MGMT 8805M Week 7 Business Model Case Example

The Subscription, Not the Probe: A Business Model Case Setting a Handheld Ultrasound Entrant's Model Beside a Cart Maker's Element by Element, and Arguing That the Profit Formula, Which the Incumbent Could Not Adopt Without Breaking Its Own, Carried the Entrant's Advantage

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Walden University

MGMT 8805M: Agile and Disruptive Innovation Management

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The Subscription, Not the Probe: A Business Model Case Setting a Handheld Ultrasound Entrant's Model Beside a Cart Maker's Element by Element, and Arguing That the Profit Formula, Which the Incumbent Could Not Adopt Without Breaking Its Own, Carried the Entrant's Advantage

The Claim

Pocketsound's advantage over Brightwater Medical Imaging lies in its profit formula, a low device price with a yearly subscription, which Brightwater could not copy without cutting the capital sales and service contracts that fund its business.

Two Firms in Brief

Brightwater sells cart-based ultrasound systems at $40,000 to $180,000, with service contracts costing about a fifth of the purchase price each year, and earns gross margins near 60% on its core products. Pocketsound sells a handheld probe at $2,000, with software sold by subscription at $400 a year per user, and reached about $90 million in revenue in 2025 at a gross margin near 45%.

The Models Side by Side

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The four elements follow Johnson et al. (2008), who broke a business model into four interlocking parts (what the customer is offered, how the firm earns money from it, and the resources and processes that deliver it) and argued that the parts must fit together.

Table 1

Business Model Elements, Pocketsound and Brightwater, 2025

Why the Profit Formula Decides

Brightwater could build a handheld; its engineers have the skills. What it cannot do easily is sell one on Pocketsound's terms. A $2,000 device with a subscription would compete for the same budget lines as its $40,000 emergency carts, and the subscription would replace service contracts that currently earn its highest margins. Every handheld sold on Pocketsound's model would reduce Brightwater's revenue in the year it was sold. Teece (2010) argued that a business model describes how a firm delivers value to customers and converts payment into profit, and that models are harder to imitate than products because they involve many interlocking choices. Brightwater's choices were set decades ago around capital purchasing.

Choices and Their Consequences

Casadesus-Masanell and Ricart (2010) described business models as sets of choices and the consequences that flow from them, some of which reinforce each other over time. Brightwater's high price funds its on-site applications specialists, which make its systems usable for complex scans, which justifies the high price. That cycle is strong in radiology. In emergency departments, where users need little training, it turns into a cost the customer does not value, and the entrant's subscription cycle, low price leading to wide adoption leading to recurring revenue, runs unopposed.

Features Were Not the Cause

It is tempting to credit Pocketsound's guidance software or its image processing. Those features matter, but Brightwater introduced comparable guidance on its emergency carts in 2023 and still lost share in that tier the following year. A feature can be matched in a release cycle; a profit formula cannot be matched without accepting lower revenue.

What Brightwater Has Already Tried

Brightwater's responses so far show the profit formula at work. In 2023 it offered emergency departments a leasing option for its smallest cart at $1,100 a month, which brought the cost per year close to a few Pocketsound subscriptions for a department. Few departments took it, because a lease still required a capital approval and still placed one machine in one room, while the handheld put a probe in each physician's pocket. In 2024 it bundled extra service hours with cart renewals, which raised the value of its own model to existing buyers but did nothing for clinicians who had never used a cart. Each response stayed within the capital-and-service formula, and each left the entrant's formula unchallenged.

What Brightwater Could Do

Brightwater could launch its handheld under a separate unit with its own profit formula, as the earlier portfolio brief proposed, accepting that the unit will take revenue from its own carts. The alternative is to defend the higher tiers, where its model still fits, and accept losing the lower ones.

Limits

Pocketsound's figures are estimates from industry reporting. If its subscription retention is lower than assumed, its model may be weaker than it looks.

References

Casadesus-Masanell, R., & Ricart, J. E. (2010). From strategy to business models and onto tactics. Long Range Planning, 43(2-3), 195-215. https://doi.org/10.1016/j.lrp.2010.01.004

Johnson, M. W., Christensen, C. M., & Kagermann, H. (2008). Reinventing your business model. Harvard Business Review, 86(12), 50-59.

Teece, D. J. (2010). Business models, business strategy and innovation. Long Range Planning, 43(2-3), 172-194. https://doi.org/10.1016/j.lrp.2009.07.003