More people own a mobile device than a toothbrush”, states Erik Qualman, published author of Socialnomics. While the quote may at first, lead you to realize the questionable state of the world’s personal hygiene. Most importantly however, this statement couldn’t more powerfully capture the essence of the twenty first century man and what his foremost basic need is: Connection.
In the first article of our three piece series, we highlight the structure and the advantages of the Content Non-Generating Business Model.
A key driving force of this paradigm is the Millennials (young people aged between 16- 36), who have come of age at a time of rapid technological change, globalization and economic disruption (Goldman Sachs 2016). These individuals thrive on instant access and connection and do this primarily through their mobile phones. According to a study by Nottingham Trent University, the average millennial uses his/her smart phones for an average of five hours a day, and glances at their mobile phone screens about 85 times a day. Even more fascinating is the fact that they use mobile applications (Apps) 85% of the entire time they spend on their phone. These Apps could range from online games, social interactions to other functional facets of their lives. Mobile phone apps have now single-handedly become the most powerful mechanism to connect people across the globe.
In today’s global economy,the world is a potential market and businesses are beginning to realize that having their icons (mobile apps) on every smartphone’s homepage is the most valuable real estate in the world. Smart businesses not only understand this, but have ridden this wave to build some of the biggest brands the world has come to know. This explains why the world’s largest taxi firm, Uber, owns no cars; the world’s most popular media company, Facebook, creates no content; the world’s most valuable retailer, Alibaba, carries no stock; the world’s largest accommodation provider, Airbnb, owns no property. These highly successful businesses realize that value is not in actual products, but in creating a platform that connects people to products. These companies are now known as Content Non-Generators (CNG).
Content Non-Generating Business Model
Content Non-Generators, also known as Network Orchestrators operate a very simple but highly efficient business model with primary focus on two major revenue streams. Firstly, they create a network of peers where participants interact and share in value creation. They may sell products or services, build relationships, share advice, give reviews, collaborate, co-create and more, but what they really do is control the interface between the consumer and the provider of goods and/or services. This is an incredibly valuable proposition because they carry none of the costs of providing the service but charge fees from the millions of transactions and interactions that take place on their platform. Secondly, the more users interact on the site, the more attractive the site is for advertisers and the more advert revenue they can attract for showcasing brands on the platform.
CNG have, in recent times, outperformed companies with other business models on several key dimensions including higher relative valuations, faster growth, and larger profit margins. They deliver value to millions of people through Network Capital. According to Harvard Business Review, CNG, on average, receive valuations two to four times higher, than companies with other traditional business models. These ratios are high because market valuations tend to reflect investor expectations of future cash flows and studies show that companies with the higher valuation metrics outperform less valuable companies on future cash flow expectations, growth, profitability, and Return on Assets.
Other business models can be grouped into three (3) broad categories including:
Develop, distribute, sell and lease physical goods. They deliver value through the use of physical capital.
Deliver value through human capital in the provision of services to customers on billable hours for which they charge.
Develop and sell intellectual properties, and deliver value through Intellectual Capital.
In our second piece of this series we will highlight why Content Non-Generators are outperforming?