Surfing the Value Net

Up until now, we’ve mainly been considering your product vs. your competition. However, the game you play is larger than that. The other key interactions involve customer, complementors and suppliers. These four then form the Value Net (Brandenburger and Nalebuff, 1996).

For a given strategic position and approach, you can then map out the value net, to better identify opportunities via the activities you choose to perform.

A player is your competitor if customers value your product less when they have the other players product than when they have your product alone.

A player is your Complementor if customers value your product more when they have the other player’s product than when they have your product alone.

This may seem obvious, however a mapping exercise with these definitions can reveal some surprising insights.

Let us map out the value net for Dropbox as an example.

Competitors:

  • When customers have iCloud, they value Dropbox less.
  • When customers have Google Drive, they value Drobox less.
  • When customers have polaroid cameras, they value Dropbox less.

Thus the products in bold are competitors to Dropbox.

Complementors:

  • When customers have remote offices, they value Dropbox more.
  • When customers have digital cameras, they value Dropbox more.
  • When customers have fast internet speed, they value Dropbox more.

Thus the products in bold are complementors to Dropbox.

By extending this exercise, you could see how Dropbox could make strategic and product related decisions to utilize their network of complementors. This could include strategic partnerships, integrations, combined marketing campaigns, and more.

Dropbox did go onto do this with their ‘Dropbox Business’ suite, aimed at providing better collaboration tools for remote teams and offices. Perhaps they could have gone further, such as ‘Dropbox Family’ – as an alternative photo-sharing offering for remote relatives.

There’s another source of potential complementors; when multiple players make it more attractive for a supplier to create products. If AWS could only make and sell storage to Dropbox, it wouldn’t be that attractive. Given that AWS can also go on to sell storage to iCloud & Google Drive, these players become a complementor as well as a competitor.

This example is more keenly felt for manufacturing with high barriers to entry. Intel sells chips to Dell, HP & Lenovo – and is able to spread its fixed costs across the three. If the latter brands were to disappear, it might become unviable for Intel to provide chips to Dell alone.

There is a duality between competitors; they are complementors in making the market, and competitirso in dividing up the market.

Recall that the goal is not to win at all costs. The goal is to maximise our shareholder value. To that end, it may be optimal for you to not totally kill your competitors after all.

Customers

Customers are people that buy your product. However there are more layers than that. There are the economic buyers; those that signed off on the license. Then there are the Users; those actually touching and interacting with the software.

A CFO might want to see the business case and enterprise pricing that Dropbox can offer them. However, Dropbox must also focus on the actual people in the organisation and their needs. No doubt there are numerous use cases in a given customer organisation that need attention. Then there is the customer’s customers to think about. A Dropbox customer may be selling or providing services onto another set of customers which benefit indirectly. There may be opportunities for Dropbox to orientate its services to optimise the end value of this party. Thus, there are many layers within a customer eco system that need to be understood.

Suppliers

Who are Dropbox’s suppliers? They would pay for software tools, in word processing, software code repositories, computer hardware and recruitment agencies.

In the game of business, we often think of this relationship as zero-sum. Either they take more of our money, or we get to save it instead. This leads to wanting to screw your suppliers down for every nickel and dime, shop around for the best price and have them price match, and drive loyalty discounts over time.

However some suppliers could also be considered your customers. Staff are suppliers of labour and skills, however many companies say their staff are their number one asset, and treat them as such. What would happen if we started treating suppliers as our customers too? We might work together on how we can both save costs. We could align objectives and KPI’s and new initiatives such that when our business grows, we can need to consume more of their product.  

Summary

Value Nets can better understand your competitive ecosystem and identify potential new initiatives and product features. All of these need to be evaluated against your strategic position and approach to ensure they don’t compromise your trade-offs.

References

Brandenburger, A. and Nalebuff, B. (1996). Coopetition. Crown Publishing Group.

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