Ecosystems, KOLs, Luxury, Emerging Platforms and Review · 2020. 1. 26. · Ecosystems, KOLs,...

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Ecosystems, KOLs, Luxury,

Emerging Platforms and Review

January 2020

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

1www.jeffreytowson.com

• Ecosystems Are Eating the World

• Hot Areas: KOL’s and Influencers

• Hot Areas: Luxury

• Hot Areas: Logistics

• Review

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

“Software Is Eating the World”

- Marc Andreessen (2011)

2

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

View 1: Cambrian Explosion in Digital

3

• For 4 billion years, very little life on earth beyond bacteria, algae and

plankton.

• But 540-570 million years ago, most modern animals emerged. Related

to the emergence of a genetic tool kit that suddenly made things

possible?

• Argument that something similar is happening in digital:

• Tons of new digital tools emerging. Exponential increase in

innovation and combinations.

• Lots of use cases being experimented with.

• Lots of new products and services.

• Lots of new business models.

• All happening differently industry-by-industry.

• This is changing competition dynamics. And changing strategy.

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

View 2: The Second Machine Age

4

• The first machine age began with combustion and the steam engine.

• Human beings were no longer limited by their physical bodies in

terms of power and speed.

• Led to sustained gradual innovation and advancements. Which

led to productivity gains.

• Great inventions with big productivity benefits. But have slowed

over time.

• General purpose technologies (GPTs) require complements –

particularly business process changes and organizational

changes.

• There is also a lag between tech innovation and productivity

gains (i.e., labor productivity gains). It takes time.

www.jeffreytowson.com

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

The Second Machine Age

5

• Digital is the second machine age – with software,

data, AI and other new tools. All about bits and

bytes, not atoms.

• Human beings no longer limited by their

brains in terms of computation, memory and

increasingly intelligence.

• Two powerful phenomena: AI and digital

networks of people and things

• Leading to sustained exponential

advancement in most aspects of computing +

massive amounts of digital information + lots

of recombinant innovation


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

View 3: Coordination Costs, Ecosystems

and the Theory of the Firm

6

- Central planning fails because it requires perfect information (i.e.,

omniscience). The markets do it better.

- Hayek (Road to Serfdom)

- He wrote perfect information is impossible because it exists between

things. Never one person. It is coordinated knowledge. We live in

fragmented and decentralized information world. It’s about “local

knowledge” (which changes in time).

- So centralized coordination of large-scale economic activity is

impractical.

- You need a mechanism to aggregate and react to local knowledge of

all participants. This is market pricing. So markets are like a primitive

computer for this – and the data they put out is pricing. Everyone is

aggregating and reacting to their relevant local knowledge.


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

All About Coordination Costs

7

- The Theory of the Firm

- Ronald Coase asked: If there are efficient markets that can coordinate economic

activity then why do firms exist? Most resources are deployed by companies.

- His answer was: There are transaction (or coordination) costs involved in participating

in market activity. It is too complicated and/or costly to find a worker to do a specific

task at a specific time and to negotiate prices. He created theory of the firm based on

these transaction / coordination costs.

- Companies come into existence to minimize the transaction costs and

information deficiencies that result from coordinating economic activity through

decentralized market exchanges.

- A company internalizes activities where it is more efficient than doing through

the market. A company is a small centrally planned economy in a larger market

system.

- As company grows it can do internalized activities more efficiently by economies of

scale.


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Plus Economies of Scale

8

- Economies of scale

- Bruce Henderson of BCG adds the idea that as

you get bigger your costs decrease. By about 25%

every time you double production volume.

- This leads to the idea of competitive advantage.

The company with biggest market share has a cost

advantage.

- But Hayek’s local knowledge problem reappears in

large organizations.

- After a certain size, coordination costs start to

increase and you get diseconomies of scale.

- So get a U curve because transaction costs

start to rise with more volume.

- And this happens well below the point were

they dominate a market. It gets too hard to

coordinate all that economic activity.


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Plus Value Chains and Tech

9

Michael Porter – Value Chain

- Michael Porter agrees with Henderson but said a firm also interacts with others.

Will have advantages in some areas and disadvantages in others.

