Here are some of the key principles from Dr. David Collis:

1. The way companies perceive and utilize strategy has not been fully transported to the modern era of businesses. There is still enormous value in learning the basic ideas of Classic Strategy, but it is easy to fall in the rumination trap of value capture alone. A Strategy playbook for competitive differentiation or change management cannot merely be a cure-all diagnosis. The Opportunity Set or the shift in the external environments gives cues on restructuring the firm’s functional elements to adapt and create different types of value.

“There is an existing strategy. You don’t change the strategy, but you change important aspects of the activities of the firm.” – Dr. David Collis

2. The downsides of value creation through digitalization also has its opportunities. The biggest problem and concern for companies who undertake digital transformation and platforms is data privacy. There are questions about the possibility of splintering trust among consumers with data collection, but companies can decide on the limitations on what they share in their ecosystem.

A way to view how data sharing could benefit a collective is through healthcare. It is reasonable for customers to be apprehensive about sharing symptoms and treatments, but through data sharing, there have been significant improvements in prescribing, treating, and diagnosing life-threatening diseases.

“I think that consumers are also smart and they say, ‘Look, there is a benefit that I can also gain from that or everybody else can gain from that.’ It’s what we call first-party data.” – Erich Joachimsthaler

3. Value has three types: Value Creation, Value Capture, and Value Realization. Value capture has been in the spotlight for decades in strategy but strategizing for all three types of value leads businesses to success.

• Value Creation is building your new business models and sustaining it to have a competitive advantage within the ecosystem.
• Value Capture is creating a strategic industry resilience and its profitability within the competitive landscape.
• Value Realization is answering how the company’s offering would be worth to customers through designing administrative and innovation initiatives.

“Is Tesla going to be worth anywhere close to its current value? I would say no, but you get that by looking at the complete landscape of value creation, value capture, and value realization. You have to look at all of them to be able to come up with judgment, and it is a judgment about the potential value of a Tesla.” – Dr. David Collis

Strategy Redefined:

• Out with the old, in with the New Strategy: The basic principles of Strategy are still relevant foundations, but what might have worked decades ago cannot be applied in modern times. In the growing platform economy today, building new business models within the ecosystem, designing the company’s activities, and generating for avenues of value are the more effective Strategy practices.
• Increase the Shareholder pie, not the share of the pie: The traditional way of looking at Strategy is providing a share of the company to stakeholders. Maximizing the stakeholder value through value creation provides more universal benefits while still serving the shareholders.
• Plan for the three types of value: Value creation, value capture, and value realization allows companies to build resilience through different perspectives and scenarios. Focusing on just one type of value will only solve short-term obstacles.

Conclusion

Strategy is anything but stagnant and concrete. Strategy needs to acclimate itself as businesses shift to platform models and develop innovative business models. Looking into value creation, value capture, and value realization will support enterprises mature into the modern competitive landscape. 

Watch the full event here:

• 6:05 – Two ways of getting a competitive advantage 
• 7:43 – Value in classic strategy 
• 8:09 – Strategy: value creation, value capture, and value realization 
• 10:0 – Why Strategy has not been helpful in modern business models 
• 12:00 – Continuous adaptation is not in traditional strategy 
• 12:48 – False dichotomy in strategy 
• 15:00 – How Burger King has changed 
• 17:15 – Direct value creation 
• 19:22 – Ecosystem value creation through Kamatzu example 
• 25:52 – Shareholder value and share of the pie 
• 32:00 – Addressing problems in digital value creation  
• 31:58 – How data collection in healthcare is useful and first-party data 
• 36:38 – Walkthrough of how Tesla goes through the three types of value 
• 40:06 – Three types of value definitions 
• 42:25 – How can companies start value creation?  

This segment was part of The Interaction Field Series of our LinkedIn Live Events. Please connect with us on our LinkedIn page to stay updated with our upcoming conversations.

The post Bringing Strategy Back To Life with Dr. David Collis appeared first on Vivaldi.

In July, our CEO Erich Joachimsthaler spoke with ETBrandEquity.com to break down the new rules of branding in a post-COVID world. He also discussed the importance of creating shared value for everyone, rather than exclusively for customers. Read the full article here.

The post Is Your Brand Ready for the Post-COVID World? appeared first on Vivaldi.

