How Amazon and McDonald’s Use Bundling to Sell More of Everything
A former Google exec breaks down the biggest myths about the bundling business model
Amazon Prime. The G Suite. Netflix. Cable TV. Spotify. It may not seem like these services have much in common, but all of them are built on the theory that you can make more money selling a bundle of products rather than offering them individually. Bundling is by no means a new phenomenon—insurance companies and credit cards, for example, have used the model for years—but as the internet has enabled low-cost distribution of digital products on a global scale, bundling has become an increasingly popular business model. Why would anyone pay for a bundle of products they might not enjoy evenly, instead of paying only for the stuff they truly love? And why does it make sense for companies to sell a bundle of products at a discount when there are customers willing to pay full price for their favorite products?
Shishir Mehrotra has spent a lot of time thinking about these questions. He’s the co-founder and CEO of Coda, an online document startup that aims to compete with Google’s G Suite and recently raised $80 million in Series C funding. Mehrotra, a former Google exec and a member of Spotify’s board, authored a paper called “The Four Myths of Bundling” earlier this year, in which he digs deeply into the psychology and math behind the business of bundling. He spoke with Marker about what makes models like Amazon Prime work so well and the big mistakes companies make in deciding what products to bundle.
This conversation has been condensed and edited for clarity.
Marker: What first got you thinking about bundling?
Shishir Mehrotra: Before I founded Coda, I spent about six years at Google. For most of that time, I was responsible for YouTube. When I joined in 2008, YouTube’s future was far from clear. Google had just bought the company, and it was not obvious that it was going to be a successful business.
In our discussions at the time, there were two ways we could monetize YouTube: with advertising or with paid subscription models. YouTube was an ad-supported business for most of the time that I was there. We kept trying ideas to build a paid model, but…