Book – Matchmakers: The New Economics of Multisided Platforms

matchmakers.pngYes, it is completely correct, I do not remember anything related to multi-sided platforms in business school curriculum several years ago. The book gives an excellent explanation of business principles behind the phenomenon.

Though the discussion of platform externalities and negative network effects are common, and the Book – Platform Revolution has an Glossary.pngexcellent description, Matchmakers emphasizes the economic reality of the multi-sided platforms.  Book site includes a convenient glossary of industry terms.

Interesting: a platform relaying on advertisement has three sides (producers, consumers, and advertisers).  Microsoft Windows is a platform that connects computer manufacturers, app creators, and app users, where Microsoft Office is the most popular apps.  However, when Microsoft tried to find producers for X-box console, the search was unsuccessful as game console is the subsidy side of the platform.

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opentable.PNGOpen Table initially tried to attract “eye balls” in general, and the strategy was unsuccessful.  The company signed up many restaurants, but not enough in one market to become attractive for the consumer.  The company changed its approach, and concentrated on specific markets to generate enough restaurants to be attractive for the potential diners.

BrightCove was conceived as a platform, but the approach was unsuccessful, and company changed its strategy.

Multi-sided platforms need to be designed to encourage participation from different sides.  For example, money-sending platform would charge more for sending money to a person who was not signed up than to a person who was signed up.

Book – The Content Trap

content.pngVery thought-provoking book that asks the reader to questions some of common industry assumptions.

The author suggests that we overestimate the value of content; successful companies excel not because of the quality and uniqueness of the content they produce, but because the content facilitates connections between customers.  However, companies should not rely on best practices that might be beneficial for other organizations, but need to find their own approach and use content to help their customers connect in a way the most beneficial for the company’s objectives.

Interesting: the decline of newspapers may not have been created by the decline in the readership of the content (the circulation revenue did not decline so sharply), but the decline in advertising – which has primarily “connecting” function.  As buyers and sellers were better served by online resource, newspapers lost advertisement that always supported the content itself.  news.png

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Another interesting example: comparison of Tencent and Facebook.  Though Tencent has a very effective digital currency, Facebook’s attempt to create a digital currently were unsuccessful.  Tencent might have accidentally found an application of digital currency when popular handles started to generate value in real currency.  The company makes avatars and other electronic enhancements available in exchange for its digital currency, what keeps generating interest.  Facebook’s attempt to create digital currency did not have sufficient context for the product to become popular.  As a result, these companies have very different revenue profile.

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The book explores music industry from the content perspective in useful and also entertaining form.  The change of the musical recording format chart is particularly insightful.

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Value of format is also specific for an industry, or, maybe, even a unique product.  The popular book 50 Shades of Grey was initially published electronically, and did not reach wide audience in this format.  The book’s popularity came after the debut of its print edition.

Economist.PNGQuite interesting – and very successful – approach of The Economist: as the company’s brand have been well-known and functioned as a status brand, the company did not have to hurry to provide any unique content online, and did not need to create any additional free content.  The Economist does not credit its success to exceptional quality of content, though it promotes consistency of style.  As sufficient number of people would be happy to be seen with The Economist and not actually read it, the promotional efforts of the magazine in US were based on this nuance.  Marketing efforts were not concentrated in San Francisco or New York, but in many other less expensive markets where The Economist might have “many potential readers, but not actual ones.”  This approach saved marketing dollars and achieved desirable results.

Editorial quality experiment: readers were asked about the editorial quality of the article branded as The Economist, The Huffington Post, or unbranded.  The article was accompanied by high quality ads (Jaguar, AMEX), or simple popup ads, or had no ads at all.

  • The Economist: editorial quality of the article without ads or with high quality ads was perceived the same; simple popup ads decreased perceived quality of the article
  • Huffington Post – no difference in perception of the editorial quality of the article disregarding the presence of the ads or their quality
  • Unbranded article – any ads increased perception of the editorial quality (if anybody is advertising… the content must be worth it…)

ebay.pngAn example of an advertising approach that must also be considered by companies based on their unique business rather than a general industry “best practice.”  Ebay discovered that brand paid search advertisement brought new visitors to their site, who did not quite buy the products.  However, the ads were clicked by returning visitors, who would not need an ad, and would click on organic listing anyway.  In short term, the paid brand search advertisement’s return was negative for Ebay.  Ebay suggested that other brands might have similar results. Google disagreed based on its own research, and recommended each brand to evaluate the benefit of search advertisement for its unique business 🙂

Business strategy itself requires consideration of company’s unique position in the market and “connection” of all strategic elements.  If the company is thinking about “Content,” it needs to focus on how the content will help to connect its customers or leverage existing customer connections.