We all live in an interaction field. When waking up in the morning, most of us check the mobile phone first (about 80 percent of us).[1] Whether you only look up the weather or you go over to LinkedIn or flip through Flipboard to read the morning news, or if you move over to Google and search or check the Dow Futures for the day’s expected swings in the stock market, you generate data about your every move. Your weather app connects to the Nest network that regulates the temperature of every room in your house and sends an alert to the electrical company and other providers who advise you to improve utilization or conserve energy.

As you go through the day, you leave a trail – a digital trail – that consists of data. If you drive a Tesla, 8 video cameras, 12 ultrasonic sensors, and a front radar will track your driving. The toll booth records your time, and when you stop by the grocery store, a geofence captures your arrival. The Starbucks nearby readies your favorite latte as you approach within a few hundred feet based on your mobile phone location – no need to wait in a queue or even pay, just drive up and get your daily fix.

I call this digital trail “interactions.” I see an entire field of interactions, a world of hyper-connectivity where everything connects anywhere and anytime. I don’t mean that we are being tracked and we all should be worried about our privacy now. No, I mean we quickly approach a world where everything connects – companies, brands, consumers, and things. As Douglas Rushkoff says, “We don’t ‘go online’ by turning on a computer and dialing up through a modem; we live online 24/7.” [2]

And it is already happening because of technology. An example is the Internet of Things (IoT). IoT is the technology that connects everything from thermostats, cars, your toaster or refrigerator, lights in your home, the alarm clock, or your Bose stereo system. Social media technologies connect people, and APIs connect different computer systems from different companies.

In the future, the physical world will seamlessly merge with a fully flushed-out digital world. It is called the “Mirrorworld” by Kevin Kelly.[3] Kelly describes a future where converging technologies create a mirror world that sits on top of the physical world, the mirror world being a complete digital replica of the real world. I think this world already has arrived in parts.

In China, 1.1 billion people live and work on the WeChat app. Oh, it would be ridiculous to call this an app. It is more like an operating system. Users rarely, if ever, leave it throughout the course of the day. You can do everything on WeChat including messaging your friends, buying groceries, hailing a ride and even booking a doctor’s appointment or getting married, if you wish. Its stated purpose is “to embed itself in every moment of the user’s daily life, from morning till night, anytime, anywhere.” Already today, WeChat is so interwoven in people’s daily life – you practically can’t do anything without WeChat.

If you are a company or a brand, and you want to grow your business, drive new innovation or build a brand, you need to understand the interaction field of consumers and you need to define the field that is relevant for you. It does not matter whether you are in the grocery business, the fishing business, if you sell laptop computers or accounting software, or if you provide tax services in Deadwood, South Dakota. Yes, there are people living in Deadwood. Here are a few things that I would consider:

Framing the Interaction Field

The first question to ask yourself is, “what am I solving for? What challenges am I solving, and what frictions am I removing in the lives of consumers? What jobs are to be done? What pain points really matter today and over time to consumers and society at large?”

It isn’t helpful here to start thinking about your products, services, or assets and capabilities. You won’t see the opportunities if you think from the inside-out.[4] Luckily, a lot of good sources exist that can help you define the right problem to solve for.[5] There is more than enough written on framing and writing a purpose. A good recent source can be found here: [6]

Define the Participants who Create Value

The next step is to define the full set of companies, brands, institutions and people who create value and solve the challenges, pain points, jobs to be done – or, shall I say, the needs and wants of consumers. I look at interactions in three ways, those in the nucleus. In a platform business model, this would be the two sides of a marketplace like riders and drivers in the case of Uber. In a traditional pipeline business, it would be the company or brand and existing customers. The next level are the ecosystem participants, and finally there are market-makers.

I also define the core interactions that create value between ALL the participants. This helps to define the relevant interaction field. If you are a company like John Deere, your nucleus consists of farmers riding John Deere tractors. They are the core participants. In the ecosystem are participants like crop manufacturers or fertilizer companies that all contribute to the job to be done – to increase the profit per acre of farmland or to reduce water usage. But there are also market-makers who influence value creation in the field – both the actual land and the interaction field. The Department of Agriculture strongly influences it, as do other participants in the food chain including consumers like you and I with our nuanced food preferences, the retail trade and food companies.

Make it easy to participate and share

In this step, I look at technologies and other ways that enable interactions and in particular the frequency and quality of interactions. It is very important to understand how interactions create value, which participants create value and how value is not just captured but shared out to the larger interaction field. GoPro is a camera company that helps amateur surfers make videos of their exploits on the water much like pro surfers do (hence the name GoPro). It invested significantly in technologies that makes it incredibly easy to capture, edit and share videos on the GoPro channel and all major social media networks. Today, the GoPro channel has one of the highest levels of engagement, participation, and interaction among social networks. The higher the frequency and quality of interactions, which I call velocity, the more the participants in the interaction field benefit – everyone shares, and everyone benefits.

