Strategic Management Lecture 2_SM_Business Models+Flywheels_Post-Lecture PDF

STRATEGIC MANAGEMENT BUSI70080 Business Models: Platforms & Flywheels James Eteen | David Zuo 13 September 2024 © James Eteen, 2024. All rights reserved. This presentation has been provided to support your studies at Imperial. You may print and/or download a single copy for your personal, educa...

STRATEGIC MANAGEMENT BUSI70080 Business Models: Platforms & Flywheels James Eteen | David Zuo 13 September 2024 © James Eteen, 2024. All rights reserved. This presentation has been provided to support your studies at Imperial. You may print and/or download a single copy for your personal, educational use. Further redistribution of teaching materials, including making copies available on the internet, is not permitted. We are joined by David Zuo, Senior Product Manager, Epic Games ▪ Forbes ‘30 under 30’ award-winner, 2023 ▪ Currently working on Fortnite at Epic Games ▪ Product Leader for a new category ▪ Co-leader of IP partnerships (Battle Royale) ▪ Led Fall Guys Creative in the metaverse. ▪ Helped Fall Guys achieve a historic launch success. ▪ Previously worked on Star Wars: Hunters at Zynga ▪ Programme management experience at Uber ▪ Formerly President of the ICBS Consulting Club and SSC Chair for MSc Management https://www.linkedin.com/in/davzuo/ ▪ Foodie: particularly enjoyed Farmers' Market Tuesdays Imperial College Business School Imperial means Intelligent Business 2 1) Learning Objectives Imperial College Business School Imperial means Intelligent Business 3 Learning objectives 1) Explore the importance and role of the business model in a firm’s pursuit of growth 2) Identify the drivers of “flywheel” strategies 3) Assess the ways in which leading tech companies exploit flywheel effects (Guest Lecture) Imperial College Business School Imperial means Intelligent Business 4 2) Platform Essentials Imperial College Business School Imperial means Intelligent Business 5 HelloFresh – was it set up as a platform? Imperial College Business School Reading: https://www.inc.com/magazine/201808/burt-helm/hellofresh.html Imperial means Intelligent Business 6 HelloFresh during a fast-growth phase WBC* # Meal kits: 200mn # Customers: 2mn 2018 Revenue: €1.28bn 2018 YoY Rev. Growth: 41% (vs. 2017) 2018 Operating Profit: €-58mn Imperial College Business School Source: www.ft.com/content/a0c36080-2398-11e9-8ce6-5db4543da632s *”World Before Covid” Imperial means Intelligent Business 7 Which is more valuable? Market capitalisation/valuation (estimated, 2024) $268bn share price x shares issued, 31 March 2024 $400bn Michael Nathanson, March 2024; based on decomposition of value of Alphabet Inc. Imperial College Business School Imperial means Intelligent Business 8 According to Jonathan A. Knee, what makes a good Multi-Sided Platform (MSP)? Imperial College Business School Reading: https://hbr.org/2016/04/blitzscaling Imperial means Intelligent Business 9 Network effects, according to Wharton: The network effect is a business principle that illustrates the idea that when more people use a product or service, its value increases. The network effect significantly applies to digital platforms, dating all the way back to the internet itself. When the internet became more widely used, more people relied on it to conduct work, deepen personal connections, and for research and other functions. Example: social network platforms The network effect is especially prominent on online platforms that encourage users to add other users to the platform’s network. Social networks such as Facebook and Instagram are key examples of the network effect. The more people that use the platform in an individual’s network, the more likely it is that individual will use the platform, too. Imperial College Business School Source: https://online.wharton.upenn.edu/blog/what-is-the-network-effect/ Imperial means Intelligent Business 10 LinkedIn is a classic example of a MSP business model Imperial College Business School Reading: https://hbr.org/2016/04/blitzscaling Imperial means Intelligent Business 11  Create a sketch that illustrates how the various participants in the LinkedIn platform