- You need to break a firm down into key activities (a value chain)

- The components of the value chain are linked by transaction costs. They create the

boundaries by minimized transaction costs.

- When transaction costs change, the company can be reorganized in very

different ways.

- Transaction costs are the glue that hold value chains together.

- Like when go from integrated (Apple) to modular (Android).

- As technologies emerge, it changes transaction costs and therefore how

firms are organized via value chains.


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

10

It’s all about networks and platforms

Processing speed increases and drops transaction costs.

• But you need the interconnections for coordination.

Value chains fell apart.

• Each one could be its own nimble company by just coordinating with other small

companies and recreating the whole value chain.

• Centralized big companies with economies of scale (such as newspapers and

encyclopedia) got killed by nimble competitors.

You began to use resources outside your company.

• Smaller companies actually had larger resources than traditional economy of scale

companies.

• The aggregator of value is no longer the value chain, it is the network / ecosystem.

Decentralized markets with prices were just the only data points available. But now

have tons of data. The future may be centrally management networks. Capitalism and

centralization at the same time?

All About Coordination / Transaction Costs


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

All About Coordination / Transaction Costs

11

Ronald Coase: Transaction or coordination costs

include money, time, effort, and attention.

• Search and information costs

• Bargaining costs

• Enforcement costs

Platforms and digital reduce coordination costs.

For platforms this is via four functions:

• Audience building

• Matchmaking

• Providing core tools and services

• Setting rules and standards


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

12

There are four different ideas here:

- How coordination / transaction costs shape local knowledge and

economic activity -> and create value.

- Platform business models create a ton of value. They are

monopolies because they create value.

- Centralization vs. decentralization of an economy or ecosystem

- The role of competition

- The role of freedom of choice

The Great Digital Debate


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Luohan Academy: Why the Digital

Revolution Is Different

13

• A couple of big factors:

• Low use cost and non-rivalry of digital information. It can be replicated and

used at near-zero cost. Unlike physical goods, it allows consumption or

possession by multiple users.

• Low threshold for adoption and penetration of digital technology.

• Falling cost of computer power plus internet has led to falling costs of

sharing digital information. Mobile devices have expanded reach of internet.


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Luohan: Why the Digital Revolution Is

Different

14

• So the level of economic development of a country is no longer determining modernization

and digital adoption.

• Digital is expanding in low development countries as fast as in developed countries.

Ecommerce is more widespread in China than USA.

• In the past, you needed to be in a developed economies. Or you needed proximity to

a developed area. Now small and micro firms can service customers thousands of

miles away.

• Often few alternatives to digital in underdeveloped countries. Mobile payments.

• Works as well in rural as urban.

• Low-skill thresholds drives penetration. Taobao villages. M-pesa

• Digital has the Lasic principle: Low profit margins, Asset light, Scalable, Innovative,

Compliance friendly. But all depends on infrastructure: mobile internet and broadband

access, supportive regulatory environment. www.jeffreytowson.com

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM






• Review

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• A lot of the thinking in this section is adapted

from a book by Lauren Hallanan and Ahsley

Dudarenok

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• Estimated at $15B per year

• Note: Hollywood makes about $10B in US theaters

• Singles’ Day is a big event for influencers. And in 2017,

influencers broke into the top 10 best-selling fashion stores. Four

influencer stores made over $14M per day.

• Meanwhile, ads on TV, print and websites are losing their impact.

The China Influencer Economy

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


China’s #1 Influencer Viya

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• Much more powerful than in the West

• Not just information. But opinions and influence.

• Can influence buying decisions for products.

• Can also sell their own products.

• Can have lots of followers or few followers. It’s more about the

depth of the relationship and trust.

• A true influencer is an expert, is trusted and has a relationship

with his/her following.

Chinese Influencers

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• Douyu is live-streamers playing video games and performing (lots

of singing)

• Feng Timo, a young woman doing live singing. 13M fans on

Douyu and 8M on Weibo.

• Douyin (i.e., Tiktok) launched on short videos

• Li Ge does dances and singing. 43M fans on Douyin and 1M

Weibo.

