How does your business capture value make money

Matthias A. Simon C. Creating a good product does not ensure success in the marketplace, though it is a necessary first step. The next steps, whose goal is to capture maximum value from the vallue product, are crucial. The mouse and the cute little icons were exactly what the consumer wanted. Xerox learned the hard way that value creation and value capture are two different things. The two guiding questions will be: 1 Is the innovation appropriable or will you have to share the profits with many others? Suppose you are an innovator and you want to appropriate the value of the intellectual property IP it embodies. To what extent this is possible depends in part on how the legal system defends and enforces IP rights. In some cultures, innovations are seen less as a private good than a social one.

Josh Kaufman Explains ‘Value Capture’

In , Shawn Fanning, a year-old computer student, created a software program that allowed individual computers to search for and download music from myriad other computers around the world. Almost immediately, Napster, as he called his Internet-based «peer-to-peer» computing program, began to transform the recording industry: Consumers now could record digitized tunes on their own hard drives, entirely free of any type of royalty or other charge. Shawn Fanning, like Edison, had created untold value for the public; in a little more than a year, Napster attracted 38 million users worldwide, including more than 8 percent of home Internet users in the United States. Yet unlike Edison, he could find no way to capture any of that value for his company. Indeed, by breaching the major record labels’ previously sturdy distribution oligopoly, Napster made it increasingly difficult for any single player in the recording industry — whether composer, performer, producer, distributor, or retailer — to capture the value Mr. Fanning unleashed. Similar stories have played out across the short history of the New Economy. Netscape’s version of the Mosaic browser shaped and popularized the World Wide Web; but, unable to directly «monetize» its invention, Netscape sought protection in a merger with America Online Inc. Indeed, it’s becoming clear that for every Dell, Schwab, or Cisco, there are dozens of companies that have been unable to capitalize on their innovations. The evidence can be found in the Nasdaq listings and the drumbeat of dot-com disaster stories in business press. They illustrate the greatest challenge of the New Economy: how to bridge the widening gap between value creation and value capture. Many companies today are stuck inside that gap. They have seen innovation galvanizing customer interest and propelling revenue growth across an industry — simple measures of value creation. So they have developed Web sites on which to sell their goods and services, built infrastructures for sales and service, and spent millions on marketing, all on the assumption that they could grab some of that customer interest and revenue growth to lift their own profitability — the only valid gauge of value capture. Yet profits have hardly ever materialized. Because many of these companies did not shift their focus from value creation revenues to value capture profits soon enough, and instead followed the flawed logic that scale, scope, and increasing returns on incremental investments govern their business. Compare the e-tailers that have chased «eyeballs» into bankruptcy with established retailers like Wal-Mart Stores Inc. Realizing that retailing does not enjoy increasing returns on incremental investments, they correctly fine-tuned their business models to generate profits after reaching a minimum efficient scale. Wal-Mart and Home Depot are not alone.

Creating value is just the beginning. To make money from innovation, you must drive your industry’s evolution — even before the industry exists.

A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work. Value Capture is the process of retaining some percentage of the value provided in every Transaction. The more value you capture, the less attractive your offer becomes. As long as you bring enough to cover your needs, there’s no need to capture every cent. Create as much value as you can, so your captured value is worth it. Every business must capture some percentage of the value it creates in the form of revenue as Profit. If it doesn’t, the business will have a difficult time generating enough resources over time to continue operation. Value Capture is tricky. In order to be successful, you need to capture enough value to make your investment of time and energy worthwhile, but not so much that there’s no reason for your customers to do business with you. People buy because they believe they’re getting more value in the Transaction than they’re spending. Capture too much, and your prospects won’t bother purchasing from you. There are two dominant philosophies behind value capture: maximization and minimization. Maximization the approach taught in most business schools means that business should attempt to capture as much value as possible. Accordingly, the business should attempt to capture as much revenue in each transaction as possible-capturing less than the maximum amount of value possible is unacceptable. In the short run, it’s easy to see the appeal of maximization-more profit is a good thing for the owners of a company.

Josh Kaufman Explains ‘Value Capture’

Metrics details. Firms across all industries are embracing internet-based digitization strategies to expand or improve their business. In many cases, though, internet-based businesses pursue customer growth ahead of profits. The path to profitability, which is a core element of a business model, should not be an afterthought. A well-designed business model balances the provision of value to customers with the capture of value by the provider. The elements of a business model and the dynamic capabilities that help design, implement, and refine a model for an organization and its business ecosystem are reviewed. The article then translates these concepts with respect to key organizational design decisions such as that of licensing versus practicing an innovation, insourcing versus outsourcing, and building a business ecosystem. As more and more elements of the physical world become sources of digital data, software is able to analyze, control, and interact with devices, equipment, and people. This has brought economy-wide changes from the disintermediation of traditional media to the introduction of 3D printing in factories.

And even avid innovators often have a blind spot when it comes to value capture. Managers need to think about value capture more imaginatively and as a matter of course. Michel details 15 value-capture innovations, which fall under five broad categories. When Switzerland-based Vestergaard introduced its LifeStraw technology, it proved it could innovate. LifeStraws remove The product is a favorite of aid organizations: Over the past decade, LifeStraws have been distributed after almost every disaster. But not every place with bad drinking water is makf relief zone; million people in the world lack access to clean water in their daily lives. So Vestergaard saw a much larger potential market than its NGO customer base—and proved that it could innovate in another way. The company found a clever means for families to fund their purchases: with carbon offset credits. Thanks to the worldwide carbon emissions trade, any documented C0 2 savings how does your business capture value make money now be monetized—and using LifeStraws means not having businesss burn petrol or wood to boil dirty water. Both these kinds of innovation—one in value creation, the other in value capture —are important. But most companies focus only ohw the. Sometimes a business can get away with failing to think about value capture if it sells plenty of its new offerings through existing approaches. But when value capture goes unexamined, money is usually left on the table—and sometimes the only thing that can save a business doez finding how does your business capture value make money way to capture value. This is the situation in which many publishing companies find themselves, as more consumers than ever are accessing content while revenue streams to producers are drying up. It can also confront young, new-economy businesses—for example, Facebook. With 1. But as the highly volatile share price testifies, it is not at all clear that the company will figure out how to capture enough value to justify its hefty market capitalization and price-earnings ratio. To benefit from both kinds of innovation, companies need to think about value capture more imaginatively and as a matter of course. It should help managers identify value-capture twists that could work for. A comprehensive survey of strategic moves to capture more value suggests that innovations come in 15 distinct forms. Yet even avid innovators often have a blind spot when it comes to value capture.