Define the value that can be created and how it can be shared

To maximize the interaction field, it is necessary to determine how the interactions in the field create value and how everyone benefits. This requires understanding the role of network effects, viral effects, and learning effects. It is a difficult challenge. This also requires defining proper governance mechanisms between the participants. MoviePass is an example that failed because its service benefited moviegoers but not movie theaters. At $10 a month for a relatively large number of movies, it was a deal too good to be true for frequent visitors, and for participants who ran concessionary stands, but theater owners had lower admission revenues. This is called “negative externalities” and is a good example of a flawed governance mechanism.

Ultimately, the entire system – the interaction field that you choose to build, manage or orchestrate, needs to benefit everyone including companies or businesses, customers and society. It’s about shared value, not just shareholder value.

Conclusion

If we understand the relevant interaction field where a company or brand seeks to create value, we have a much better foundation to solve some of the challenges, problems, and jobs to be done that matter today. There can be goodness in digital, in data, analytics and technology. Interaction fields don’t pigeonhole consumers into segments. They don’t create artificial boundaries or barriers between categories or industries to build monopolies and protect or preserve them. Interaction fields transcend these groupings or clusters of same products or services and set the sights on the interactions that create shared value for everyone.

If you are interested in more information about this approach, please feel free to contact us.

The post We All Live in an Interaction Field appeared first on Vivaldi.

Brand purpose is on everyone’s mind and it has been like that for over a decade now. And there are only two sides you can take. You either think and believe it is a lot of baloney or you believe in the purpose of brand purpose. Evidence abounds that make both sides’ positions and argumentation valid and many times laughable. I love to read about the latest news or quibbles on brand purpose because it always is, in some ways or another, rather thoughtful or rather amusing, or both.

Reading about brand purpose sometimes makes me think of reading a few paragraphs from Marcel Proust’s monumental tome In Search of Lost Time, and his description of the childhood experience of tasting an ordinary madeleine. And so it is with brand purpose. Purpose is so obviously important for any business, just like the daily ritual of dipping a madeleine in tea in France. Yet, the writing on purpose takes on different proportions and qualities, weak efforts of being a bit Proustian, with authors waxing on forever, touting its importance and relevance for our times.

Brand purpose is in a crisis of gargantuan proportions.

There is no need for me to dive into my own opinions on brand purpose or which side I come out; it depends on the time of the day. There is so much wonderful writing on it. The latest article that I read by Tom Roach was so beautifully written – I can only urge you to read it – “The Biggest Lie the Ad Industry Ever Told”:

https://thetomroach.com/2020/06/23/truth-lies-and-brand-purpose-the-biggest-lie-the-ad-industry-ever-told/amp/

The large Association of National Advertisers (ANA) has even launched a Center of Brand Purpose. The center has an objective and it published already a comprehensive essay on, you guessed it, the power of brand purpose for advertisers, agencies and society.[i]

The ANA research and the Tom Roach article might help solve the dilemma for you, in favor of or against brand purpose. If that does not help, you can just choose a third way to think through brand purpose. You can decide not to take sides, but to just say, “SWWC (So What Who Cares), do we really need a purpose at all?” For that discussion, you can follow Tom Goodwin, who struck that conversation on LinkedIn. See the following link, and don’t forget to review the 130 comments made by others following his post:

https://www.linkedin.com/feed/update/urn:li:activity:6683092418981572608/?commentUrn=urn%3Ali%3Acomment%3A(activity%3A6681709910360678400%2C6683092410395852801)

In my opinion, all that vivid, elegant writing and opining on the value of brand purpose is highly shaped by our own perspective – the little box we all live and work in. We write either from the brand strategy perspective or the advertising perspective; we write as consultants or as agency staffers, or as staffers anywhere in the hierarchy inside companies. One side will say that agencies should never touch brand purpose because they merely create a pithy slogan, based on a creative brief, and look at brand purpose from a communications perspective and they really don’t understand the strategy of the business – purpose is so much more.

Consultants get called out because they purport to create purposeful brand strategies, and in support of brand purpose, they cite questionable studies or surveys, or cherry-pick cases studies and anecdotes. They fill PowerPoint presentations by trotting out the traditional examples of TOMS Shoes, Unilever, or Patagonia, or a set of case studies that nobody knows about but that sound really, really good.