Short Video Lets Douyu and Douyin

Takes Off

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• Launched in 2016, offers short video focused on music, fashion and

style.

• Show unusual skills and talents.

• Lots of music and dancing.

• Intuitive interface that is good for liking, sharing and building upon.

• Easy to make memes and new content which can be edited with

flash, slow and repeat. Huge UGC.

• Brands use to issue challenges with incentives and prizes for best

videos created. Michael Kors issued a catwalk challenge and got

three KOLs to participate and make videos – which got 5M views.

• Brands can offer stickers.

TikTok and Douyin

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


Douyin / TikTok

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• Why did live-streaming take off faster than just blogging?

• Anyone could do it.

• You could monetize immediately with gifting or sales.

• You can make money and get famous. Very powerful.

• Live-streamers do swerve between serving an audience

and just doing whatever it takes to get an audience.

Influencers Really Take Off With Live-

Streaming

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• Launched in March 2016, based on Taobao the largest e-commerce site in

China. 425M active users in 2018.

• 70% are women. Popular categories are clothing, cosmetics and maternity.

Women are 80% of live-stream users. Typically active between 8-10pm.

• 30% are men. Popular categories are electronic products and sportswear.

• 43% of users are 24-30 years old.

• Most users access 4.6 times per day for 25 minutes.

Live-Streaming: TaoBao Live

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• In 2018, platform coordinated with Hunan TV to create jewelry

live-streaming show.

• Major brands like Chow Tai Fook and McLon participated.

• Hundreds of thousands of pieces sold.

Live-Streaming Example: TaoBao Live

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


Live-Streaming: JD Live

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• In 2018, Antoine Bunel a top food and beverage KOL in China sold

$288,000 of milk powder in two hours of live-streaming to 10M

viewers.

• How did brand do this?

• Partner with top e-commerce site and not entertainment sites

• Give creative control to KOL to communicate passion and

information

Live-Streaming Example: JD Live

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• Huawei used a KOL to create video of optical illusion of floating

phone. Douyin is good for unusual skills. Video was reposted.

• Luxury brand Michael Kors hired 3 KOLs with 4M followers

collectively. They attended an event and did videos on the catwalk

wearing Michael Kors - which were released with #citycatwalk.

Their videos were streamed 5M and +41,000 users created

similar catwalk videos.

Short Video Examples: Douyin

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• Wang Hong

• Attractive and / or charming. But usually no skills.

• Large and broad followings. But often shallow.

• Can grow virally. But not a lot of trust.

• They rise and fall fast.

• Not regarded as an expert.

• Have little influence.

• Probably not great for brands to work with.

5 Types of KOL Personalities

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• Content Creators

• High quality and/or entertaining content.

• But also not deep expertise.

• Fans want to be entertained. Not to learn or get advice.

• Short video works well (i.e., Tiktok) here.

• For brands, good for general brand awareness but not niche

audiences or converting to sales.


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• Key Opinion Leaders

• Not about getting rich like wang hong.

• It’s about building a personal brand and sharing expertise.

• Are strategic with their platforms and types of content.

• About serving an audience, sharing knowledge and building

an audience.


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• Celebrities

• Huge fan base and

name recognition.

• Well-established

images.

• Experienced with

promotions.

• Pretty expensive for

brands.


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• We Media

• Small media companies. Often run by former journalists with /

without teams.

• Current affairs. Social issues.


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• Increased brand awareness

• Increased sales

• Building a database of customers and potential customers

Why Would Brands Hire a KOL?

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• Laser focused on a specific topic. So brands hiring need to tie

directly to this.

• Have professional expertise related to the topic. They have

expertise, authority and connections.

• Have a distinct voice and content style.

• Staying neutral, following trends and being everything to

everyone is less influential.

• Have a clear persona.

• Are community leaders. Provide value to their audience with

content. Engage in comments.

The Best KOLs?

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• They evolve.

• Move to new platforms.

• Evolve content types.

• But also maintain on multiple platforms long-term to mitigate

risks.

• Some hire a team. And rely on sales rather than brand

sponsorship.

• They grow slowly. Avoid clickbait and other tricks.

• That’s how you build loyalty and trust. Gradually.

