By Marco Abele, CEO Tend and Erich Joachimsthaler, CEO Vivaldi
On the face of it, the dominant players in business today have all the strategic advantages going for them: a diverse product line, a trusted brand, a big customer base, large budgets and well-run processes. They seem stable, profitable and well-positioned. How on earth can new entrants ever hope to conquer these 800-pound gorillas?
It’s do-able … How? By becoming an effective platform business that exploits the inherent power and strategic advantages of network effects, orchestrated through the platform.
This is very different to traditional business models of linear customer acquisition and service; for a platform, the network effect is the defining source of competitive advantage. As for us, TEND’s mission is to give a broader audience of like-minded people access to a new investment world. Key to the mission’s success is leveraging such network effect.
Erich Joachimsthaler on network effects
A different business focus
Platform firms focus on two main elements, namely, interactions and ecosystems.
Let’s look at interactions: unlike the majority of traditional firms who are hunting sales growth in a very siloed way, the platform nurtures an exchange of value between its participants. Even though a single unit of interaction on the platform may be relatively small, the sheer volume potential of quality interactions is hugely powerful.
And secondly the ecosystem: a platform’s ability to foster external ecosystem partners, thus creating additional value for participants, is crucial. Platform firms attract and orchestrate external contributors that are complementary to, or entirely replace, the activities of once-internal functions. What a platform’s leadership team must never lose sight or guidance of is its mission or purpose, and that must be clear and in the interest of the ecosystem if it is to flourish.
Value precedes Volume
The value the platform creates will precede and ultimately determine just how big a volume it can generate. Let’s take TEND as an example. The three important determinants for shaping an environment that let’s value flourish are:
‘We-ness’: this is the extent to which our group of users experience a sense of belonging; it’s the closeness of the micro-network. Its origin is in like-mindedness, the sharing of goals and interests or a passion … a feeling of contributing to a best-of-class platform’s success. Nurturing and upholding that ‘we-ness’ is vital to our network growth. If we don’t have it or you lose it, we risk creating a wasteland of inactive users or worse still, negative commentators.
Secondly, careful governance ensuring healthy participation. That means we conduct a robust due diligence around client and asset permissioning; likewise, for the sourcing, custody, service and storage of the assets. This attention to detail extends to the scheduling and preparation of experience events.
Thirdly, strong matching, meaning that the right products to fulfil the clients’ expectations must be available through the platform. Scale — or volume — leads to liquidity and this is a vitally important ingredient in ensuring that clients will be able to buy and sell assets, when they want and in line with their specification.
However, take heed. Realizing that enormous network potential takes time and a careful orchestration of those elements above that effectively create the value. Additionally, a platform isn’t great just because it’s big. In fact, let’s turn that on its head: it gets big because it’s great and has demonstrated clear value.
The power of Word of Mouth
If people use the platform and experience its value and get enthused by what it has to offer, they’ll talk about it and encourage their friends and colleagues to get involved. That can become viral … so make sure it’s good viral. Reputation is, as ever was, key.
The same goes for the ecosystem partners who hear about and experience the value in contributing to the platform purpose and, at its best, offer an abundance of quality resources. These are enthusiasts who want to be a part of the opportunity.
One of the most prominent examples of leveraging word of mouth and network effects is Amazon. Amazon’s renowned service experience continues to attract and expand new customers and a vast external network of retailers, who are providing the consumer with a ready and reliable, cost-effective, quality product. Like Amazon, the strength of the TEND platform and its ability to grow an interactive network will be key to the timely provision of premium assets, service and life experience. This harmony or ‘we-ness’ breeds shared success, whilst in parallel empowering the individual and transforming a network into a community. And maybe it gives the wherewithal to conquer the 800-pound gorillas.
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