interact to create value You may use any tools you wish… 7mins …Copilot anyone? [groups] Imperial College Business School * www.hbr.org/2006/10/strategies-for-two-sided-markets Imperial means Intelligent Business 12 I like to draw the platform horizontally in the centre… Imperial College Business School Imperial means Intelligent Business 13 Hopefully, your MSP diagram looks a bit like this: Platform is highly interactive, with all stakeholders incentivised to participate SUBSIDY-SIDE USERS Individual Profiles Company Profiles Same-Side: Messaging, News, Endorsements Cross-Side: Search, Learning Linkedin Messaging, Advertising Same-Side: Search, Messaging, Advertising, Data Sales Advertising Recruiting Recruitment Premium Companies Companies Agencies Users CUSTOMERS MONEY-SIDE Imperial College Business School Source: Adapted from www.applicoinc.com/blog/what-is-a-platform-business-model/ Imperial means Intelligent Business 14 Platforms in B2B: Imperial College Business School Imperial means Intelligent Business 15 Shared asset models depend on networked markets and platform solutions ▪ Ask: what value-add for the user/customer makes a platform “sticky”? ▪ “Very sticky”= lock in effect Source: www.clustermarket.com/universities Imperial College Business School Imperial means Intelligent Business 16 3) The Flywheel Effect Imperial College Business School Imperial means Intelligent Business 17 A flywheel strategy is a set of logically interlinked entities and/or actions that enable a company to achieve growth through building momentum Imperial College Business School Source: www.verbaltovisual.com/tim-ferriss-jim-collins-podcast/ Imperial means Intelligent Business 18 Flywheels can be applied to simple and complex firms Business Unit (BU) leaders translate the overall Corporate strategists deal with the corporate aspiration in into goals for the sub-firm aspiration of the overall enterprise, (or business unit) with a medium-term perspective. taking a long-term perspective. Overall Enterprise Business Unit (Multi-BU Corporation) Imperial College Business School Imperial means Intelligent Business 19 4) Business Unit-Flywheels Imperial College Business School Imperial means Intelligent Business 20  “Companies don't become exceptional as a result of a single intervention or initiative, but rather from the accumulation of little wins that stack up over years of hard work.” Jim Collins Imperial College Business School Imperial means Intelligent Business 21 The Amazon and Uber Flywheels (founder sketches) Imperial College Business School Imperial means Intelligent Business 22 Source: medium.com/work-futures/amazon-logistics-and-trucking-virtuous-cycles-and-the-flywheel-effect-4c1b85a4ca Ocado’s flywheel signalling… Imperial College Business School Imperial means Intelligent Business 23 Drawing the flywheel can help identify imperatives and dependencies; and clarify priorities Imperial College Business School Imperial means Intelligent Business 24 Drawing the flywheel can help identify imperatives and dependencies; and clarify priorities Imperial College Business School Imperial means Intelligent Business 25 An very good example from previous students: Bytedance Imperial College Business School Imperial means Intelligent Business 26 Flywheels delivered rapid growth for tech businesses in recent years ▪ Highly valued digital businesses seeking to disrupt adjacent categories ▪ Low marginal cost to deliver offerings to consumers (at a variety of price points) funded by low cost of capital since 2008 ▪ Flywheels and hyperscaling became the strategy of choice for US-based and China-based mega firms (e.g., Meta, Tencent) ▪ Single-brand entities such as Facebook, Google quickly became complex corporations (Meta, Alphabet) Imperial College Business School Imperial means Intelligent Business 27 Share price of selected tech giants Nov’21 vs. Nov’22 184 150 -52% -45% 83 Amazon 89 Google Nov-21 Nov-22 Nov-21 Nov-22 Imperial College Business School Imperial means Intelligent Business 28 Post-crash, (November 2022), Apple was more valuable than Meta, Amazon and Google put together! Source: No Mercy, No Malice; Scott Galloway Imperial College