• They prioritize reputation over money.

The Best KOLs?

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• Native advertisements

• Advertorials

• Product placement

• Embedded marketing

• Product reviews

• Sponsored campaigns. Such as Lectures and Q&A

• Co-branding and KOL Cross-promotions

• Social selling (prohibited on some sites)

• Live-streaming

KOL Cooperation Types

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Online Retailer

or Marketplace


Consumers

Data NE

Phase 2b: Build Demand-Side Scale.

Add New Users and Use Cases.

Merchants / Brands /

Retailers

• Users

• Participation

• DataOther Revenue-Side Adv

• Share of consumer mind

• Switching costs

MSP Adv

• Subsidized pricing. Free?

Other Revenue-Side Adv

• Search costs

• Switching costs

• Limited options

Content

Creators

Network Effects:• Primary

Interaction

• Additional

interactions

• App Developers

• Advertisers

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


• B2C is often about an emotional connection.

• B2B Influencing is similar to consulting and advising.

• Usually done by:

• Senior consultants with decades of expertise

• Management consultants

• Heads of industry associations promoting industry-related

education

• Analysts in specific industries

• Key suppliers

B2B Influencers

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM






• Review

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

• Platforms vs. Pipelines

• Network Effects

• Economics of Digital

• Competitive Advantage: Digital vs. Traditional

• 6 Digital Superpowers

and / or

• Regular Digital Business and Dynamic Competition

Main Digital Strategy Ideas


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

My Opinion

52

• Absent a competitive advantage, business is usually an endless marathon in operational scale, effectiveness and efficiency.

• Digital is destroying some traditional competitive advantages and creating some new ones.

• This operational marathon is being combined and sometimes replaced with marathons in:

• Rate of learning• Innovation (tied to rate of learning)• Ecosystem shaping and management

• The best players are fast in their marathons but also have strong competitive advantages that give them structural advantages in these

races.


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

• Level 1: Digital is overwhelmingly granular.

• There are lots of new digital and data technologies being developed

and these can be used in lots of ways within businesses.

• The best approach to digital strategy is to just look at the use cases.

McKinsey has good reports that take this bottoms-up approach.

• Normal dynamic competition.

• Level 2: Bubbling up out of all these use cases are at least 6 digital

superpowers that can happen that really change a company.

• Level 3: At an even higher level, we can see platforms evolve in certain

patterns. Becoming conglomerates and other powerful structures.

• So you want to look at all of this at at least 3 levels.

Digital Transformation Happens At At 3

Least Levels


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

MSPs vs. Pipelines (Platform Revolution)

54

1. One main customer group

2. Asset value increases as it moves down the

pipeline.

3. Through tightly controlled process and

assets (by contracts).

4. Management focuses on increasing the

efficiency and returns on internal assets.

5. Scales by internal actions such as acquiring

more assets or customers. Lot of attention

to supply-side economies of scale. Driven

by management.

6. Owned or contracted assets and products /

services. Centralized ownership, profit and

control.

7. Challenges: Well-known. See any 10k Risk

section.

1. Multiple user groups

2. Value is created by interactions of the user groups on the

platform

3. Provides open architecture and governance (rules for

users, incentives for participation).

4. Management orchestrates the ecosystem and its assets.

You focus on ecosystem assets (not internal assets). You

manage external actions / processes / interactions. If you

don’t own assets then need data to manage this.

5. Scales without effort. Driven by external participants and

their activity.

6. Decentralized assets, products and risks but centralized

ownership, profit and control

7. Challenges:

1. Need to decide the controls point(s) and what to

monetize (Apple lets developers take ecosystem

profits).

2. You want everyone to keep investing in the platform.

3. They can bait and switch by changing rules after

built biz on platform.

4. Backlash to centralized governance growing. May

need distributed governance (blockchain)

5. Some platforms enable you to build (apple,

Microsoft) others are channels and gatekeepers to

customers (Facebook)

Pipelines (VI) Platforms (MSP)


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM


1. Marketplaces and Transaction Platforms

2. Coordination and Standardization Platforms

3. Payment Platforms

4. Innovation (and Audience-Builder) Platforms

5. Learning Platforms

• These re not mutually exclusive. Each platform can be a combination of users,

interactions and feedback loops. And you can combine them.