What I find astounding is that not a single article or opinion in the last 20 years on brand purpose has approached brand purpose from a broader systemic perspective – the perspective of shared value for everyone including consumers, companies, and society at large. No, I don’t mean a business model to sell more shoes like in TOMS one-for-one model: for each pair of shoes sold, the company gives one pair to kids in developing countries. I am also not talking about the profit with a principle business of the Godfather of purpose, Patagonia, or the company’s crusade over the years or how a large multinational company like Unilever became the Champion of the Earth and was able to differentiate based on sustainability. Shareholders rejoice.

In all of these examples, the company decides to “be purposeful,” and they do something about it, for the most part. That’s a good thing, but it makes purpose an afterthought of the business and mostly a communications exercise. The company is healthy, makes profits, delivers value to shareholders, and, well, of course, there is an opportunity of doing more, so let’s fund something that matters to society. Amazon donates 10 million dollars to support social justice and equity.[ii] Yes, we live in days and times of protests and daily demonstrations, and Amazon donates $10 million. How good of a gesture this is. Real action – not just statements of goodness from the CEO. Right? Well, remember the CEO is worth north of $100 billion. That’s what is called the “net worth” of Jeff Bezos that makes him the richest man in the world, even after his recent divorce. The company is worth over $1 trillion, one of the most valuable companies in the world. I love Amazon, but spending merely $10 million on an important cause such as social justice? Is that living a purpose? The rabid media is quick to report on the latest commitment made by the company and the announcement goes viral. The announcement has helped the Amazon brand.

The problem with this way of thinking about brand purpose is that purpose is an afterthought. Business has been good, consumers have been generous, and shareholders are happy, so let’s pour some money back into society. It is good for business and good for society.

Build an Interaction Field Company NOT a Purposeful Company

There is another way to think about brand purpose. That is to build the purpose of the brand or company in the company’s vision, operating model and operating processes – to build a purposeful business, not a business with a purpose. Here is how.

It starts with platform thinking. Platform thinking is a revolutionary new way of thinking about how markets work – how consumers, companies or brands, competitors and others, interact and create value.[iii]

The traditional way of thinking of markets is in terms of producers and consumers. Producers create value by optimizing a range of activities from procurement, design, manufacturing, branding, marketing to sales and service. The differences in the activities of competitors create their competitive advantage. A BMW becomes the ultimate driving machine or ultimate driving experience relative to Mercedes, Audi and others. The producer creates value for which the consumer is willing to pay a price. This is also called a “pipeline model” or “pipeline thinking” because a company competes by controlling and adding value along with the activities or along the pipeline or value chain. Brand purpose in this model is about adding or enhancing the company’s vision, mission, and values through a purpose. It makes brand purpose an afterthought.

The new way of thinking about markets is in terms of participants who interact to create and consume value. Consumers are not just recipients of value but active producers or participants of creating value, as are one or more producers. Value is created through collaboration, engagement, and interaction between participants.

This new way of thinking about markets gives rise to three types of business models. If there is one group of producers and consumers, the business model is typically called a “platform.” Uber is an example. The participants are riders and drivers who create value which, in turn, is orchestrated by Uber through a set of rules of governance. With Airbnb, there are travelers and hosts. A platform, in this case, is an open architecture with rules of governance designed to facilitate interactions.[iv] With more than one producer and consumers, we typically talk about a digital ecosystem.

A digital ecosystem may be defined as interacting organizations that are digitally connected and enabled by modularity, and are not managed by hierarchical authority.[v] It is a way of providing adjacent products or services by collaborating with other companies or business units. One mechanism to create value is to share data generated on the platform. Uber entered food delivery with Uber Eats, which adds restaurants as an additional participant in the Uber ecosystem, and then built out the ecosystem to include Uber Health, Uber Freight, and Jump bike and scooter sharing, for example. The data and analytics applied to the sheer number of transactions help optimize the platform and ecosystem and create value.

Digital ecosystems change the nature of competition from being firm-focused to being ecosystem-focused.[vi] Strategically, the decision is either to create an ecosystem and orchestrate it or to join an existing ecosystem. The Android ecosystem competes against the Apple ecosystem, a typical example of ecosystem competition.

A third business model is the interaction field.[vii] Unlike platforms and digital ecosystems, an interaction field is not transactional but interactional. It feeds on continuous engagement, participation and collaboration between multiple groups, not just discrete transactions such as another ride with an Uber, or another booking on Airbnb. It delivers shared value to everyone, not just the platform owners or ecosystem partners. It creates new value that solves entirely new problems; it does not just solve existing problems better or more efficiently or merely takes out frictions or pain points in commerce or shopping experiences.

