Deep Multi-Sided Business Models

William McDonough, co-author of Cradle to Cradle, casts a vision for the next industrial revolution   based on Cradle-to-Cradle design of all products and services as ecosystems.  From a business perspective I believe a deeper understanding of multi-sided business models (central to today's technology industries) is possible when we apply them to an ecosystem-based Cradle-to-Cradle design model.  Whereas multi-sided business models, exemplified by the likes of eBay and Google, are important in markets with multiple sides desiring interaction, players in the next industrial revolution understand that all markets have multiple sides - you just have to look deeper.   Urban renewal expert David Barrie, for example, explains how real estate displays the same multi-sided logic, just on a deeper level. The next industrial revolution will require deep multi-sided business models that address the cooperative networks behind any product or service in order to provide the same products, but in a way that stimulates and captures all network externalities as nutrients: value nutrients, technical nutrients and biological nutrients.  

Players in the next industrial revolution understand that all markets have multiple sides.  The next industrial revolution will require deep multi-sided business models that address the cooperative networks behind any product or service in order to provide the same products, but in a way that stimulates and captures all network externalities as nutrients: value nutrients, technical nutrients and biological nutrients. 

What are multi-sided business models?  Most businesses facilitate a one-way flow of value, in which they buy labor and supplies and then sell products or services to a set of customers.  Multi-sided markets, as Harvard Business School professor Andrei Hagiu explains, "are markets in which firms need to get two or more distinct groups of customers who value each other's participation on board the same platform in order to generate any economic value".  eBay sees that auction sellers value interaction with auction buyers, so they significantly reduce the costs of searching through auctions with a web site.  Google sees that advertisers value highly segmented audiences, so they create such audiences through their online properties.  Microsoft sees that consumers want a computer that enables them to use lots of applications, so they bear the shared costs of developing applications with the Windows operating system.

In each case, eBay, Google and Microsoft identify a desired interaction, and facilitate that interaction through a platform that provides services to one side of the interaction - audiences, buyers, application developers.  The services are strategically designed to stimulate externalities known as cross-network effects, that is, the other side values the platform more because of the use of the platform by the first side.  eBay sellers value the platform more because there are many buyers, Google advertisers value the platform more because of the many viewers and application users value Windows-based PCs more because of the many application developers using Windows.  Platform players capture these cross-network effects through monetizing access to the platform (direct effects) and additional services created on the platform (indirect effects).

But are the networks in which different groups of people value each others' interaction limited to trade and advertising?  Is it true, as the Harvard Business Review reports, that "Most markets are one-sided in nature—customers interested in buying running shoes, for example"?  After reflecting upon Cradle to Cradle design, I don't believe so.  William McDonough writes in Cradle to Cradle (p 81),

Just about every process has side effects.  But they can be deliberate and sustaining instead of unintended and pernicious.  We can be humbled by the complexity and intelligence of nature's activity, and we can also be inspired by it to design some positive side effects to our own enterprises instead of focusing exclusively on a single end.

Cradle to Cradle design is based on the closed-loop systems found in nature (that it, it is biomimetic).  Ecosystems have closed-loops because they capture all externalities as nutrients for another process.  In manufacturing and other business processes, though, we call externalities waste.  And that's because the design of most products produces unusable externalities - waste - during manufacture, use and disposal of their products.  But what if products and product manufacturing processes were redesigned so that these externalities were useful?  What if deep multi-sided business models stimulated and captured three types of externalities as nutrients for their businesses:

Value Nutrients:  These are the externalities of typical multi-sided businesses like eBay, Google and Microsoft, in which platform usage on one side increases platform value on other sides.

Biological Nutrients:  These are the externalities that are captured by the Earth's ecosystems for far more savings to a business and environmental damage than the waste generated by conventional products and processes.

Technical Nutrients:  These are the externalities that are captured by a company's manufacturing processes for far more savings to a business and less environmental damange than the sate generated by conventional products and processes.