• Payment platforms are probably a type of coordination but pulled it out as

separate.

5 Common Types of Platforms

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

56

Attractive But Dangerous Economics of

Information / Digital

• Zero marginal production costs

• Non-rival goods

• Low distribution costs

• Bundling and versioning

• Complements and consumer surplus

• Scalable


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Traditional Competitive Advantages (1 of 2)

57

1. Consumer – captive customers / control over pricing• Share of consumer mind or buying habits

• Switching costs (i.e. training costs)

• Searching costs (i.e. brand names)

2. Producer – proprietary production capability / manufacturing cost advantages• Labor costs

• Proprietary technology

• Lower cost of inputs

• Special resource

• Location or transportation

3. Scale economies – lower average costs at higher volumes• Manufacturing

• R&D

• Marketing

• Distribution / logistics

4. Government• License

• Regulation (antitrust, zoning, environment)

• Patents

• Tariffs and quotaswww.jeffreytowson.com

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Traditional Competitive Advantages (2 of 2)

58

5. Network economics– Demand side economies of scale.• One sided networks – Facebook, WeChat, telephone

• Two sided networks – UnionPay, American Express, Apple App Store

• Combos – Tencent multiplayer gaming is one sided and two sided.

• Data network advantages – insurance pricing, personalization / curation

6. Efficiency of Scale– One dominant company in small market – with high

capital costs and history of attacking new entrants.• Not a strict CA. But strong disincentive to new entrants.

• The only hospital or powerplant in a small town. High capital costs, limited

market and one dominant, entrenched player.

• Usually not (but not always) a competitive advantage:

• Most brands. You can buy a brand with cash. It’s an asset.

• Smarter. This can be copied.

• Expertise. Can be copied over time.

• Lower cost of capital – nope.

• Lower cost of labor – nope. Transitory.

• Most government regulations and tariffs


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Digital Competitive Advantages

59

1. Revenue Advantages• Share of consumer mind – software excels at hacking behavior. Gamification.

Habit-creating. Dopamine hits. Personalization and curation.

• Switching costs – Rare for consumers. Stronger for platforms, merchants, content creators, B2B, app developers, etc. Integration of workflow can be

powerful.

2. Production Cost Advantages• IP / tech cost advantage. Code written over time. Growing with AI and

algorithms.

• Special resource: Data. Partnerships.

3. Economies of Scale – Cost Advantages• Marketing• R&D• Web services / tech – particularly if open to market• Logistics / delivery – particularly if open to market• Medical teams? Driver services? Auto alliance?


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Digital Competitive Advantages (cont.)

60

3. Government. Licenses. Access to data / smart cities.

4. Network Effects• Network effects in main platform. • Data network effect• Emerging: AI? Autonomous vehicles?

5. Efficiency of Scale

Other

• MSP soft advantages. Subsidized or free pricing. Chicken-and-egg• Data soft advantages• Complementary platforms• Linked business models: Customers, data, capital• Combined services and digital conglomerates

• Platform vs. product / pipeline• Platform vs. platform• Platform vs. digital conglomerate


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

6 Digital Superpowers

61

1. Dramatically improved user experience and journey. You need sufficient delta of

improvement (vs. pain of adoption)

2. Creates a platform (and gets complements or soft MSP advantages). Including without

NE.

3. Captures network effects, including data network effect. Including 1-sided without MSP.

4. Captures other competitive advantages - including switching costs and digitally-

enhanced share of consumer mind (habits, behavior, etc.).

5. Viral or other powerful customer acquisition and/or retention mechanism.

6. Scalable. Especially if gets massive demand-side scale. Global scale is best.

• Also awesome is recurring revenue, freemium and pre-pay if you can get it. Slack has this and all of above.

• B2B criticality is also great (Microsoft has)

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Rule 1: Give Customers EXACTLY What They Want – Or

Someone Else Will

Rule 2: Digitize and Re-Imagine Operations ASAP

Rule 3: Get Ready for Super-Platforms – and for Industry

Boundaries to Move and Fall

3 Simple Rules for Chinese Digital

Transformation


Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Online Retailer

or Marketplace


Consumers

Demand-Side

Scale (early)

Phase 1: Build Basic Demand-Side Scale

Around 1-2 Interactions.

