Unbundling: Definition, Process, Benefits, and Example

What Is Unbundling?

Unbundling is a process where a company retains its core businesses while selling off, spinning off, or carving out assets, product lines, divisions, or subsidiaries.

Unbundling aims to create a better-performing company and may also involve offering products or services separately that were previously bundled together.

Key Takeaways

• To improve operations, a company may "unbundle" by selling off assets, product lines, subsidiaries, or divisions.
• Unbundling may also involve offering products or services separately that were previously bundled together.
• If a company’s share price is performing poorly, the board of directors may call for unbundling to raise capital or distribute cash to shareholders.

How Unbundling Works

The decision to "unbundle" may be made by the board of directors or company managers. It can be prompted by poor stock performance, the need to raise capital, or the desire to distribute cash to shareholders.

Unbundling allows the company to focus on its core offering and be easily compared to industry benchmarks. It can improve analyst coverage and stock price.

Management might call for unbundling to improve company performance. When this happens, it often leads to an increase in the company’s stock price. Unbundling can also occur when a company acquires another company for specific divisions and decides to discard the non-relevant parts of the business.

Unbundling doesn’t always involve selling off bundled products. Sometimes, it means splitting operations into different businesses while maintaining control over each one. In these cases, the newly-formed companies have great potential for success.

An example of product unbundling is seen in the mobile phone industry, where cellphones and cellphone plans are now offered separately.

Benefits of Unbundling

Unbundling allows a company to expand options for consumers. By offering individual products instead of bundled deals, companies cater to the specific needs of their customers. This can lead to increased revenue and a larger customer base.

Unbundling also provides customers with more choices and helps businesses reach different consumer segments. It can lead to increased revenue in certain cases.

Example of Unbundling

When a company unbundles, it may retain a significant ownership percentage in the new firm(s). For instance, in 2001, Cisco unbundled a division that became Andiamo but retained some ownership to participate in developing a new product line that would offer a competitive advantage.