What Is An Asset-Heavy Marketplace Model?
Asset-heavy is a broad term used to describe the business model, which typically needs a lot of business assets to generate revenue.
Some advantages of running an asset-heavy business are as follows:
Full Value Capture: Asset-light business models cannot fully capture the value of a product or service, even though they enjoy low overhead costs and economic flexibility. Though asset-light models improve the value of the underlying asset, they cannot access that monetary appreciation themselves.
Asset-heavy models do not have the rapid growth of asset-light businesses, but the full value of a product or service is kept within the business after establishment. Revenue increases boost the value of each owned business and increase profit margins.
Vertical Customer Integration: Asset-light businesses utilise individual entrepreneurs or third parties to provide inventory supply. Therefore, they face limitations in maintaining high-level quality control and developing an enhanced user experience despite lowering costs and reducing work expenses.
Asset-heavy businesses have complete control over the user experience as they own and operate the entire supply chain. They can provide uniform products to their customers. This kind of detail and attention to the clientele leads to a larger market share in the longer term. Asset-heavy businesses can achieve customer satisfaction and brand trust that asset-light businesses cannot match.
Growth Fuelled By Low Interest Rates: Low interest rates serve the needs of asset-heavy business models, since when the debt comes at a higher price, any business asset limits the potential growth of slow-moving businesses.
Fly-Wheel Cycles: Asset-heavy businesses have a large pool of assets that generate revenue after reaching a scale. The overall collection of assets can absorb the short-term distortion if one asset stops generating value due to a breakdown or any other reason. Financial institutions offer more attractive interest rates to a diversified business since they find them less prone to risks.
Asset-heavy businesses have a growth advantage since access to additional credit and debt at better rates slashes the business costs. Customer demand goes up with lower company costs, translating to lower pricing. An increase in profit and scale compared to the competitors establishes a positive fly-wheel.
Why Are Businesses Choosing Asset-Light Over Asset-Heavy Strategies?
An asset-light business model focusses on minimising ownership and investing in physical assets. Businesses can operate with less fixed costs if they outsource or lease assets. The following is as to why some businesses choose asset-light over asset-heavy:
Increased Flexibility: Businesses can easily adapt to changing market conditions and customer demands by reducing the amount of physical assets owned. If a business wants to scale up quickly, it can do so without selling excess assets. This flexibility allows businesses to be more responsive and agile, giving them a winning edge in the fast-paced business environment.
Room For Innovation: Businesses can allocate more resources for R&D, experimentation and innovation by reducing the burden of managing physical assets. They can then differentiate themselves from competitors and drive growth by leading to the development of new products, services or business models.
Cost Efficiency: Maintaining and operating physical assets can be expensive, especially when considering depreciation, maintenance and storage. A business can partner with a logistics provider to handle transportation needs instead of maintaining a large fleet of vehicles. Through this, it can focus on its core competencies and save money.