These business models are three examples of platform thinking as compared to traditional pipeline thinking. What is common among these three models is that they are built through three mechanisms: interactions, architecture, and governance. If you would like to read more about these three mechanisms of designing a business, I suggest this source:[viii]

These business models build brand purpose into the governance of how the business creates value. The mechanism defines how interactions create value, how the business captures value, and how it shares out value. Sharing out value to the participants of the ecosystem or interaction field is not a single act of goodness, such as spending $10 million on social justice and equity, but it is part of the daily business operations, part of the operating mindset, and part of the operating model and process.

Brand purpose isn’t about doing something good for society; the traditional way of thinking about maximizing shareholder value and recognizing that society is also important in the end, but it is about building an interaction field company that creates value and shares out value for everyone. Everyone, including consumers, are participants of value creation and also beneficiaries of that value creation.

If we start thinking of brand purpose in terms of designing the business and its interactions in a larger interaction field properly in the first place, we can make sure that purpose isn’t only a communications exercise. I have tried to address this issue in my new book.[viiii]

[i] https://www.ana.net/miccontent/show/id/ii-ana-discovering-brand-purpose

[ii] https://blog.aboutamazon.com/policy/amazon-donates-10-million-to-organizations-supporting-justice-and-equity

[ii] The first use of the term can be found in: Sangeet Paul Choudary (2014), “A Platform-Thinking Approach to Innovation,” Wired.com, https://www.wired.com/insights/2014/01/platform-thinking-approach-innovation/

[iii] Marshall Van Alstyne, Geoffrey Parker and Sangeet Paul Choudary (2016), “Pipelines, Platforms, and the New Rule of Strategy,” Harvard Business Review, vol. 94, no. 4, pp. 54 – 62. Geoffrey Parker, Marshall Van Alstyne, and Sangeet Paul Choudary (2016), Platform Revolution: How Networked Markets Are Transforming the Economy – and How to Make Them Work for You, W. W. Norton & Company.

[iv] Michael G. Jacobides, Arun Sundararajan, and Marshall Van Alstyne (2019), “Platforms and Ecosystems: Enabling the Digital Economy,” World Economic Forum Briefing Paper, February, p. 14.

[v] Michael G. Jacobides (2019), “In the Ecosystem Economy, What’s Your Strategy?” Harvard Business Review, September-October.

[vi] Erich Joachimsthaler (2020), The Interaction Field: The Revolutionary New Way to Create Shared Value for Companies, Customers and Society, Public Affairs, New York.

[vii] http://www3.weforum.org/docs/WEF_Digital_Platforms_and_Ecosystems_2019.pdf

[viii] https://www.amazon.com/-/es/Erich-Joachimsthaler/dp/1541730518?language=en_US

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I built my work on this conceptualization of platforms.[iii] Let’s look at the three factors:

Interaction

It is the starting point of platform design since interactions are the source of value. When a GoPro surfer uploads an image or video to the GoPro site and shares it with other like-minded action sports enthusiasts, the simple transaction creates value. The simpler the transaction, the easier it is to scale the platform, but I believe that to solve many of today’s challenges, more complex transactions are necessary.

Van Alstyne distinguishes between volume and value of a set of interactions. A single internet search has trivial value but trillions of occurrences. By contrast, a single stay at Airbnb has far more transaction value but far less frequency.[iv] Without frequency, there is no value creation.

I conceptualize an interaction in terms of volume or frequency and in terms of quality.[v] Three characteristics contribute to quality: meaning, reciprocity, and value/benefit. Meaning is about the degree to which the interaction expresses the intent of the business, its mission or purpose, or its brand. Take John Deere as an example. The collection of data from a farmer is a transaction that occurs with relative frequency on farm fields today, but it is not an interaction that has a lot of meaning. However, when the data is being collected by a company like John Deere whose brand promise is to create shared business value and whose mission is to improve farm profitability, the interactions around data collection take on much greater meaning.

The quality increases as the meaning grows deeper. Deere has a mission of “serving those close to the land.” As they say, the company is for those who cultivate and harvest the land, for those who transform and enrich the land, and for those who build upon the land. In this regard, the interactions that the company enables have a good deal of meaning for farmers but also for other participants in the ecosystem. This is a company that has been involved in farming for nigh on two centuries, has a brand trusted by farmers, and is committed to goals beyond its own corporate growth and profit.

