Consuprise 2: Combine consumer and entreprise markets to multiply network effects

How can web start-ups use the enter­prise mar­ket to make inroads in the con­sumer market(s) they tar­get? By play­ing at the edge, and using the enter­prise mar­ket to strate­gi­cally dom­i­nate com­peti­tors in the con­sumer mar­ket even­tu­ally tar­geted. The rev­enue streams cre­ated in the process (detailed in a pre­vi­ous post) are a nice exter­nal­ity but not the main goal.

Edges are pow­er­ful sources of busi­ness inno­va­tion because they are places of poten­tial and fric­tion, where tra­di­tional prod­ucts and prac­tices are no longer ade­quate to address unmet needs or unex­ploited poten­tial. Much tin­ker­ing and exper­i­men­ta­tion occurs on the edge, as well as heated debate about the most promis­ing options to address emerg­ing needs, inten­si­fied by the diverse back­grounds, skill sets, and per­spec­tives of par­tic­i­pants gath­er­ing on the edge. By play­ing a part in this exper­i­men­ta­tion, com­pa­nies par­tic­i­pate in rich flows of new knowl­edge, flows that are the pri­mary sources of innovation.

As John Hagel is point­ing out, this is not a com­mon nor risk-free strat­egy, but the poten­tial value is sig­nif­i­cant. More impor­tantly, in first-mover mar­kets, it can be the dif­fer­ence between the prof­itable leader and the insignif­i­cant followers.

Web start-ups like Dopplr or Tripit are a good exam­ple (if you don’t know them, a short overview is avail­able here). Their busi­ness plan was the basic one: grow like mad then fig­ure out how to earn money. Sim­ple, worked at some point, not any­more. So here we have two head-on com­peti­tors in a mar­ket with:

1. a strong first-mover advan­tage struc­ture: users are not likely to main­tain pro­files and activ­ity on both sites
2. a struc­ture con­ducive of net­work effects: clas­sic, when you reach a crit­i­cal mass you grow expo­nen­tially (works with first-mover of course)
3. the prod­uct pro­posed being focused on a sim­ple and bounded activ­ity (ie not a gen­er­al­ist social net­work a la facebook)

We can look at the past now, and no clear leader has emerged between the two. So how could they have used the enter­prise mar­ket to achieve a good net­work effect?

As I have out­lined in the past , pretty sim­ply. They could have launched on the con­sumer mar­ket, seduc­ing early-adopters, develop a bit their fea­tures, but quickly switch­ing to look at the enter­prise mar­ket. Using travel sched­ules to induce serendip­i­tous encoun­ters has at least—more in fact—value for an enterprise.

What would have been a strate­gic move? After the ini­tial con­sumer launch, to develop fea­tures for cor­po­rate use, and pro­vide enterprise-specific groups that let employ­ees of a same com­pany con­nect and share their travel sched­ules. That way, and dur­ing the crit­i­cal stages where the first-mover advan­tage is impor­tant, you can develop a pow­er­ful vir­tu­ous cycle:

1. Launch con­sumer side to attract the early adopters
2. Launch enter­prise spaces (spe­cific to each com­pany, but the fea­tures are the same generic ones)
3. Attract not only early adopters in the com­pa­nies, but also more “nor­mal” employ­ees as they are exposed to the appli­ca­tion + get value out of the enter­prise spe­cific features
4. You quickly develop a crit­i­cal mass of users who do not have the choice of plat­forms: if their com­pany use Dopplr, they will use it actively, not Tripit and conversely
5. This grow­ing pool of cap­tive users are ask­ing their con­tacts to use the same site they use: you demul­ti­ply the net­work effect

In essence, you use the enter­prise mar­ket to cat­alyze a deep net­work effect on the con­sumer mar­ket and secure a strong first-mover advan­tage. In this spe­cific case, when two con­tacts know each other and con­nect on the plat­form, the pub­lic site is suf­fi­cient. When you want to con­nect peo­ples who don’t have any­thing known in com­mon except to work for the same orga­ni­za­tion, you need spe­cific spaces. Dopplr is recently pro­vid­ing just the premise of it, but it should be much more to be use­ful, and then to reap the benefits.

Last point, this scales: you pro­vide the same generic fea­tures to each client, so costs are under con­trol. Of course, your prod­uct has to be fit­ted for this dynamic, hence my 3 criteria.

Think­ing strate­gi­cally about how to best exploit, in a com­bined way, the con­sumer and enter­prise mar­kets is fun­da­men­tal for start-ups with offer­ings use­ful in both mar­kets. Com­pa­nies that will stay iso­lated in just one will have to lose grounds to the play­ers at the edge.