Book – Winners Dream

Winners-Dream.pngLooking for some paper at work, I saw a line of books on the cabinet with a note “take one.”  Ah, a business book by the CEO of SAP, signed by the author?  I took two!  One for myself and one for a coworker 🙂

Yes, I can be easily tempted by a free business book (much more than a free t-shirt), but this book was a pleasure!  A very inspirational story with lively characters and colorful stories takes the reader through the life and career of Bill McDermott, CEO of SAP.

SAP.pngBill’s remarkable understanding of people, extended to understanding of customers, most likely, was one of key components of his success.  This perspective matched with constantly changing world: customers’ needs changed – so should the company’s offering. The book ended with the author’s desire to share the insight and help new generations of leaders to take their businesses further.

The most thought-provoking point of the book, I thought, was ASP’s ability to develop a deep understanding of business benefits of the product, selling it successfully based on these business benefits, and not using it internally.

The irony was that, despite knowing the value of our own CRM software, we weren’t even using it.  Seriously.  People were tracking their sales status on paper…  It would have been funny – if it weren’t so unproductive.

Hm…  What is it I am “selling” and not using?

A few more interesting points from the book:

  • “A good strategy had to be easy to understand.  Some people, I believed, confused complexity with a great strategy and equated volume with intelligence.”
  • “…I had always embraced simplicity as a leader.  Not because I feared or could not grasp complexity, but because it was so easy for other people to walk away from complexity.”
  • Bill saw the opportunities to emphasize value of his product or service instead of discounts, based on customer knowledge.  As a young person running a store, he added delivery or credit, if it helped the categories of customers he observed (even trust – by treating teenagers coming to the store with respect).  He shifted conversations “from a piece of technology to productivity” at Xerox and later recognized the need of interface design to make SAP products easier to use.
  • How a technology can improve business outcome?  Xerox first color copier could not compete on quality of the color image.  It was positioned as a copier for business needs and offered to business customers “You are an investment baker preparing a big presentation…Make your argument more enticing in color… and for a lot less than competitors’ extravagant copiers.”
  • Turning around under-performing district started from realizing that people were not lacking work ethic and energy, they lacked hope.  Giving the hope (and support) moved the lowest-performing district to the top rank. “The more powerful, lasting motivator was the idea that we were all working together toward a crazy miracle.”
  • Change management:
    • “The people in our district did not fear change.  What they feared was what most people feared, which was change without well-defined expectations, change without a plan, and change without a goal.  Ambiguous change, what’s what turned people off.”
    • “People are most likely to change their minds when the world they once knew no longer exists.  A leader’s challenge, then, is to explain why the old world went away, show people what the new world looks like, and get them excited to be a part of it.”
    • SAP challenges: “…SAP salespeople were telling a technology story when we needed to be telling a business story.”  A new team was created to evaluate the company and give recommendations on its business improvement, not the technology objectives.
    • “The world is littered with a lot of companies that, when they were strong, decided not to change.  We’re not going to be one of those companies.”
  • Communication: “Anything worth communicating is almost always under-communicated.” “As much as I loved technology, especially the mobile movement, an inescapable truth was that too many people were out of practice communicating with one anther in person.  There’s no replacement for human interaction.”

Excellent book – highly recommend!

Book – Seeing What’s Next

NextFantastic book with excellent explanation of markets development.  Though the explanation may not predict what will happen exactly, it give a frame of reference and starting point for thinking about any specific industry.

A useful book summary gives a short overview of primary concepts in the book.

Disruptive and Sustaining innovation

Sustaining innovation enhances value of the best customers of currently dominant businesses, and is usually quickly pursued by the incumbents.   Disruptive innovation targets customer groups that are not “interesting” to industry incumbents.

