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The Biggest Change in Business: The New “Super Variable”

The most significant transformation in business does not arise from adversaries or the surroundings, but from the novel “super variable” that frequently emerges.

Previously, when discussing alterations in business, emphasis was often placed on environmental shifts or changes in competitors. However, over time, a universal truth has gradually become apparent: the more conspicuous the changes, the less consequential they tend to be; the more apparent the opponents, the less genuine the threat.

The quintessential example is the triad of major Chinese portal websites in the past. While they were engaged in fierce rivalry, it was ultimately not one of them that emerged victorious, but rather the subsequent generation of Internet products. The true adversary remained unseen.

So, how does one apprehend the business transformations of this era? Allow me to present an illustration.

Consider two renowned corporations: Disney and Netflix. Disney epitomizes the content behemoth, with industries extending far beyond the realm of cartoons and theme parks. The illustrious American ABC TV network and ESPN sports channel both fall under Disney’s purview.

On the other hand, Netflix is a stellar enterprise that has experienced rapid ascendance in recent years. Presently, it stands as the world’s largest provider of video streaming services, offering a diverse array of content. Its business model revolves around membership payment, with individuals charged between 8 and 14 US dollars per month, granting unrestricted access to all available content upon payment.

With one company providing content and the other offering a platform, one might assume their partnership to be sufficient. However, in August 2017, the two entities severed ties. The former partners, once disparate in size and operating with contrasting business models, have now emerged as fierce competitors.

Curiously, throughout 2017, Disney’s stock price remained virtually unchanged, while Netflix’s stock price more than doubled. Despite a five- to six-fold difference in income, the market valuation of these two companies has drawn close. Evidently, if Disney and Netflix are viewed as adversaries rather than partners, the capital market exhibits greater optimism toward Netflix.

Do not regard this event in isolation. It will become a central theme in the business world over the next four to five years. For behind this conflict lies not merely a battle between two companies, but a clash between two business models.

Which two business models, you ask? The battle unfolds between the platform and vertical models.

Take Google and Tencent, for instance—they exemplify platform companies. Their objective is to attain ubiquity, not solely by amassing comprehensive content, but also by establishing a pervasive presence in various domains.

In contrast, vertical enterprises, as their name implies, delve deeply into specialized niches. Perhaps the most notable example is Apple. Its goal is not comprehensiveness, but concentrated excellence, ensuring that unique services and experiences can only be encountered within its own ecosystem, thereby retaining customers and revenue.

Both of these models possess the potential for survival, making it challenging to determine which is superior. Nevertheless, these two logics are progressively diverging. In an era of strategic confusion for enterprises that fail to engage with either of these logics, Disney serves as a case in point.

Disney embodies two distinct traits. It possesses the DNA of a platform business, akin to Google.

Generating copious amounts of content, Disney authorizes its distribution across numerous platforms, be it various television stations, streaming service providers like Netflix, DVD sales, or even cinema screenings. Disney’s objective is to ensure the widest possible reach for its products and content, much like Google’s aspiration to extend its services to all.

However, Disney also possesses another trait—the vertical gene, akin to Apple. Within its repertoire, Disney boasts Disney Animation, Pixar Studios, Marvel Movies, Star Wars, and Disneyland, all synonymous with high-quality content. Its culture is “highly controlled,” much like Apple’s, evoking the sensation of stepping into Disneyland as one would enter Apple’s iOS system. Both entities place great emphasis on user experience, shrouding their offerings in exclusivity. They exercise meticulous control.

The question arises: should one eschew content and pursue omnipresent distribution scenarios, or should one strive for high-quality content, meticulously managing the user experience and retaining customers within the system? This presents a contradiction.

Balancing these two facets proves arduous, as an effect known as “network collaboration” pervades this era, signifying that the more extensively a service is employed, the more advantageous it becomes.

Both the platform and vertical models are capable of engendering network synergy. Either concentrate a vast user base and foster collaboration among them, exemplified by Tencent, Google, and Facebook, or concentrate on high-quality content or products, generating network synergy among the offerings. Apple and Xiaomi embody this approach, retaining users and revenue by delivering products that consistently provide exceptional experiences.

In reality, Disney’s counterparts have already made their choices. HBO, for instance, a renowned American television network, has launched its own Netflix-like model, charging a higher fee than Netflix and restricting access solely to HBO’s own content. Why? Because HBO possesses confidence in itsown content and believes that by focusing on quality and exclusivity, they can retain a loyal customer base and generate higher revenue.

The transformation in business lies in the decision-making process. Enterprises must carefully consider their core strengths, the nature of their offerings, and the preferences of their target audience. They must choose between the platform and vertical models, understanding the trade-offs and implications associated with each.

The super variable in business transformation is the shift in the balance between content and distribution, between ubiquity and exclusivity, and between platform and vertical models. How companies navigate this transformation will determine their success in the evolving business landscape.