Friday, March 14, 2008
Companies Are Not Pimps
Perhaps the biggest problem across the economy is that our thinking is permeated by yesterday's stale assumptions.
There's a conference at LBS today - called "Monetizing Social Networks".
These poor kids. Most MBAs come to B-school wanting to do cool things - and they get crushed into thinking business is about "product" and "monetization".
It was, at least a little bit - in the industrial era.
But that was yesterday.
If there's one single lesson you apply at the edge, let it be this: business models happen.
What that really means is: we don't "monetize" resources. We co-create and co-produce value.
And to do that, we have to experiment, deeply and intensely.
Monetize is an ugly word.
When you try and "monetize your users", you accept the almost obscene assumption that people are meant to be pimped out, sold to the highest bidder, resources to be slashed, burned, and exploited.
But that's not how the edgeconomy works. Businesses need what connected consumers have to give more than connected consumers need what businesses have to sell.
Let's put that a little more formally. Monetization is ugly because it blinds us to the truth that value must flow in many directions. That's the essence of edge strategy, in fact.
That's why businesses that aren't deeply, durably connected to people are already falling apart (hi, Facebook, Gap, and Microsoft).
Just ask yourself: how many
firms industries has "monetization" already killed?
Couldn't agree more. Provide a valuable service and the financial value will follow.
I've been reading and commenting on this blog for a couple of months now and I'm really pushing myself to think more on the 'edge' of my industry. But this latest post strikes an unsettling chord within me.
Maybe I'm just confused, but do you have something against companies figuring out how they can give value to and derive value from their customers? Or do you just disagree with the verbiage some companies use (i.e. "monetizing our users")?
If it's the latter, then I guess I can understand -- if we're going to change industries then we have to change how we think about them first. But if it's the former, then I don't quite know what to say.
I agree: ONLY focusing on the revenue model will likely doom a business to failure, however the opposite is also true. If businesses NEVER focus on how they'll make money, then they'll ultimately fail as well. So I think the key here is balance.
Create something of value for the customer first and then focus on how the customer can reciprocate that value down the road.
If I just reached an overly simplistic conclusion, forgive me, but this post just seems to be a bit over the "edge".
wayne, for me this is pointing to a deeper truth than the either/or...
energy follows intention, is how i say it, and the implications of the blog post is that the quality of one's motivation (for doing something) is the determining factor in the edge economy
I agree with you in concept, but the reality is that businesses need capital, and most capital is controlled by the old guard.
They don't invest on faith or a feel-good community. Investors need projections and estimates, hence the necessity of monetization.
Perhaps, the next wave of enlightened investors (who understand the edgeconomy) will get it. But then it will hardly be edge anymore.
it should unsettle you a bit. we're altogether too comfortable thinking that a) businesses have a god-given right to profit (they don't) and b) that it's ok to sell consumers out to the highest bidder (it's not).
it's easy to sell consumers out to the highest bidder (or lowest - hi wal-mart).
that's too often where we end up when we focus on monetization (portals, facebook, the yahoo effect, etc).
as for figuring out how to capture value - the point of the principle is that when we figure out how to capture value, we must do it in a way that doesn't destroy any value we create.
what's different about today's top-tier investors? they don't focus on monetization, but on industry economics and revolutionizing them.
you're (much) better off without investors who are fixated on "monetization", forecasts, and estimates.
finally, capital is not the scarce resource in the venturescape today - there is a a gigantic amount of uninvested cash waiting for good ideas.
i think that's a very important point - we signal a great deal regarding our motivation when it comes to monetizing aggressively (or not). and that shapes how consumers interact with us.
thx for the comments guys.
The challenge presented by "business models just 'happen' at the edge" is figuring out how to bootstrap the service until a sustainable value capture is discovered.
I was responsible for a strategic error at a recent startup because of my overconfidence that our positive energy, good intentions, and holistic views on value creation would bring success on their own.
In the meantime, I neglected basic financial and operational realities and the thing nearly blew up.
The comments here are brilliant. I especially like gregory's and Umair's clarification:
"the point of the principle is that when we figure out how to capture value, we must do it in a way that doesn't destroy any value we create."
Excellent post. Agreed...not that that matters a wit. Thanks.
This is one the deepest lines I have read in a while:
"That's why businesses that aren't deeply, durably connected to people are already falling apart "
Great post...and I will remember this.