Understanding customers

  1. Customers not consuming any product or consuming only in inconvenient settings  (non consumers)
  2. Consuming customers who are underserved
  3. Consuming customers who are overserved

Asymmetry in motivation/skills

Disruption capitalizes on asymmetries of motivation and skills. Disruptive markets start among customers that appear to the incumbent to be either undesirable or nonexistent.  The initial absolute size of a disruptive opportunity is generally too small to justify any substantial amount of investment or even management attention. Asymmetric motivation shields companies from competitive response, because their potential challengers are just not interested in fighting.

Strategy formulation: deliberate and emergent.  Deliberate – traditional process of studying markets and company’s strengths.  Emergent – retain flexibility based on market feedback.

  • Disruption is a process, not an event.
  • Disruption is a relative phenomenon. What is disruptive to one company may be sustaining to another company.
  • Different or radical technology is not the same as being disruptive.
  • Disruptive innovations are not limited to high-tech markets.

futureOne mistake innovators must avoid is to force a disruptive innovation directly into a large, mainstream market. The biggest, most lucrative customers will not initially be interested in purchasing the product because of its limitations.  Low-end disruptors are more likely to find success when they stealthily take advantage of the asymmetries of motivation by targeting customers whom existing players are happy to avoid.

Recommendations for Managers

  • puzzleThey must not feel threatened when someone counters their insights by referring to “unassailable” data. Truly unassailable data only exists about the past.
  • Theory and data must go together. Theory can help guide data collection, provide confirmation that circumstances are changing or indicators that suggest who has the upper hand in a competitive battle.
  • Everything is relative. The same innovation has very different implications for different companies.  Every company is motivated to tackle some opportunities and ignore others.
  • There is a difference between announcements and actions. Just because the company says it plans to do something does not necessarily mean it will. So signals must be interpreted carefully.
  • Choices matter up to a point. Firms do not have unlimited degrees of freedom.

Strategies for new firms:

  • better product to take incumbent’s best customers
  • low-end products to target price-sensitive customers (possibly not interested for incumbent)
  • disruptive product to target non-customers (later improve the product and possibly move up-market)

Examples:

  • Chinese company created a very small microwave, which required little energy.  Later, moved up-market.
  • Bangladesh – company recruited “mobile phone operators” to sell phone calls on the per-call basis to people who could not afford a phone themselves; with large volume, the market became very profitable.

Coursera – Surviving Disruptive Technologies

university-of-MarilandQuite interesting course with many useful examples to illustrate main concepts.  The main point of the course is increasing pace of technological change and the need to adapt to the change to… survive.  Every organization will experience change in technologies; some will survive and some will perish.  The class gives a guide on typical process of evaluation of disruptive technologies and options of adaptation.

Survivor-model

Interesting: profitable organizations with a strong brand have a “disadvantage” of their own profitability.  When the disruptive technology appears, it is difficult to make changes as the success of the company is rather obvious.  As it is more difficult for public companies to make changes (as the expectation for steady growth can create unnecessary pressure), the instructor mentioned Michael Dell’s attempt to make his company private to implement necessary changes.

Another interesting point:  successful companies are able to focus on their core strengths very well, their organization designed to be efficient and productive.  This particular approach hurts chances for their transformation – the success breeds rigidity necessary for focusing on profitability, in expense of flexibility vital for the future survival of the company.

Sunk-costs

Organizational structure also needs to change, even if it has been difficult to do for centuries 🙂

org-change

Survival guide:

  • Denying a disruption will affect you is dangerous
  • An innovation may not be impressive (at first)
  • Imagine the Worst Possible Scenario
  • Develop the strategy to survive the Worst Possible Scenario
  • Be bold
  • Change the organization (even if it has been hard topic for over 500 years 😉 )

Book – Playing to Win: How Strategy Really Works

bookWonderful book – beside major strategy advice, the book has many seemingly little recommendations that can be very useful.

The biggest advice is simple and seemingly very hard for many organizations: there are many good strategies for a specific company and market  – there is no “perfect strategy.”  However, one needs to be chosen.  Strategy is a choice… This choice need to be made – and communicated to the organization.  That is it.

