The notion of value creation and capture is a core component of business and the models that drive it. While historically viewed with a traditional product mindset, several emerging forces will alter this basic tenet of business. At its core, the way businesses create and capture value will change – the degree of change ranges from transformative to historical. The last several posts focused on the historical – namely Jeremy Rifkin’s view that we are heading towards A New Economic Paradigm. The foundation of Mr. Rifkin’s argument is a Third Industrial Revolution (TIR) platform that takes the marginal cost of production to near zero. Enabled by the Internet of Things, this General Purpose Technology (GPT) Platform could alter our landscape more dramatically than previous GPTs (steam-locomotive-printing press, electricity-auto-telephone). What happens to value creation and capture in a near zero marginal cost scenario?
At the heart of this value discussion is the Internet of Things (IoT). While determining the future impact of this emerging platform is highly speculative, many are providing a point of view. Some say that the Internet of Things is just another over-hyped innovation. Others believe that The Internet of Things will transform our lives, and still others like Jeremy Rifkin believe it creates the aforementioned TIR platform that spells the end of Capitalism as we know it. We lack clarity as it relates to the final disposition of the Internet of Things – but I believe we do have clarity in terms of impact in the next decade, and it goes back to value creation and capture. In this recent post on the IoT and business models, author Gordon Hui presents a visual that captures the differences between a traditional product mindset, and an Internet of Things mindset:
A mindset shift is an appropriate description for what’s required at a macro-level, across business, society, government, and the economy. The visual captures aspects of this shift, none more important than capability development in an Internet of Things world. Why? Because what that cell in the above matrix represents is a shift to ecosystem thinking. Although the context is the IoT, I’d argue that ecosystem thinking is a broader more comprehensive shift. Value creation and capture in the broadest sense is becoming a collaborative affair that increasingly involves multiple stakeholders within a value ecosystem. Managing in this world is more complex, requiring a collaborative competence that few companies have exhibited.
The distributed nature of this emerging General Purpose Technology platform shifts us from a vertical orientation to a horizontal or lateral one. This shift disrupts traditional mindsets in a profound way, as companies move from a firm-level focus to an ecosystem focus. A recent article looks at this scenario from a Business Model Design perspective. The authors point to a shift in focus from technology platform to business ecosystems and the corresponding shift from the business model of the firm, to ecosystem business models. They define an ecosystem business model as a model composed of value pillars anchored in ecosystems and focused on both the firm’s method of creating and capturing value as well as those of any part of the ecosystem. Ecosystem thinking therefore requires a company to think both about their own monetization strategy, and how their value creation allows others to generate and collect value as well. Drivers for shared value are therefore explicit components, as we move to a value design paradigm.
Is the Internet of Things an over-hyped innovation with modest impact – or a Third Industrial Revolution platform that drives the historical shift described by Jeremy Rifkin? No crystal ball here, but I feel very comfortable with this prediction: value ecosystems will be the new battleground and ecosystem thinking will determine winners and losers. The mindset shift MUST happen.
For more insight into the possibilities of a Third Industrial Revolution platform, see my previous posts.