Business School Imperial means Intelligent Business 29 5) Corporate Strategy & Flywheels Imperial College Business School Imperial means Intelligent Business 30 Any corporation with a portfolio of business units can develop a flywheel as an integral part of its Corporate Strategy Does the logical flow of this Walmart flywheel make sense? Why/not? Imperial means Intelligent Business A cost-economies of scale flywheel can exist in value-chain business operating independent BUs/brand fascias Imperial College Business School Imperial means Intelligent Business 32 Disney has been exploiting revenue interconnection for decades 1939 Imperial College Business School Imperial means Intelligent Business 33 Hulu, Disney+ Lucasfilm ▪ At Disney, synergies between the business units are created by cross-selling (revenues) ▪ Cross-selling is an internal network effect – providing each member unit access to demand economies of scale ▪ When we add in the Lucasfilm (Star Wars) property, and digital properties Hulu, Disney+ it just drives the flywheel faster Source: Corporate Strategy - Institute For Strategy And Competitiveness - Harvard Business School (hbs.edu) Imperial College Business School Imperial means Intelligent Business 34 Positive and negative network effects for member firms and service lines in global accounting firms Imperial College Business School Imperial means Intelligent Business 35 Positive and negative network effects for member firms and service lines in global accounting firms Imperial College Business School Imperial means Intelligent Business 36 We are joined by David Zuo, Senior Product Manager, Epic Games ▪ Forbes ‘30 under 30’ award-winner, 2023 ▪ Currently working on Fortnite at Epic Games ▪ Product Leader for a new category ▪ Co-leader of IP partnerships (Battle Royale) ▪ Led Fall Guys Creative in the metaverse. ▪ Helped Fall Guys achieve a historic launch success. ▪ Previously worked on Star Wars: Hunters at Zynga ▪ Programme management experience at Uber ▪ Formerly President of the ICBS Consulting Club and https://www.linkedin.com/in/davzuo/ SSC Chair for MSc Management ▪ Foodie: particularly enjoyed Farmers' Market Tuesdays Imperial College Business School Imperial means Intelligent Business 37 What is it like to work at Epic Games? Imperial College Business School Imperial means Intelligent Business 38 Why has Epic Games been so successful? Top 3 Game Top 3 Game Store 500M+ Accounts 2.7B+ Friend Connections Top 2 Game Engine Top Choice in real-time rendering 100M+ MAU Imperial College Business School Imperial means Intelligent Business 39 The Epic Games Flywheel & The Creative Flywheel UGC Creators Players Incentivise Imperial College Business School Imperial means Intelligent Business 40 Epic collaboration! Imperial College Business School Imperial means Intelligent Business 41  Imagine you work for Epic Games, and are responsible for the Fortnite x Lego collaboration ▪ Highlight any opportunities to delight users/ customers of each company by working together 10mins [groups] ▪ Explain how Fortnite x Lego could create mutual financial benefit for Epic Games and Lego ▪ Illustrate your ideas in a simple flywheel that connects both firms together Imperial College Business School Imperial means Intelligent Business 42 What does a collaboration look like? Imperial College Business School Imperial means Intelligent Business 43 How do we measure growth for a flywheel / partnership? Why would they choose to operate in different geographical markets? Imperial College Business School Imperial means Intelligent Business 44 How do we measure growth for a flywheel / partnership? Cost Structure American McDonald’s vs. Asia McDonald’s – are they different? Market Penetration of Geo (#) x Cohort Demographic (LTV) = Total $ Upside Imperial College Business School Imperial means Intelligent Business 45 Cannibalistic vs. Incremental – what’s Netflix’s Strategy? 2019 2022 2024 ▪ Over 80 exclusive mobile games with no ads, no ▪ Acquisition of 3 Game Studios extra fees, and no in-app purchases ▪ Internal development of own Game Studio ▪ Deep collaboration efforts with game studios for IP, including Stranger Things …