Great post. Do you think that this data algorithm is fully applicable to each bid that Netflix goes for? If so, how would you modify or incorporate variables to make sure you don´t get locked up in the factor that made this possible going forward? There could be a bunch of factors adding into this result. Definitely the approach proved succesful for Netflix, but do we know for example how much did the others offer.
Usually they need to be within a 20-30 km radio. This allows the operator to achieve the economies of scale necessary without increasing transportation costs or moving the machinery. In the Argentinian model, they started as close end investment funds and they ended up as investment tools provided by asset managers to wealthy people, with minimum tickets above a million dollars. The flexibility of this has to do with the modularity. You can do it with 2,000 hectares, like the Argentinean case, or with 60. The laters requires low capital and can be sourced by small contributions.
The pride is a hurdle that prevents big industrials (or neighbor companies) from doing it. The point here is that the farmers won’t understand nor will want to relate to a bunch of people. That is why you need a friendly operator who speaks the farmers’ “language” and intermediates the crowd.
Regarding your second point, the unlock of value given the higher return of the land is so high, that farmer get very well compensated. Remember that by his own, he cannot do it given (1) size of the plot (2) restriction in the access to capital. And unfortunately these are barriers that will remain and prevent him from ever doing it on his own.
I think what you say is definitely true. To address your second point, the investor profile depends on the crop you want to target. In the case of alfalfa or soy for example, it is in fact easy to return the cash. Look at it like a bond. You saw, then harvest every year returning interest + principal. The only residual value comes from the disposal of the assets (tractors and machinery). So you are getting the value through the whole period. For other types of things, like vineyards or walnuts, then it is definitely true that the crowd would not work given 15 or even 20 year cycles.
Regarding why using a crowd, I see it as the easiest tool operators can use to build a business. What you mention about agriculture vendors makes a lot of sense. Actually I studied this model working for a seed producer. By doing this, they would integrate vertically and provide even more value to their clients, securing part of the demand for their own products.
Cumplo has definitely pioneered the crowdsource in Chile. My concern with the current numbers is that it might be hard to scale further than what it is. When you only have a couple of thousand clients you are able to focus on the very best, and thus your non performing loans are very little, so comparing that to the overall system it’s a little farfetched in my opinion. If there would be so much space to grow in Chile then it would make no sense to expand to other countries yet. I suspect their expansion is due to their inability to keep growing their initial market. What do you think about this idea?
I don’t understand much about film making but if art is an “industry” where only the geniuses win, then by definition the best movies will be the ones ideated by only. Then, how could the crowd provide something different?
Very interesting post. I read about Local Motors in one of the last HBS Alumni magazines. As a big car fan, this looks definitely something to keep an eye on, although I still have my doubts on the real ability of crowdsourcing as valid tool to come up with better and safer designs compared to what the industry is capable of. Just looking at the numbers, if Porsche or Volvo spend hundreds of millions of dollars in designing a car (and this considers a lot of synergies in terms of all the capabilities and share resources they have built over decades), how is it going to be possible for Local Motors to really create something that matches those standards from the engineering, safety, performance, and all the other aspects that drive cars value? I love the idea, but one thing is to come up with cars that win universities or NGO awards, and something totally different is to win the market where the usual giants play.
I’ve always believed that this initiatives help to build Nike’s brand and benefit from stronger market share in the “sneakers” business. I totally agree with what has been mentioned above. Does it make sense to spend all this resources in building software platforms instead of improving its products? To me, there is a huge component in that the driver for sports fans is the performance of gear and thus is the major driver to join this network. If Adidas or Under Armour come up with better products (or even different but complementary) there will be not only multihoming but very little customer loyalty.
I didn’t realize the existence of this exchange until this past weekend when I walked by it in Chicago. I did some research and was blown away by how it has held over the years. My only concern is that given that currently there are “legal restrictions” that are holding its winner take all nature, do you think that with increasing transaction costs and relevance of other markets worldwide, this protection could be lost and thus other initiatives might be necessary from the Chicago Mercantile Exchange perspective?
Very interesting Sara. I was wondering about the role of Zillow or any other platform in the industry. As you point out correctly, real estate agents have governed this market for centuries, taking a relevant cut for something that with the appearance of a market place like Zillow doesn’t seem to hold anymore. But still it appears that they’ve managed to hop on the platform as if they were “app developers” when they really aren’t. Do you think that Zillow could claim more value if it manages to move them out of the market? But if you do it, how do you keep feeding your platform with new homes?
Thanks for posting! As you both mention, the non-private nature of the company is in my opinion an important barrier to change. Moreover, the regulatory framework jeopardizes all efforts to move towards innovation. The fact that USPS has to serve every corner of the country and cannot shut down unprofitable offices has created this huge fixed cost structure that effectively burns cash that could be used to reshape the company and boost its strategy. This framework was ideated a century ago in a totally different context than the one we have today. I think the bigger question Americans should ask themselves is whether it makes sense for a postal service to exist as a government agency. If USPS future relies in competing in the business of UPS and Fedex, and the digital revolution itself has taken over all the activities that once USPS was responsible of, there seems to be no more need of a subsidiarity “agency” like the postal service. If this was the case, then why not privatizing?
Building on Vlad’s point, I’m also curious on how far apart from Starbucks initial value proposition is the delivery concept. It definitely sounds super practical and desirable but wouldn’t this jeopardize the whole coffee experience on which the company was built? Even more, once you are already in your office alternatives grow importantly. Automatic coffee machines like Keurig, Nespresso or Dolce Gusto provide you with a similar coffe at a 1/6 the cost. How could Starbucks compete against this?
Really enjoyed you post HelloSof. Nike has been doing it across sports so despite I’m not a runner I did joined their soccer training platforms that accompanied one of the most successful marketing campaign (for all of those who remember “the Cage””. Despite, as a big sports fan, I have to say that for very technical runners or players of any sport, competitors do seem to have better alternatives. It looks like Nike has been aiming to the masses, to that average runner who really won’t need the best of the best, but that likes to have a good pair of shoes. In this effort, all of what you’ve said has been fundamental. My only concern is how do you see Nike going forward. Competitors could easily imitate its digital strategy and unless they use all the data they have gathered to come up with revolutionary product innovation, some may say that this will only end up being a replicable marketing strategy. What are your thoughts?
Interesting topic Gonzalo. Most of big players that were competing in this space in the early 90s, understood their business as the gate keepers of communication channels. As new technologies came into the scene, companies leverage their assets to cross-sell and expand their offerings, while moving revenues from one channel to the other. Companies which had only land lines in the early 90’s, added cable TV and internet. As land lines started to be replaced by mobile phones and these became computers, companies pivoted into big internet providers. Do you think this is going to be possible going forward? One could say that being huge infrastructure companies helped them to do so, but now with new asset light models coming into the scene, how do you visualize this process going forward?