At my first project I learned about the value network. In most industries, for a service or product to be delivered to the final customer, many processes have to be accomplished.
For instance, in order to eat an apple you must have (to name a few): the farmer, the chemistry company designing the fertilizers, the distribution company and the supermarket. Every single player adds value to the product. The farmer creates the apple, the fertilizer guarantees the quality of the apple, the distribution company allows the apple to be served throughout the country, and the supermarket actually SELLS the apple. In every step, a subindustry is created. You will have several farmers, several fertilizer brands, several distribution companies and several supermarkets. Competition within each step is fierce and strategy is necessary in order to survive.
In the end, it’s all about being the strongest in the playground. You can become the strongest in many ways. An option would be to eliminate competition in your step of the value chain. Another, to enter in other steps of the value chain (all of them is also possible). But the one I like the most is to control the main source of money. Harvesting an apple is useless (from a business point of view) unless you sell it. In the value chain of the apple, the strong player is the supermarket, since it is the one that will sell the apple, so one may think that the one controlling the user end interface (that is the supermarket) will have the control of the value chain preceding the user end interface.
But in many ways, the value chain can evolve towards a value network. This is usually accomplished by the creation of new revenues sources or new technologies that allow new business units to be formed within the value chain. What at the beginning looked like a straight line of value addition, it has been transformed into a value network where revenues may come from several points and control is not centralized any more. The telecom industry is a clear example of a value network. While several new technologies are being deployed and services are being created, there is not enough room for all of them. Some will be stronger than the rest. Some will succeed, the rest will not. That is the reason why many telecom companies are playing in all businesses: none of them is sure about what the outcome is going to be. Will telecom companies finally merge with content companies in order to serve what the final user really likes? Will the hardware fabricant design the device that will allow the other players know what the user really likes? Will the user pay for the content? Will the entire industry depend on advertising expense? The key to this issue is, in my opinion, to know which of the two following options will be more important: to SERVE what the user wants or to KNOW what the user wants.
Knowing what the user wants allows you to define user-adapted content and to guarantee advertising companies a quality of destination of their ads. But serving the content allows to control the distribution system, how to serve it and to who. Both sides are strong and it would be easy to go against or in favor of each one of them.
So in the end, depending on the points of the network where the control resides, the revenue streams will follow different paths, evolving paths, making the classic value chain a dynamic value network. Knowing how to predict changes in the value network will be the key to build a good business strategy and, therefore, to succeed in the long term.