Merchants / Brands

• Users

• Participation

• Data

Network Effects:• Primary Interaction

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Online Retailer

or Marketplace


Consumers

Data NE

Demand-Side

Scale (Middle)

Phase 2a: Keep Adding Demand-Side

Scale. Add Other Advantages.


Retailers

• Users

• Participation



• Switching costs

MSP Adv



• Search costs

• Switching costs

• Limited options

Network Effects:• Primary Interaction

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Online Retailer

or Marketplace


Consumers

Data NE

Demand-Side

Scale (Later)

Phase 2b: Keep Building Demand-Side

Scale. Add New Users and Use Cases.


Retailers

• Users

• Participation



• Switching costs

MSP Adv



• Search costs

• Switching costs

• Limited options

Additional User

Groups• App Developers

• Content

Creators

• Advertisers

Network Effects:• Primary

Interaction

• Additional

interactions

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Online Retailer

or Marketplace


Consumers


Retailers

• Users

• Participation

• Data

Demand-Side

Scale (initial)

Phase 3a: Build Supply-Side Scale

Supply-Side

Scale (initial)

• Marketing

• R&D

IT / Web

Services

Logistics and

Delivery

• Physical vs. intangible

capabilities?

• In-house vs. partnership?

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Open Services

to Market

Open Services

to Market

Online Retailer

or Marketplace


Consumers


Merchants / Brands

• Users

• Participation

• Data

Demand-Side

Scale (later)

Phase 3b: Keep Building Supply-Side

Scale. Digitize Capabilities and Invert.

Supply-Side

Scale (later)

• Marketing

• R&D

IT / Web

Services

Logistics and

Delivery

• Physical vs. intangible capabilities?

• In-house vs. partnership?

• Other cost adv: Economy of scope,

production cost, location & transport,

IP/Tech,

• Other adv: Patents, government regs

and limits

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Online Retailer

or Marketplace


Consumers

Merchants / Brands

Users

Participation

Data

Data NE

Demand Side

Scale

• Identify and exploit

new services

• Horizontal attacks

Supply Side

Scale

• Marketing

• R&D

Tech / Web

Services

• App

Developers

• Content

Creators

• Advertisers

Logistics and

Delivery

Open Services

to Market

Open Services

to Market

Phase 4a: Exploit and Innovate Rapidly

(Elon Musk Strategy).

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Online Retailer

or Marketplace


Consumers

Merchants / Brands

Users

Participation

Data

Data NE

Demand Side

Scale


new services


Supply Side

Scale

• Marketing

• R&D

Tech / Web

Services

• App

Developers

• Content

Creators

• Advertisers

Complementary

Platforms

Logistics and

Delivery

Open Services

to Market

Open Services

to Market

Phase 4b: Add Platforms and Linked Biz

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

Online Retailer

or Marketplace


Consumers

Merchants / Brands

Users

Participation

Data

Data NE

Demand Side

Scale


new services


Supply Side

Scale

• Marketing

• R&D

Tech / Web

Services

• App

Developers

• Content

Creators

• Advertisers

• Creating new use cases

and business models

• Bringing physical

retailers (and data) onto

platform

• Adding physical assets

to supply side

Complementary

Platforms

Logistics and

Delivery

Open Services

to Market

Open Services

to Market

Phase 5: New Retail

Wo

rkin

g D

raft -

La

st M

od

ified

04

/23

/20

08

11

:49

:19

AM

Prin

ted

4/2

1/2

00

8 4

:27

:01

PM

LinkedIn: Jeffrey Towson

WeChat – a555666777aa

71

My Contact Information


Ecosystems, KOLs, Luxury, Emerging Platforms and Review · 2020. 1. 26. · Ecosystems, KOLs,...

Documents

Transcript of Ecosystems, KOLs, Luxury, Emerging Platforms and Review · 2020. 1. 26. · Ecosystems, KOLs,...