Reciprocity is about the mutuality of the exchange. Is it truly an interaction? Do all the participants actually participate? Do they take and give? When the farmer contributes data to Deere, does it share data of similar significance in return? (Yes, it does.) Or is the interaction more like a disguised transaction? For example, when I do a lot of transactions with a credit card company, an airline, or a bank, I accumulate points in what seems like an interaction. But when I take a look at what the points are worth, the amount seems insignificant and almost insulting. That is all the company thinks of me and my information?

The third attribute of interaction quality is value, in terms of the benefit to participants. An interaction might have a good deal of meaning and reciprocity but not much value. Deere, for example, might provide the farmer with a lot of information that looks interesting, but is actually generic or doesn’t have much relevance or applicability to the farming operation. The question here is, how does an interaction create value of improving farm yield?

There is also the prospect of new value. FBN, together with Deere, enables higher price transparency for corn and soybean seeds, which lowers the overall seed costs. Interactions, therefore, can create negative externalities for some participants in the interaction field. If Deere offered an electric tractor with fewer mechanical parts, this would have a negative impact on the revenue that dealers could earn by providing maintenance services. The farmer will always be calculating the value of the interaction. If Deere’s analytics enable him to reduce costs, cut the time spent in operation, or increase yield, it has value.

We must also look at value in terms of how many participants it affects. If it benefits the community, the industry or other participants in the farming ecosystem, and the society—as well as the company and the farmer—it is of higher value. The more cohesive and tightly connected or linked the interaction is—that is, the higher the number and greater the quality of interactions—the more velocity it will achieve and the more everyone will benefit from the three effects: virality, network effect, and learning.

The number of interactions increases through virality. As word spreads about the Deere offering, participants join at a faster rate and the number of interactions climbs. A large number of interactions is also essential to gaining the network effect; that is, the product or service becomes more valuable as more participants join. Finally, the learning that results from the work of an interaction field is plowed back into the company and its activities. When the whole system is thriving—the number and quality of interactions is growing — a virtuous cycle is created that keeps the field healthy and sustainable.

Architecture

Van Alstyne describes various types of architecture.[vi] There are those with a narrow versus broad focus and an open versus closed architecture. These are important tradeoffs especially when starting a platform from scratch. Van Alstyne describes the initial failure of Alibaba that started too broad but found success with a narrower vertical structure. Lyft launched in San Francisco and got traction there before it expanded in other cities.

I think of architecture in terms of three different layers since the interactions are very different from layer to layer and hence value creation is different as well. These are the nucleus, ecosystem, and market-makers.

The nucleus of participants is typically the company, like John Deere or GoPro, and the customers—anyone who contributes to the core interactions on a regular basis. The traditional company has already established a business relationship with the participants in the nucleus, which is the foundation of the interactions. The ecosystem of contributors is composed of partners in the company’s business activity. It is not uncommon that some data is shared between the nucleus participants and the ecosystem participants. Business ecosystems are built on relationships that have been established over years. An example is the supplier relationship between Bosch, the automotive electronics company, and Daimler, the car manufacturer. They have a well-established supplier-buyer relationship based on the development, manufacture, and sale of electronic components for Mercedes-Benz vehicles.

The third group of participants, or layer in a platform architecture, is the market-makers. These are entities that exert influence and enable velocity – namely, the frequency and quality of interactions. There are many types of entities that can be market-makers, and the types differ from one interaction field to another. The US Department of Transportation, for example, regulates the automotive industry and is one type of market-maker in an automaker’s interaction field. Consumers who could potentially be attracted to the platform because they want to solve their transportation needs, but have not yet purchased vehicles, are another type of market-maker. Daimler has merged the Car2Go carsharing interaction field with that of BMW’s DriveNow. Potential drivers who don’t currently use the offerings of these two companies are important market-makers. The better the merged service is positioned to pull new drivers toward it, the more velocity the field gains.

Market-makers can also be entities such as research institutes, like the Fraunhofer Institute, or university researchers who develop automotive technology. Velocity depends greatly on the market-makers. Whether they are new consumers attracted to the field, competitors, government agencies or regulators, or participants in other platforms, market-makers can significantly determine the success or failure of the company in creating value. High interaction velocity is achieved when the three elements of the field work together to create network effects, learning effects, and virality.

