The Mesh - Lisa Gansky [50]
With proprietary control, a company can more directly manage its supply chain, exercise quality and cost control, and reduce risks. It has historically gained greater influence over industry regulation. And it removes some of the risk from scaling up. Before you invest a lot of money in creating factories and distribution channels, you want insurance against someone taking your idea or potential profits. When Lexmark, Epson, HP, or Sony make printers that accept only their own cartridges, they fend off competitors in supplying ink and make a higher margin on their proprietary cartridges.
But across-the-chain proprietary control carries significant risks of its own, and can be a hair-raising ride on the way down. Over time, it erodes the trust of customers, whose choices have been constrained. The business is no longer about growing a category or serving a market. The goal is simply to optimize gross profit and extend the life of the rapidly maturing category.
Mesh Companies in Various Stages of Growth.
This makes the brand vulnerable. Proprietary ink cartridges may generate customer resentment that a competitor can exploit. If the competitor makes a better offer, the customers are likely to jump at it. As we will see in the next chapter, that’s exactly what happened in the movie rental market.
The erosion of a brand also limits its extensibility. When customers trust a brand, they’re more willing to try a new product offering. The reverse is also true. If customers become annoyed at paying exorbitant prices for Brand X’s printing cartridges, they’re far less likely to try a new line of monitors that the brand launches.
Worse, being less open makes it harder to keep the product or service up-to-date. When you fence off your intellectual property, others also build fences around it. Information on a specific market is limited to what the company collects. That means less feedback, and less ability to adapt your offer. New ideas have to come from inside the company, where there’s a tendency to resist innovations that threaten its “well-oiled machine.” For all the talk in management literature about “thinking outside the box,” too little actually occurs. All these dynamics reinforce each other, speeding a downward cycle.
early in, we all benefit. later on, i may want my toys back.
On the other hand, there are plenty of examples of how openly sharing ideas and information has significantly accelerated an industry’s development. Although the Internet and social networking tools have hastened adoption of open development models, the idea isn’t new. In nineteenth-century England, owners of blast furnaces shared technical and economic information about the furnaces in trade journals and trade association meetings. Rapid rates of innovation and productivity improvement resulted. A similar result occurred in New England paper mills in the early 1800s, as well as in other industries.
A more recent example, of course, is open software development. By sharing ideas and code, engineers around the world have rapidly improved the architecture, overall performance, and security of software. They quickly develop new versions and debug them. Social networks further speed up development times. In some cases, very large corporations, such as the German software giant SAP, are using social networks to actively involve their customers to spot problems, suggest improvements, and serve as a help desk for other users. This service is also available through third parties. Get Satisfaction is a peer-to-peer customer service that provides support for companies such as Zappos, Nike, and Microsoft—but can be great for emerging Mesh businesses as well. The platform, recently made easier to use through a Facebook app, helps companies create robust interactions with their real and potential customers.
The advantages of sharing information, and even platforms, are particularly evident in the “define” and “refine” stages of a company’s development. Increased knowledge of who customers are and