One of the themes that I talk about a lot here is the importance of getting our ideas to spread. It is a central part of innovation – if our new ideas are not adopted, then we’re in trouble. But what about when our business model is based on ideas not spreading? The idea seems counterintuitive, but there are actually a lot of businesses that depend on our ignorance for their profits.
I had this idea while reading Socialnomics by Erik Qualmen. He talks about a new social-based search model and talks about why Google might not adopt this innovation:
Coincidentally, the search engine incumbent (e.g. Google) would be the least likely to introduce such a model. By endorsing such a shift, Google could see itself as a potential loser because it currently genreates a fair amount of money from the inefficiency of the old model.
I don’t agree with this quote – I think that Google is very well aware of the vulnerability they have with the current method of search and that is the big reason behind their constant introduction of new ideas. But Qualment raises an interesting point – Google does actually make money right now because our current methods of getting ideas to spread are not very efficient. We need search engine assistance.
However, there are more obvious examples of business models built around preventing ideas from spreading. Some of them are:
- Media: The issue of file sharing is an obvious example. But there are plenty of others. What about the crazy regional code system on DVDs? Or the many streaming video sites that are only available in the US (Hulu, Netflix, and the one that kills me – Yahoo’s free NHL stream)? All of these models are built on the idea that the people generating the content will control how and when the idea spreads.
- Car Dealerships/Real Estate Agents: Buying a new car used to be a horrible experience. You never knew what a fair price for a new car was, and as a consequence, people often ended up paying more than they should have. This is much less of a problem now as pricing information is much more widely available, as is data about which dealers have the cars of the make, model & features that you want in stock. There are similar issues in real estate – much of the purpose of real estate agents is based on the ignorance of home buyers. When we’re buying a house, we usually don’t know all the houses available in the area we’re interested in, what the going rates are, or how quickly houses are getting sold in the area. Well, it used to be the case that we didn’t know this – now we know a lot more.
- Firms with poor customer service: It used to be much easier for firms to get away with bad service. If you weren’t happy with them, who could you tell? Ten of your friends? Ever since Jeff Jarvis & Dell Hell, it’s a lot easier now to tell everyone.
There are actually a lot of business models built on the idea that the firm has access to information that you can’t get. These worked for a long time, but they are increasingly difficult to maintain now. The key point is that if you are working in an industry whose profits are based on information asymmetries, it is unlikely that these will last for too much longer. That is the threat. The opportunity is that these industries provide fertile ground for business model innovation.
In particular, you can use strategies that aggregate, filter and connect to reconfigure the way these industries operate. We’re seeing that in real estate, as firms are starting up that collect all of the active house listings in one place (aggregate & connect), that provide sales histories for particular neighborhoods (filter), and that enable private listings to show up on google maps (aggregate, filter & connect).
We still have to get our good ideas to spread, but it’s getting increasingly difficult to prevent ideas from spreading. If your business model is based on preventing people from having information, you better get moving on coming up with a new business model. If you don’t, someone else will.