current pick is Nespresso - and not just because I recently purchased a super-cool Nespresso Essenza espresso machine at Crate & Barrel.

Look at the structural characteristics of Apple iTunes -- and it's easy to see why Nespresso is on its way to becoming the next iTunes. Apple fundamentally created a "closed" system in which digital songs would only play on Apple devices (just try to transfer songs into or out of iTunes!); radically changed the way we think about buying music (a la carte, 1-song-at-a-time for $0.99); and created a "boutique" experience around the product ecosystem (the Apple stores with their Genius Bars and live events). On top of all that, Apple overlaid the impossible-to-define "hipness" quotient over the entire music experience.

Now, compare that to what Nespresso is on its way to replicating within the coffee industry. First of all, Nespresso has created a "closed" system where special Nespresso capsules are required to brew espresso - and these are only available online via Nespresso or at one of a handful of boutique stores in America. These capsules are not usable in any other coffee machine. Secondly, Nespresso has absolutely crushed it when it comes to the single-serve coffee market. Each capsule brews one cup at a time, and that's it. You buy little boxes of capsules on an a la carte basis. Thirdly, there's the growing network of Nespresso boutiques (two in New York City, one in Chicago, and several more planned around the U.S.), where Europhiles cluster around to drink really expensive espresso and then shop upstairs in a minimalistically elegant area. Finally, there's the whole Nespresso branding campaign that is centered around creating a new "coffee culture," complete with its own language and lingo ("grands crus" for coffee, anyone?).

Now, if you'll excuse me, I'm off to brew a capsule of Arpeggio.

Comments

[Doug Golden]

Great points!

While I agree with your analysis that Nespresso and iTunes have similar business models, I'm not as confident that Nespresso is the next iTunes. What you describe is business as usual for Nespresso. I've had my Nespresso machine for about five years and they haven't fundamentally changed their business model since then.

For me, I'd be interested in understanding what Nespresso needs to do to reach the tipping point in the U.S. Any thoughts?

Enjoy your new Nespressomachine!

[Dave Cunningham]

Interesting post and analogy. Has Nespresso really killed it in the US with their single cup system though? I can see they have in Europe (France at least) when I visit, but isn't Keurig pretty big here in the US? I do think Nespresso's boutique experiences are an edge for them. I feel like a coffee now..;)

[Alex Osterwalder]

Thanks for this post. I find both business models, Nespresso and the iPod, amazing. Both have shaped industries. However, besides being a closed system both business models have relatively little in common.

* In the iPod/iTunes b.model hardware is the main revenue generator. For Nespresso it's not the base hardware that generates substantial revenues (i.e. the machine), it's the pods.

* The iPod/iTunes b.model is a platform through which third party content flows. First it was music and then apps. With the appstore Apple has become an intermediary with a dominating platform. Nespresso is not an intermediary.

* When Nespresso's patents expire it will have a problem with protecting its closed system (which is already happening because of "holes" in the patent - Sara Lee launched the sales of Nespresso pods). Apple also has many patents, but it's protected by its platform dominance.

Try to sketch out both business models with the Business Model Canvas and you'll clearly see how different the business models are ;-)

http://www.businessmodelalchemist.com/2010/01/mapping-business-models-a-knowledge-game.html

Best, Alex

[Dominic Basulto]

Dave, Doug, Alex: Great points about Nespresso and its business model. The single-serve coffee market is the fastest-growing coffee segment in the U.S. (triple-digit year-over-year growth), so it's not surprising that a lot of major brands are looking for entry points: http://on.wsj.com/dk2EUE Will be interesting to see if the new Nespresso boutique stores and massive marketing push will be enough to "tip" Nespresso in the U.S. market

[sarah]

i don't know if Nespresso is the next iTunes, but it definitely has a shot, especially nowadays, when the appetite for coffee has developed so much, that it has become kinda of a culture.

[itunes library cleaner]

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