Create More Value than You Capture

The secret for future Internet companies is to create more value for users than they capture from them. That is, to give them more than they receive. This recent paradigm is changing how Internet companies are managed. Can they embrace this new mission statement?

If you think of Google, YouTube, Twitter or Facebook, and look at the proportion of their revenues compared to how many people they impact in their every day life, you will see that these companies are creating much more value than they capture.

If you could translate the same metrics to other industries, a company with 500 million worldwide users like Facebook would generate more than one billion dollars in revenues each year. In other industries, companies usually capture much more value from their users or customers than the value they are creating for them.

This shows how complex it is to believe in the new digital business models from a traditional business perspective where the product is the brand. You need a massive audience to monetize a very low percentage of your users through revenues from advertising, e-commerce or subscription fees.

The magic of Internet business is that when you have a big audience and you are able to monetize it, revenues and margins soar because of the scalability of the digital business model. Usually Internet companies do not have a single source of revenue and combine different revenue streams. This works because they have a very productive structure, that is not managed like a traditional business.

Online newspapers are a kind of business that has suffered in the digital era. This is evidence that they are creating more value for their users than they are able to capture, but their organizations are obsolete in the digital era and they will need to completely change how they work to be profitable as traditional newspapers were.

Online advertising is based on results and can not finance an old business model like traditional newspapers. These companies are suffering the transition from the past to the future, and they are realizing that, even with the IPad and other devices which allow new subscription business models, they need to change their internal behaviour to survive.

They need to be slim and forget about investigative journalism, which is expensive, and leave this important activity for the society to other kinds of digital paying products. The more instant journalism is, the less investigation can be financed by a digital business model.

Thus, the secret of the future for Internet companies is to create more value than they capture, and the formula to be profitable is to manage them using all the sinergies that the digital era makes possible. The key to good management is finding the right people and harnessing their talent.

Every successful Internet company has its own history, but one variable has taken on special relevance: you have to create more value than you capture, and manage your company with minimum structure. Less is more.

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