Strategic Planning Analogy #457: Doorways and Destinations

THE STORY
Let’s assume you’re an expert at building doors.  You may be able to create the most beautiful door, or the most technologically advanced door, the most secure door, the highest quality door, or some other type of superlative door.  But if that door doesn’t lead to anything, it’s really rather useless. 

The main purpose of a door is to provide a passageway to get from one side of the door to the other.  If there is nothing worth going to on the other side, or if you can get to the other side without using the door, then the door really has no value.

It reminds me of the western comedy movie Blazing Saddles, where a toll booth was placed out in the middle of the desert (see photo above).  There was no road anywhere near the tollbooth.  It just sat out there in the middle of a huge abandoned area.  There was nothing stopping you from getting to the other side by just going around the toll booth (after all, there weren’t any roads anywhere near the toll booth).   Hence, the tollbooth had no value, because you could easily cross the desert by avoiding it.  Yet, the humor in the movie was that the cowboys, as you can see in the picture above, stopped to pay the toll anyway.

So if you want to make a door really valuable, the irony is that you really don’t need to spend much time focusing on the door.  Instead, the door is made most valuable if you focus on two non-door issues:

   a) Does the door get you access to something valuable?; and

   b) Is it the only way to get to that location?

THE ANALOGY
The digital world is full of doors and destinations.  For example, devices, like smartphones, ipads, computers, gaming devices and cable TV systems can all act like doors.   They are the passageway to get to desirable digital content. 

You could also look at certain digital sites as doors as well.  The Google search site can be seen as a door to reach knowledge.  The Apple Apps store can be seen as a door to get to valuable apps.  Your Outlook or email portal can be a door to get to messages from your friends.  Netflix is a door to get to desirable movies.

You can even look at digital content as a door.  Although in this case, the purpose of the door often is so that businesses can get access to you.  For example, television shows can be a door to allow brands access to viewers via commercials.  Zynga’s free digital games can be seen as a door to allow Zynga to reach players to sell them game enhancements.  Google’s search results are a powerful door for advertisers wishing to have access to people when a specific subject is on their mind.

There is all sorts of talk about strategies to extract value out of the digital space.  Often, the best way to look for value in the digital space is similar to how one gets maximum value out of a door.  In other words, does your digital offering:

     a) Get people to a valuable destination?; and

     b) Is it the only way (or best way) to get to that destination?

THE PRINCIPLE
The principle of doors is this:  A door is only valuable in its relationship to destinations and those seeking the destinations.  If the door doesn’t lead to a desirable destination, or if there are lots of other doors going to the same destination, then the value of that one door is very small.  Conversely, if you are the one providing exclusive access to something highly desired, then you have a very valuable door.

There are several factors to keep in mind when applying this principle. 

1) Choose what you want to be and actively manage it.

Often times, the same digital entity can be positioned as either a door or a destination.  For example, Facebook could be positioned as a door to get to your friends or as a destination where friends want to hang out.  You have a positioning choice to make.  And you had better be clear about that choice so that you know what to do and how you are going to win.

And don’t forget that competitors may want to position you differently than your own choice.  For example, Facebook may want itself to be positioned as a destination, but Google+ may want to re-position Facebook as merely a door and then tell people that Google+ is a superior door for accessing those same friends.  And, if Facebook becomes too abusive in the way it increases monetization of its “destination,” customers may get fed up and migrate to a better door to reach each other.

Similarly, cable TV has traditionally tried to position itself as the destination for TV entertainment.  They even call the content “cable TV” (as if it were theirs), not “TV as seen via cable.” But now, there are all sorts of internet startups, like Hulu who are saying that cable TV is just a door to that entertainment and that the internet can be a superior door to reach that same content.  And the formerly unthinkable is happening—people are cancelling their cable TV and getting that same content through an internet-based door like Hulu.

So the battle is not just in making a one-time positioning choice.  One also needs to continually monitor how the market is positioning you, so that you can control your position.  And as technology and business models evolve, your old positioning strategy may need to be modified from time to time in order to stay relevant.

2) Value depends on which side of the door is most conjested.

Sometimes the door is more valuable than the content (the destination) and sometimes the content is more valuable than the door.   It all depends on the relative congestion on either side of the door.   If the customer side is more congested than the content side, then the content usually has the most power.  This situation occurs when a highly desired movie can only be accessed by a limited number of outlets. There are lots of people rushing to get access to one movie.

In this case, outlets will bid very high to get access to that movie and can often end up giving access to consumers at a loss, hoping to make up for it with sales of popcorn or advertising.  So the strategy for the door to win is to find alternative monetization schemes to exploit all the people coming in at a loss who don’t care about the door.  The strategy for the movie is to raise the bid to access it.

The opposite extreme could be something like You Tube.  There are millions upon millions of inconsequential videos wanting to reach people who have no idea that the content exists.  In this case there are lots of videos rushing to get access to the same people.  Here, the door is disproportionally more powerful because of its role as an aggregator.    Without the help of an aggregator like You Tube, all these videos would find it almost impossible to get the attention of the public.  This puts You tube in the driver’s seat in negotiating how to monetize the content.  So here, a key to the door strategy is to build a superior aggregation tool, making it the easy destination to sort out all the content confusion.

