It’s time for all organizations and their investors to realize that the tools that they provide to customers — products such as cars, telephones, health-care, or finance — and to their employees in the form of benefits, training, software, and the like — need to be combined with the network to which that group belongs.
For example, Microsoft MSFT, +0.79% missed an opportunity to redefine itself as a “business network” that would dwarf Facebook’s FB, +0.39% network, despite Microsoft’s more than two billion worldwide users.
Now Microsoft is acquiring LinkedIn LNKD, +0.06% , the professional virtual network, in a $26.2 billion deal announced in June. Microsoft CEO Satya Nadella made clear the company’s rationale. Nadella said the tools that employees use have been separated from the networks with which they work. By bringing them together, both aspects of a professional’s life will be enhanced. “It’s really the coming together of the professional cloud and the professional network,” Nadella said.
The technology behind ‘Pokémon Go’
Augmented reality, the technology behind hit game “Pokémon Go,” is becoming increasingly appealing to investors and companies. Photo: Pokémon Go
Indeed, research shows that leveraging a network of customers, employees, and suppliers is the most valuable business model. In our new book, “The Network Imperative,” we reveal our research of 1.500 S&P small-, mid-size and large-cap firms. The results are startling. In short, digital networks and platforms:
1. Scale more quickly and cost effectively. They leverage today’s technologies — social, mobile, cloud — and connect each of what we have (cars, homes, friends) with what others need (advice, rentals, rides).
2. Are worth two- to four times more than older business models such as manufacturers, retailers, and distributors, as well as services firms and even technology organizations, due to the cost of scaling and growth of a network with its own tangible and intangible assets.
3. Generate more profit potential and growth, given they accrue revenues from both customers and suppliers — each of which want to access the other directly or indirectly, rather than one.
Does the approach that Microsoft is taking — integrating LinkedIn’s professional network with Microsoft’s professional tool set — apply to every industry? Our research indicates yes. By connecting virtual networks to tools, investor returns are improved as is the customer and employee value propositions.
Nike, years ago, realized that to be more than just a shoe company, it had to mobilize its network of customers as a powerful and connected virtual community. Today, its many specialized networks of athletes constitute a major growth engine of its apparel, gear, and even technology. Nike uses these networks to build loyalty, fuel new products, and share peer-to-peer tips and tricks for success.
GM, on the other hand, hasn’t realized its full potential or the power of virtual networks through double-sided business models or digital platforms. The company has sold more than 500 hundred million cars in its 100-plus year history. In fact, in 2015, GM will sell “1,000 new vehicles per hour, 24 hours day,” according to CEO Mary Barra.
But Barra and GM are missing the point. If GM had decided to connect all its drivers and riders, it could have been larger than Uber, which is now worth more than twice GM. Further, GM would have revolutionized the auto industry if the driving network to which it sold cars been engaged along the way. Who knows what would have been possible — GM’s market value, growth prospects, and future would be different due to the driving network’s capabilities and insights.
It’s time to combine tools and networks to create unprecedented value. It’s time for all businesses to follow Microsoft’s lead. Combine your tools, be they products or services, with the virtual networks that use them if you want to scale faster and more effectively.
Investors, meanwhile, demand that the companies in which you invest add networks to their tool set in order to drive value, growth, and profits. The research is clear: Virtual networks that run on digital platforms are accretive. So either join the network and platform revolution, or be left behind as a commoditized and disconnected tool provider in a hyper-connected world.
Barry Libert, Megan Beck and Jerry Wind are the authors of The Network Imperative: How to Survive and Grow in the Age of Digital Business Models (Harvard Business Review Press).
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