Governance

Governance provides the rules of who may participate, how they create and divide value, and how to resolve conflict.[vii] The success of a platform business rises and falls with proper fair governance and regulation. One of the most recent discussions on regulation that facilitates data sharing that delivers value for all participants in a platform business can be found here: [viii]

Designing a platform business requires a complex set of decisions or choices regarding three areas: first is the governance structure which is about defining the participants, the roles and responsibilities, defining decision right and powers, etc. Second is the definition of the decision-making structure. If John Deere builds the platform, should John Deere be making the decisions or should the ecosystem participants be included in the decision-making? Third is, how will the rules be enforced? Amazon has penalized many third-party sellers for their acts and deeds, for example. Sometimes these rules are reinforced automatically through bots or AI, and sometimes they are monitored through employees or third-party contractors.

Flatiron Health is an example that shows that governance be managed even in complex industries such as healthcare, where patients share incredibly sensitive information for the greater benefits of everyone. Flatiron Health is now a Roche Pharma company that brings together patients, care providers in cancer hospitals, and even competing pharmaceutical companies and regulators like the Food and Drug Administration. Over two million cancer patients, and 2,500 clinicians in 800 unique sites of care share “research-grade” data with the larger healthcare and pharmaceutical community regulatory bodies such as the FDA or the National Cancer Institute. Competitors such as 14 of the top 15 life sciences companies participate. The success of Flatiron Health has significantly cut the average years of FDA approval of new therapeutic solutions and has let to much more effective treat cancer patients. The success wouldn’t happen without a well-thought-out governance structure.

Three Types of Platform Businesses

The three factors of a platform lead to three types of platform businesses: platforms, digital ecosystems, and interaction fields. I believe platforms and digital ecosystems are transitory models. Ultimately, these models need to evolve toward interaction fields models. What, then, is an interaction field business model or company? Let me describe three major features:

First, interaction fields are interactional and not just transactional. Platforms are known to be a powerful force of competition. They build an infrastructure to orchestrate transactions between providers and consumers, between riders and drivers (Uber or Lyft are examples), between hosts and travelers (Airbnb), between buyers and sellers of books, for example.

They learn a great deal from the frequency and number of transactions. They make markets more efficient; they remove frictions and create value for customers and consumers. They are so successful in competing against incumbents, they become incredibly disruptive across a swath of categories and industries.

In New York City, where I live, driving a taxi used to be a way to make money for many immigrants. It was a way to establish a new life and earn a living as an entrepreneur. Long hours were required to catch enough fares, but there was also the value of the license or “taxi medallion.” This license would go up in value and could be sold by a driver at the end of his career, much like an entrepreneur could sell his or her restaurant, retail store, or small business after many years of labor.

If you started early in the 1960s, you could get a license for $25,000. By 2005, the license cost $325,000. Five years later, it was $600,000 and in 2013, the value was over a million dollars. Then, suddenly the price dropped by 45% over two years. By 2019, a medallion license was worth nearly nothing. In one auction, sixteen medallions were offered; three sold for less than $140,000 and 13 medallions had no bidders.[ix]

What happened? Uber and Lyft and other ridesharing platforms had come to the city. There are now about 80,000 for-hire vehicles on the road. Two-thirds are from ridesharing platforms. 13,500 are traditional medallion taxis.[x] There is now a lot more congestion in midtown New York City, and most drivers don’t make enough anymore since there aren’t simply enough fares out there. Economists call it “negative externalities.” Taxi drivers have lost their investments. If you now need to make a living in the city by driving a for-hire car, you join the gig economy. That means, minimum wage (if any at all), and no benefits, you need to take care of those for yourself. As Douglas Rushkoff writes, they turn lifelong jobs into the temp jobs for the gig economy.[xi]

Uber and the other ridesharing companies have moved on and have become digital ecosystems. There is now Uber Eats, which delivers food from restaurants, and dozens of other businesses, for example.

Platforms are about disruption. They see opportunity in frictions and inefficiencies or lack of innovation. It is often said that taxis were not innovative. The last innovation in the taxi industry was the taxi meter, which was introduced soon after World War II.

Platforms do two things when they are done with an industry. They evolve toward ecosystems like Uber, and in the process look for disruption in adjacent markets, or they move on to another market. I could tell the same story about Amazon starting with book retailing, and when that industry was kaput, it moved to other categories, one after the other. Some people say that’s the nature of business. Tough luck.

