What Is Unbundling?
Let me explain unbundling directly to you: it's a corporate strategy where a company with multiple business lines keeps its core operations and sells off, spins off, or carves out other assets, product lines, divisions, or subsidiaries.
You should know that companies do this for various reasons, but the main goal is always to create a better-performing entity or entities. Unbundling can also mean breaking apart products or services that were previously packaged together, giving you more options as a consumer.
How Unbundling Works
The decision to unbundle can come from the board of directors or company managers. If the stock is underperforming, the board might push for it to raise capital or distribute cash to shareholders.
Unbundling helps a company become a pure-play operation, which means it focuses on one core offering, making it easier for analysts to compare it to industry peers and potentially improving coverage and stock price.
Managers might opt for unbundling if they believe it will boost overall performance. This often leads to a rise in stock price. Sometimes, when one company acquires another, it unbundles by keeping valuable divisions and discarding the rest.
In certain cases, unbundling doesn't involve a full sale; the company might split operations into separate businesses while retaining control. These new entities typically have strong potential for future success.
Benefits of Unbundling
Unbundling products can help a company expand choices for consumers. For instance, if package deals don't suit everyone, breaking them apart allows customers to pick exactly what they need, potentially increasing revenue.
When a customer wants less than what's in a bundle, unbundling meets that demand directly. Whether launching new offerings or splitting existing ones, the company can experiment while monitoring market needs, reaching different consumers with tailored options.
Example of Unbundling
Consider how mobile phones and plans are no longer always sold together—that's a clear case of product unbundling in action.
In a corporate example, when a company unbundles, it might keep a stake in the new firm. Back in 2001, Cisco unbundled a division into Andiamo but retained ownership to stay involved in developing a competitive new product line.
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