Companies innovate through bundling and unbundling. Coined by Jim Barksdale, the concept is simple. Companies create a bundle when they combine a set of previously separate products or features. The iPhone bundled a web browser with a music player. Conversely, unbundling breaks a product up and delivers a superior single piece. iTunes unbundled the album by selling individual songs. From the consumer perspective, it’s about what features are combined or separated horizontally.
Something analogous happens vertically. A single company can deliver a product from start to finish. Think of a corn grower, who plants, grows, and harvests their crop. Alternatively, a product’s supply chain can be broken up into an ecosystem of specialized firms. Think of all the companies involved in creating a new toaster.
Companies make leaps by bundling and unbundling. Similar dynamics carry innovation through supply chain integration and fragmentation.