Monday, February 2, 2009

Value Creation vs. Value Capture in Technology

In any business area where value is truly created (=technology) you gotta think about value creation vs. value capture. You write code, develop products, make a new chip or doohickey; you create value, but how much of the payoff can you secure?

Microsoft, Apple, and Nintendo have made so much money not because they have created the most value, but rather because they have created a lot of value AND managed (with amazing shrewdness relative to everyone else) to capture most of the bucks that that value can produce. Plenty of value creation (e.g., the average new, neat cell phone) is too easily imitated.

Doubts about Google's business model? They are such: Google continues to create tremendous value, but without capture (unlike the early and ongoing beautiful marriage of search and ads).

Facebook vs. LinkedIn. Facebook creates more value; it's cooler, does more, people love it more, it's just all around contributing to society more. But LinkedIn does provide value, and it captures that value better because it's an environment in which it's sensible to charge some users (and for them to pay) for premium services. You could say Facebook is the better company from the public's eye, but LinkedIn is the better business.