Money can be made in both situations (for both the doors and the destinations), but it is made differently because the power levels are different.  So one of the things one needs to consider in a strategy is which side of the door is the most congested.  

3) Have a strategic approach to exclusivity/control

Having the only door to content can be very valuable.  One thousand doors to that content diminish the value of a particular door.  Therefore, control of value for your door means controlling how many other doors other people can make.  If you can tie up content through exclusivity or close up the potential for others to build doors, then you have made yourself more valuable.

One of the keys to Apple’s success is its passion over controlling a relatively closed system.  Apple wants to own all of the doors—the device door (phones, pads, computers, etc.), the apps/iTunes door, rules for how content interacts with those doors, etc.  Apple not only owns all the doors, they try to own the whole house and every room in it.  This closed system forces everyone on a path that benefits Apple.

Now if you are Amazon and you see Apple owning all the doors to content and see Apple’s doors completely bypassing Amazon, you can get justifiably very nervous.  As a result, Amazon needed to aggressively invent and promote its own doors, via Kindle and Amazon Prime, so that an alternative path would become viable.  And the more exclusive content Amazon can tie up, the more viable its path becomes relative to Apple.

Control and exclusivity can also relate to the other side of the door.  The more you can tie up customers into loyalty programs or long-term contracts, the harder it is to get them to try someone else’s door.

So, if the nature of the relationship to content is what makes your door valuable, actively manage that relationship to create as much control and exclusivity as possible.  Create strategies to broaden your door while narrowing others…from both directions.

4) Don’t build the most beautiful door to nowhere

If you only focus on your door and ignore where it leads, you can create a worthless door.  As mentioned earlier, the best door is not necessarily the prettiest one, or the most advanced one or the one with the most features.  It is the one that does the best job of managing the whole relationship on both sides of the door. 

Sony has been going through troubled times in recent years.  A lot of that has to do with their heritage of focusing on just making great devices.  In other words, they put all their effort into making great doors rather than a great system connecting all the pieces on both sides of the door.  By thinking devices instead of systems, they are missing out on the best value-making business models.  One reason why Playstation tended to be one of Sony’s better performers was because it was the division with the best systems-based business model.

Just as a bridge to nowhere is a worthless bridge, a door to nowhere is a worthless door.  Don’t just focus on making a better door.  Manage the bigger picture.

SUMMARY
In the digital economy, money flows through a system of digital doors.  If you do not exert enough control over the complete system, others will direct the flow through that system so that very little gets to your door.  Therefore, your strategy must take a holistic approach to consider more than just your small piece of the puzzle.  You need to consider how to get your door near desirable content and customers and how to block other doors from doing the same. 


FINAL THOUGHTS
Did you ever notice that very little thought is given to real doors?  We take them for granted.  About the only time we think about them is when they are not working properly.  In the digital space, however, one should never take those digital doors for granted.  We need to consider them all the time.

Innovation Tools Part 3: Access Denied

THE STORY
When I was in High School, I wanted to join the GAA (Girls’ Athletic Association). I read the by-laws of the club and it said that the GAA was for girls. Well, as it turns out, I’m for girls too, so a few of us guys got together to figure out how to join the GAA.

The problem was that in order to join the GAA you had to have participated in girls’ athletics (I guess that’s how it got its name). So a girl we knew got us the paperwork so our group of guys could form a team in the girls’ field hockey program. Things were working fine until the girls’ gym teachers figured out that we were boys. Then the plan started to fall apart.

We were sent to the principle’s office. The principle was actually very nice about it. He said that if we really wanted to play field hockey that badly, he would see what he could do about setting up a boys’ field hockey program. But the principle missed the point. The only reason why we wanted to play field hockey was so that we could get access to the GAA.

Needless to say, we never were able to join the GAA.

THE ANALOGY
One of the main reasons why I wanted to join the GAA was because access was denied to me. The more exclusive the membership, the more I wanted to join. Business models can work this way as well. Depending on how one sets up access into the business model, one will get different results. I was trying to redefine how access was granted into the GAA. You can try to redefine access in your industry.

We are in the middle of a series of blogs on how to think about ways to create new business innovations. One of the ways to innovate is by changing the way access is defined in an industry. By changing the access rules, you can also often end up rewriting the rules for how the profits are divvied up—presumably in your favor.

THE PRINCIPLE
There are three ways in which one can alter the rules of access:

1) Open Vs. Closed Platforms
2) Limited Vs. Unlimited Supply
3) Democratic (customer determined) Vs. Hierarchical (seller determined) Inclusion

We will now look at each of these individually.

1) Open Vs. Closed Platforms
These days, technology is often an integral component in a business model. The technology platform for the business model can be defined in two ways, either open or closed. In a closed system, one company tends to own the proprietary technology and they do not share it. This denial of access creates profits when the technology becomes popular and you are the only one that can supply it. By not sharing it, the company will create a monopoly and reap all of the benefits of any success.