A Deep Multi-Sided Shoe Business Model  Let's take the example of shoes, which HBR claimed above are a good example of a one-sided business model.  Most shoes are made with leather that, while historically tanned with vegetable tannins harvested from trees, are now usually tanned with metals - particularly chromium.  Michael Braungart writes in Cradle to Cradle that the largest chromium extraction factory in Europe hires only older men, all of whom wear gas masks, because it takes on average 20 years to develop cancer from chromium exposure.  One of chromium's byproducts, Chromium IV, was the carcinogen found in the water supply of Hinkley, California, the case made famous by Erin Brockovich.  Today shoes are usually tanned in developing countries, where regulations don't prevent them from dumping waste from chromium extraction in nearly bodies of water, or incinerating them for local kids to inhale.  In addition, the rubber in soles, an amalgam of lead and plastics, emits lead particles into the soil and atmosphere as your use of your shoes wears down the soles.  And your disposed of shoes end up in a landfill, because the monstrous amalgams of which they are made are of no use to anyone. 

What would a deep multi-sided shoe business model look like?  Imagine a shoe that is tanned with sustainable vegetable tannins.  Vegetable tanning takes longer than chromium tanning?  Then tan the leather on or near your leather supplier, and get your vegetable tannins from plants on the suppliers' property, in a just-in-time arrangement that would rival a Toyota factory, all while returning used shoes to your leather and tannin supplier to biodegrade (see below). 

Instead of an amalgam sole that can either be dumped or recycled at great cost, make your shoes with a rubber sole core and biodegradable skin, as is described in Cradle to Cradle.  The biodegradable skin is safely returned to nature at disposal, and the rubber core is returned to the shoe company - a technical nutrient in its redesigned shoe manufacturing process.  Furthermore, the shoe company advertises that its shoes have been worn by Kurt Warner and Serena Williams, so you could be wearing their shoes by buying from them. So, something that was a wasteful, and even deadly, byproduct is now a rubber and leather platform - both literally and figuratively - for a multi-business model that reuses technical nutrients (the rubber sole), biological nutrients (the leather and biodegradable skin that are returned to your supplier to biodegrade) and eBay-like value-enhancing nutrients (the athletes who wore your rubber soles).

Comments

[Towardspoint]

Prisoner Pound,pass draw open get there farmer guide crime large soldier able station fully yard hope himself official obvious aid box during art foundation united double scheme population touch grey apart be terrible bright terms improve article increase finger half party adult to wood quickly recall come corner lay lovely it flat pay pick noise distance probably off variation gold village goal the client then regional operation survey structure cry mental partly religious settle show every disease succeed division lift prisoner lean else love success most concern once happen nevertheless

[Air Jordans]

Enjoyed reading this and would rather examine my own life and see where I am.Thank you v much for sharing...

[Cheap Jordans]

It's great to hear from you and see what you've been up to. All of the projects look great! Thanks!

[kennenlernen leute]

Greets
Good stuff, It might just work, although it seems easier when you have a plan.
What do you know about character?
L8er

[generic viagra]

My skin got tanned. So i have irregular skin tone/color. I want my original color back in my hands, toes, face and neck by using natural items. Advertised products give no solution. Is there any effective thing/solution for tan?

[Christophe Bruchansky]

Thanks for this summary. It is very useful. But what is the incentive for industrials to take that holistic view on business models?

[buy womens leather coats]

hey really very good examples of Multi-Sided Business Models. :) it will really help me with my management class too.

[Rebecca]

Wow! Thank you! I always wanted to write in my site something like that. Can I take part of your post to my blog?

[ugg shoes]

I just walk around, suprised by your blog,please give more information.

[cosmetic surgeon montana]

That surprised me a bit. Good hear about it though.

[kitchen]

Thank you for sharing. Very happy to see your article, I very much to like and agree with your point of view. Have a good time.

[moncler jackets]

So cute! I already like you on FB and also get your posts on Google Reader. :)