In a quick series that I will complete today, here are the rules for competing by creating a Trusted Space that I found as I looked at eBay, Google, Starbucks and Southwest. I start with eBay.
Principle – It is not technology per se that builds community but setting the ideal environment.
It was not the tool but the underlying idea that drew the users. This is a very important issue to consider. It was the value that eBay offered its community rather than the slickness of the tool that was the key.
As we fuss about the back end and the web, we have to remember this imperative. It is the value to a person in the context of a community that is the prime engagement factor not the slickness of any tool.
∑ eBay changed the rules of retailing by putting the transactions inside the enterprise.
This is THE INSIGHT that is relevant to all successful executions of the ‘Many-to-Many’ model. In the ‘One to Many’ the enterprise externalizes all relationships and controls the product. In eBay, the enterprise controls the environment in which the transactions occurs and is largely indifferent to the product. The social community, rather than the impersonal institution, will become the context for transactions in the 21st century.
∑ eBay’s larger product is TRUST.
It is TRUST that enables people who don’t know each other to do business with each other. That is its business model! eBay creates an environment where people who could not trust each other, now can and can do business with each other. eBay establishes the conditions for trust by introducing not a mass of controls but by setting up a simple self organizing DNA for behavior that makes good behavior the default action of the participants. If Omidyar had used the Ford Model, eBay would have collapsed under the burden of control and too many participants would have gamed the system. Public Radio too has to create a Trusted Container so that “Members” can interact with each other safely.
∑ Always build the trust and the value by listening to the customer
eBay now owns PayPal. It tried to have its own payment system but the eBay community preferred PayPal. So eBay gave up the service that its community did not like and bought PayPal. That’s listening! Having an easy to use payments system was critical to the overall health of the whole system. Having eBay behind PayPal increased the level of trust in PayPal. So the joining of the two systems increased the health of both and of course increased the health of the ‘whole’. This is a strategic principle. Always add new things that strengthen the ‘whole’ and that fit culturally.
∑ Always build the value by building more trust –
Why did eBay buy Skype? Starting with trinkets, eBay’s focus is expanding in two key areas. It is making inroads in very large ticket items such as cars and it is now serving more and more small businesses that wish to trade globally. The issue of trust becomes ever more paramount as the size and as the complexity of transactions increase. eBay saw that their customer needed to be able to speak to each other directly without driving up costs for either eBay or the customer. Hence Skype.
When eBay paid $US2.2 billion for Skype, they did not buy a tool. They bought a ‘Many-to-Many’ ecosystem like their own. Vonage has a tool and is struggling because it is a ‘One-to-Many’ culture that drives an $US800 cost for each new customer. Skype was built as a community where users brought in the new customers. The cost of customer acquisition was all but zero. For Skype used its own members to virally build a community first and then leverage this community into purchasing additional value. Once again, eBay was buying not a tool, not a site but a trusted customer-driven site. Has eBay paid too much? We don’t know yet. But many analysts are missing the point.
Each new layer that eBay adds only reinforces all other aspect of their system. They have their eye on the ‘whole’.
Some Principles - What are the implications for public radio as we look at the eBay example? What are some of the key business model principles that we see as we look more deeply into the model?
∑ In the new model, the customer and the supplier are one and the same.
They both live inside the trusted space, or the ecosystem, created by the enterprise. Hence, there are no customers or suppliers there are only true ‘members’. We loosely call many who listen to public radio ‘members’ but they are not like eBay ‘members’. They do not live inside nor do they act as suppliers. Only 10% of them support us. Public Radio needs real “Members”
∑ In the new model, most of the work is done for free by the ‘members’ themselves.
Most of the capital then is human and is off the balance sheet thus allowing a significantly higher ROI than a Ford model can.
It is the members who do the training, the marketing, the selling, the buying and also most of the logistics. Participation is not an add on but is central for this model.
∑ In the new model, the role of the enterprise leadership is to set the environmental/ behavioral/cultural DNA at the principle level to set up self-governing systems that default to trust and to quality.
In the new model, the operational focus of leadership is on building and protecting the quality of this container so that it gives the Members the value that they seek from being inside this container. The leadership task then, like good parents or good gardeners, is to set up the ecosystem, or cultural conditions, that build the health of the container.
∑ In the new model the currency that is paramount is Trust.
Unless the ‘members’ can trust the space, they will stop working for it. Trust is the lifeblood of the new model. So that is what must be measured most carefully. Trust is what the model offers as a tool for personal development of the members. If trust drops so do all the financial numbers. Trust drives the P & L. To have trust, you have to embody it at all levels. It is more about how you are than what you do that is the measure. The goal is therefore “to be” or “to become a state” rather than an action.
∑ In the new model, revenue is driven by a tax on value and transactions that occur inside the container.
Consequently, revenue grows as the value grows and as the scale of the enterprise grows. Consequently, the interests of the shareholders and of the members coincide. This alignment does not occur in the Ford model where the interests of the enterprise overrule all others and lead to exploitation of all stakeholders.
∑ In the new model, revenue growth outstrips the rate of growth of costs as the system itself grows.
This is the opposite of the Ford model, where direct costs and friction grow in track with revenues and in some cases faster.
∑ In the new model, quality is derived from the self-correcting power of an ecosystem.
Wikipedia and Open Source Software have bugs, but the eyes of many correct them more quickly and with less cost than a fact checking process found in the Ford model.
∑ In the new model, complexity can be dealt with as part of the power of the wisdom of crowds that is an underlying principle of an ecosystem.
Ask yourselves what is blocking Microsoft in launching their new operating system? Has it been lack of resources? If you are honest you will acknowledge that their block is one of complexity. Only an Open Source approach can cope with the complexity of what is required today. Imagine the complexity of what you have to cope with in public radio.
In the new model, it’s all about the value and the trust found inside the ‘container’ or in the ‘trusted space’ in which the ‘member’ now lives.
The member is both a provider and a supplier.
The business imperative is to attract and hold the ‘Member’ for as long as possible inside the container. The more time they spend there the better. They are attracted and they stay inside the container because of the value or the experience that they have inside. Members provide most of the human and the intellectual capital for the enterprise.
Trust is therefore the critical factor. Trust is the glue! The new model is not about product. eBay had a poor website, Skype did not win by having a good tool. No one part of Google is the only attractor.