This has been the primary strategy of Sony for years. In the video tape wars, they built a monopoly around the beta format and lost. They built a monopoly around playstation technology and won. They are now trying to create a semi-monopoly with Pioneer around blu-ray DVDs. Apple has had only limited success with a similar strategy for its computers, but great success using this strategy for ipod. This monopolistic closed access strategy is higher risk, but it is also higher reward.

Sometimes an open system has greater success. By sharing access to a technology, one can get more companies onto that technology bandwagon. The more firms behind a product technology, the more likely it will create enough critical mass to get customers to prefer it. After all, people want to be associated with winners, and if that many firms are supporting the technology, it must be the winner technology that is going to survive. That is how VHS won over Beta in video tape.

Usually, there is room for both open and closed systems: Microsoft Windows (closed) vs. Linux (open); Playstation (closed) vs. PC games (open). The key tends to be how many profit streams are produced by the technology. The more there are, the better it is to be open. The fewer there are, the better it is to be closed.

2) Limited Vs. Unlimited Supply
Sometimes access can be controlled by how much of a resource you are willing to supply. An offering supply can be limited by a number of factors: the number produced (limited amount versus unlimited amount), the amount of time allowed (limited time to purchase versus always available), and the amount of variety offered (limited variety versus carrying it all). One can be successful at either end of these spectrums.

Take, for example television home shopping channels. Usually the variety is limited to one item at a time, the quantity is limited to only a small number available, and there is a small limited time in which to call in and order the product. All of these limits create excitement. They also cause one to act quickly to purchase before the quantities and the time run out (and before you realize how foolish some of the purchases are).

On the other hand, supercenters carry just about everything, they are open 24 hours a day, and they try to always have items in stock all the time. This creates the assurance that if you shop there, you will be able to find what you need and not have wasted a trip. Limited assortment stores, like Aldi and Save-A-Lot, provide access to fewer items and are open fewer hours, but this allows them to charge lower prices. As Bill Moran, the founder of Save-A-Lot explained it to me, it’s amazing how much more profitable you can be if you can convince the customer to accept access to a more limited selection, allowing you to sell only the profitable items.

Limited availability can create a greater cache around a brand. High fashion items often loose their appeal once they become too available to the masses. On the other hand, the more access, the more opportunities to sell. Coke talks about their WAR strategy…the goal of no matter where you are, there is an opportunity to purchase Coke Within Arm’s Reach.

Fast Fashion retailers like Zara and H&M cycle through their clothing styles so quickly that they sell out the limited quantities a full price, before there is a need for heavy markdowns and clearances. Yet others find success sticking to one product and pushing it year after year, like WD-40.

3) Democratic (customer determined) Vs. Hierarchical (seller determined) Inclusion
Sometimes access is determined by the customer and sometimes it is determined by the seller. Take, for instance, restaurants. McDonald’s has a very democratic, customer-driven approach to access. Anyone who wants to come in is allowed to come in and they are served in the order in which they arrive. Contrast this with a snooty trendy restaurant, where only people on the “A” list determined by management are allowed to make reservations. If someone higher up on the list wants to get in, the owner may cancel the reservation of someone else, allowing the more prestigious guest preferential treatment. “Commoners” have no access and are kept out by a bouncer. This would be a seller-determined access, using a hierarchy to make access different depending on the customer’s status.

The same thing can occur with airlines. Some airlines treat everyone the same and it is first come, first served. Others have complex frequent flyer memberships with various levels of platinum, gold and silver, and different preferential access based on the type of membership.

In many industries, about 80% of the profits come from about 20% of the customers, and about 50% of the customers are unprofitable to serve. This is especially true in high service businesses, like banking. Some banks are acting on this knowledge by trying to discourage low profit customers from banking with them by giving them less access to banking services (and giving more service access to the profitable customers). This is called an “intelligent loss of business,” discouraging access to customers that are unprofitable to serve (or limiting your offering to them so that they become less unprofitable).

In an unusual reverse twist, Progressive Insurance uses increased access to get rid of potentially unprofitable customers. Progressive believes that their insurance quotes are as low as one can be and still be profitable. If another insurance company can offer a lower rate, Progressive believes the other firm is taking on an unprofitable customer. By offering people access not only their own quotes, but access to competitive quotes, Progressive is encouraging the loading up of unprofitable customers onto their competition.

SUMMARY
Although we were able to just scratch the surface, one can see that there are a variety of ways in which one can alter the access to goods and services in a business model. There is no single best approach. People can make a profit rearranging the access elements in a variety of ways. If you feel that the marketplace is stacked against you under the current rules of access, perhaps you can create a greater piece of the action by operating under a different set of access rules.

Again, as mentioned in the last two blogs, sometimes the most revolutionary innovations are not about creating an entirely new product. Instead it may just be about tweaking the rules of access in an industry.

FINAL THOUGHTS
Managing access is vastly different from discriminating against people based on race, ethnicity or religion. This is not about hatred and bigotry. This is about choosing a market to serve and developing the access rules which best serve that market.