Creating and Capturing Value

Vishu Bandari
Sep 2, 2018 · 2 min read

For understanding it better lets start with an analogy consider an ecosystem around which creation and capturing of value takes place like one that of apple.

when it comes to apple(iPhone) they do this by making the customers happy and it is done by differentiability i.e where the customer wanna pay his money which is value it adds the value in the eyes of everyone who uses and the second thing is it manages its supply base very carefully which is governed by the principle of relative replacability which is main idea behind capitalism where one can exploit with the help of competition.

so what does this mean, it means that in any ecosystem that if you wanna get into so have to first show the differentiabity to increase the size of overall pie and then use it to be a central authority and by using principle of relative replacibility get a max amount of share of that pie.

As with the introduction of technology there is greater bias towards value capture compared to value creation as we can get a big piece of a small pie.Value capture is one of the most interesting and under studied areas of business.

Let’s see the same in context of internet and in it pie is similar to of a supply chain which has a supplier, distributor and consumer.

Aggregation theory is a framework to understand the impact of the internet on nearly all industries, it states that pre-internet, value was captured in owning the distribution and integrating backwards into supply. post-internet, value was captured in owning the distribution and integrating forward into discovery and user data as internet brought down marginal cost significantly.

this theory focuses on the aggregation of supply and its downstream effect:

this has fundamentally changed the plane of competition: no longer do distributors compete based upon exclusive supplier relationships, with consumers/users an afterthought. Instead, suppliers can be aggregated at scale leaving consumers as a first order priority. By extension, this means that the most important factor determining success is the user-experience: the best distributors/aggregators/ market-makers win by providing the best experience which earns them the most consumers/users , which attracts the most suppliers, which enhances the user-experience in a virtuous cycle.

This is an important subject for any entrepreneur who wishes to develop a business model

Vishu Bandari

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