  1. What is our winning aspiration? (purpose of the business)
  2. Where will we play?  (Industries, regions, intermediaries)
  3. How will we win?  (Connected with “Where will we play” – how the aspiration in the chosen “where” can be achieved?
  4. What capabilities must be in place?
  5. What management systems are required?

Interesting: The “strategy” can also be applied to an individual department of the organization, which can create its own strategy serving internal customers.  For example: P&G considered understanding of the customer as an essential strength and a competitive advantage.  The research department had its own strategy based on the company’s approach.  It outsourced all “standard” research and developed expertise in unique and industry-specific research.

Understanding of the consumer was the main strength and competitive advantage of P&G.  Razor product developer did not understand why would he need to go to India for two weeks to study shaving habits of Indian men, when so many Indian men could be found relatively close to the research facility.   After spending some time in India, the product developer changed his mind – and designed the razor specific for Indian environment on a napkin while flying back from India.  the most significant insight came from the realization that shaving environment is different – while Western men shave with the availability of the running warm water, Indian men often had only a cup of cold water available for the task.  The new razor was designed to work better without easy availability of running water.

Arguments about different approaches:  useful not to discuss approaches in general, but state “what needs to be true for this approach to be viable” – in this case the discussion is switched into a more productive route.

Communication of the company’s strategy to the organization – the clearer the better.  The strategy needs to be clear and simple for all of the company’s employees (considering that English is a second language for many people in international companies).  The strategy also need to be easy to remember for employees.

Interesting – I did not find any fear that communicating the strategy to employees can alert the competition… 😉

Think Again – why good Leaders Make Bad Decisions and How to Keep It From Happening to You

Think-Again-bookThis book fundamentally changed my understanding of the decision making. The authors explained that even highly knowledgeable and very experienced decision makers can make obviously bad decisions. Though in some cases the decisions may not look ethical, there is a possibility that the decision maker could be unaware that he or she is not objective.

Based on the research described in the book, human evolution assured that we are equipped with the decision-making system that works well – most of the time. However, there are times, when our nature is working against our own interests. We can learn to identify these “red flag” situations and use “safeguards” to minimize “red flags” influence.

Red Flags

Misleading experiences (our subconscious search for pattern in the past – pattern could be found incorrectly, but the mistake won’t be clear to the conscious mind).
Example: a proposed acquisition looks similar to several successful acquisitions made in the past; however the situation is different, what is not recognized.

Misleading pre-judgments (previous decisions that mislead current decisions).
Example: a decision made several years earlier leads the decision maker to execute the long-planned strategy when he acquires needed power; the situation has changed and the strategy is no longer reasonable.

Inappropriate self-interest (self-interest that may not be recognized consciously by the designs maker as affecting his or her judgment).
Example: an incompetent employee remains in the organization because firing the employee could create short-term difficulties for the manager

Inappropriate attachments (decision makers can be attached to people, places, or things without realizing that this attachment can cloud their judgment).
Example: a business unit leader resists a new logo consistent with the corporate image because he was personally involved into creating the previous logo

SafeguardsThink-Again-book-safeguards

Experience, data, analysis
Example:
encourage the decision maker to do additional research on the area involved into the decision

Debate and challenge
Example:
introduce a person with necessary experience to the decision team who can challenge the decision maker (if the decision maker can be challenged)

Governance
Example: create a process of decision making that would involve other people without a particular bias (however, too much process can stall any decisions – the process needs to be appropriate)

Monitoring
Example: if the wrong decision is made the error should be identified quickly; in some cases people tend not to communicate “bad news” if they know that the leader is partial to the decision – this should be avoided.

Wonderful example of applying a safeguard to counterbalance possible pre-judgments:

In one company, the CEO was concerned that his managers appeared to be anchored to the status quo. So he started the planning process by asking each manager to compose an imaginary article to appear in the Financial Times in ten years’ time describing the adherents of the current management team over the “past” ten years. The goal was to get each individual to generate creative ideas of how the business might be developed, and so provide a good platform for a debate over a wide range of options. After the exercise, one member of the management team commented that the new plan was “the first time we have had a real strategy.”

More resources are available on the book’s web site.

Wonderful book – highly recommend.