But I don’t think that is correct. Platforms and digital ecosystems can be good when they are interaction field models. Interaction field models build on collaboration and participation. They are not just transactional but interactional. An example is Alibaba. Alibaba’s mission is, “Our mission is to make it easy to do business anywhere. With our platform model, we are bringing buyers and sellers from all over the world together, and are best placed to partner with them to meet the needs of the nearly 700 million users on our platform.”[xii] Alibaba is not in the business of disrupting small retailers; they are in the business of making them efficient, removing frictions and enabling them to sell more. In China, there are 6 million small retailers, mom-and-pop shops who sell locally and operate at a relatively basic level. Alibaba offers them a retail management software called Long Shou Tong for free, which helps the stores to become more efficient, optimize the assortment, and sell more across many more parts of China.

Everyone gains; Alibaba gains valuable data from millions of small stores and earns a fee for any online sales. Hundreds of thousands of merchants also can now sell their millions of products locally. Alibaba builds on collaboration, not disruption – it is interactional and benefits everyone.

Second, interaction fields solve new problems that are often intractable challenges or pain points that often haven’t been solved before. Platform and digital ecosystems also do that, but they typically focus on narrow, often existing, problems. GM tried it with Maven, a subscription service to compete with Zipcar. It started in 2016 solving for more flexibility of transportation or mobility. It closed the business in 2020. GM is not an exception; I could now spend the rest of my day describing other car companies’ attempts to do the same.

Tesla is, in my mind, a company that isn’t about a platform or a digital ecosystem. It wants to be an interaction field company. It solves for a lot more than just electric cars, as you know. Besides, it is not even just a car company. It solves for some degrees of autonomous driving and for lower CO2 emission. It is well known that a car is 95 percent idle and so Tesla built its own network where you can post your car while you travel globally. Others can pick up the car and use it during that time. It solves for lower cost of ownership of a car among a horde of other issues. I don’t need to tell much more; the story has been told so many times. Some things are still vision, and some are reality, but the direction is apparent. If Tesla has it, it will have a much more significant share of our lives, solving for multiple problems and challenges we have daily, rather than just selling us a lease of a new Model 3 every three years.

Third, interaction fields are platforms and digital ecosystems that are open and welcome other participants. They propagate being inclusive rather than being exclusive. In today’s discussion of digital ecosystems, the term “ecosystem competition” has become popular.[xiii] This is the notion that ecosystems compete now against other ecosystems and that you as a company need to decide which ecosystem you join if you can’t build your own.

This idea is exactly what was once the dated idea of competition between firms, which came down to the disruption of industries and categories for over hundreds of years, and the same logic applies to platforms and digital ecosystems.

We should be wiser. Is it really about competition between ecosystems? Is it really all about who wins and who loses? Should we really, in this day and age, just think about capturing or extracting value, driving more shareholder value through ecosystem competition?

I don’t think so, I think we need to build interaction fields with healthy governance to ensure fair value distribution – as Marshall Van Alystne says, a situation where you create more value than you take.

[i][i] Platforms and Ecosystems: Enabling the Digital Economy, page 9.

[ii] Parker, Geoffrey, Marshall Van Alstyne, and Sangeet Paul Choudary, Platform Revolution: How Networked Markets Are Transforming the Economy – and How to Make Them Work for You, W.W. Norton & Company, 2016.

[iii] Erich Joachimsthaler, The Interaction Field: The Revolutionary New Way to Create Shared Value for Companies, Customers and Society, Public Affairs, 2020, forthcoming.

[iv] Ibid, p. 10

[v] Erich Joachimsthaler, ibid p. 41 ff

[vi] Ibid, p. 10

[vii] Ibid, p. 10, Parker, Van Alstyne, and Choudary.

[viii] Parker, Geoffrey and Petropoulos, Georgios and Van Alstyne, Marshall W., Digital Platforms and Antitrust (May 22, 2020). Available at SSRN: https://ssrn.com/abstract=

[ix] Wikipedia entry: Taxi Medallion, accessed June 6, 2020. https://en.wikipedia.org/wiki/Taxi_medallion#:~:text=The%20price%20rose%20steadily.,around%202013%20at%20over%20%241%2C000%2C000.

[x] https://www.wired.com/story/new-york-city-flexes-extending-cap-uber-lyft/

[xi] Douglas Rushkoff, Team Human, W.W. Norton, New York, 2019.

[xii] Statement by Terry von Bitra, General Manager, Europe, Alibaba Group, Germany, page 9 of this excellent report

http://reports.weforum.org/digital-transformation/wp-content/blogs.dir/94:/mp/files/pages/files/digital-platforms-and-ecosystems-february-2019.pdf

[xiii] https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/competing-in-a-world-of-digital-ecosystems

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