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 / Winter 2009 / Issue 57(originally published by Booz & Company)


The Most Powerful Paths to Profits

A Digital Environment

The 10 power nodes above have been around for a while. But the remaining two power nodes are strikingly novel. They capitalize on a set of dynamics emerging from new communication technologies and information infrastructures, which together have forged a business landscape with remarkable reach and transparency. Anyone with access to media can connect with anyone else instantly and can access information about any product, service, or topic of interest, anywhere, immediately, and essentially at no cost. This unprecedented form of “perfect information” is changing the way that consumers and markets behave, and it makes these new power nodes feasible.

  • Aikido assets. This power node is named after the Japanese martial art that exploits the energy of an opposing force. In the current information environment, it is no longer useful to “push” advertising and marketing messages to consumers. Most customers reach out for information they need on their own. If they find a source that they like, they tell other customers. They use search engines, which tend to drive large numbers of people to the most popular sources. The key to aikido assets is being able to perceive and move with the momentum of the network.

Companies whose power node is based on the aikido approach are skilled in new forms of marketing. They “sow seeds,” tossing out many messages at minimal cost; Frito-Lay, for example, continually puts new flavors and packaging in the marketplace. These companies conduct surveillance, continually analyzing their digital media to see which messages are catching on; Procter & Gamble Company has done this with its own websites. (See “The Promise of Private-label Media,” by Matthew Egol, Leslie H. Moeller, and Christopher Vollmer, s+b, Summer 2009.) And they react very quickly to what they learn from the networks, introducing or discontinuing products almost instantaneously. This may require the rapid retooling of sourcing, manufacturing, and distribution functions as they shift from one product to another.

  • Hubs. One of the most effective power nodes imaginable in a transparent economy is the ability to become the beneficiary of self-reinforcing popularity. Hubs are people or products that attract viewers, assignments, clients, buyers, or users in part because others are drawn to them as well. The first of J.K. Rowling’s books, Harry Potter and the Philosopher’s Stone (Bloomsbury Press, 1997), took off rapidly because friends recommended it to friends. It became a hub as others wanted to know what was driving people to read it, and the existence of this hub ensured the popularity of the rest of Rowling’s series. The transparency and immediacy of communications added momentum. Companies that can heighten the allure of their products this way, triggering attachment and emerging as hubs, will have a tremendously valuable power node. When hub dynamics are at work, products or ideas that are ahead stay ahead for a long time. That explains why Microsoft and Yahoo have not been able to catch up with Google in search volume. But because hubs are not a winner-take-all phenomenon, Google’s rivals have sizable numbers of users, leaving some room for market share to eventually turn against Google if a competitor comes up with a product that itself becomes a preferred hub. Microsoft hopes to exploit this opening with Bing, its new search engine.

Power nodes may not all be new, but they have never been as crucial as they are now. For companies to thrive in the current environment of transparent “perfect information,” they must be able to use their power nodes to shape and tap the sources of “profit power” around them. This gives them the upper hand in every partnership or alliance, allowing them to retain the largest share of profits while making sure that other companies get enough to survive and remain committed to the arrangement.

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