How To Shape A Market By John Hagel

A very insightful man named John Hagel III spoke to a couple of hundred developers at eBay’s DevCon 09 gathering at eBay’s headquarters in San Jose last week.

I attended (even though I’m not a developer) and luckily Hagel’s talk was not technical!

Some of you may know John Hagel from his book Net Gain, which discusses how online networks have shifted the power in goods and services. He also runs The Center for the Edge in Silicon Valley.

Mr. Hagel’s topic last week was “Shaping Markets”

By Shapers, Mr. Hagel is referring to companies that transform a market sector. His Shaping examples included the following:

• Containerized Shipping (1950’s) — Sea-Land founder Malcolm McLean reshaped global shipping by developing a design for four-corner fittings and twist-lock mechanismis on shipping containers…and made the design available industry-wide.
• The Visa Credit Card (1970’s) — VIsa Founder Dee Hawk reshaped the credit card industry around the notion of a shared utility. This allowed banks to outsource their credit-card processing to Visa so that the banks could focus on customer acquisition
• Microsoft and Intel’s PC Marketplace (early 1980’s) — Microsoft and Intel led the charge of a set of protocols of a chip and operating system that formed the personal computer ecosystem.
• Li & Fung Apparel Supply Chain (1980’s — Victor and William Fung reengineerd the apparel industry by providing a simple phone/fax system for its 10,000 partners. Roughly 40% of all apparel is sourced through one of Li & Fung’s supply chain

The Three Elements to Being a Shaper

Hagel says that a Shaper must have three things:

1) A Shaping View

An example of a shaping view is Microsoft Co-founder Bill Gates’ message in the early 1980s that is summarized: “Computing power is inexorably moving from mainframes to desktop. If you want to be a leader in the computing industry, you have to be a leader in the desktop.”

At the time, the mainframe (IBM) and minicomputer (DEC) guys were discounting the personal computer.

Gates’ Shaping View galvanized small companies to invest in his vision of a “Computer on every desktop.”

A more recent example of a shaping view is Salesforce.com’s Founder Marc Benioff’s Shaping View that companies could reduce their technology expense if they used software through network services (as opposed to software packages installed within each company).

In short, Gates and Benioff are saying: “The future is over here — this is where you ought to invest…and there are real rewards associated with it.”

2) A Shaping Platform

Mr. Hagel explains that to be a “Shaper” you also need a platform that offer one of two types of leverage:

A) Development Leverage — A technology such as the force.com technology from Salesforce.com or Facebook’s Application Development Tools that reduces the investment required to build and deliver products or services.

B) Interaction Leverage —  A set of protocols and practices to facilitate interaction. Google AdSense is a good example of this as it allows a connection between advertisers, content providers and consumers.

3) Shaping Acts & Assets

Mr. Hagel says that a Shaper must demonstrate  conviction, capability as well as assurance to other participants in the industry that it will not compete with them.

His best example here was Novell, the computer networking company that sold off its hardware business to concentrate on its local area networking operating system.  That was a bold move that signaled to others in the industry that Novell was serious about focusing on a network operating system — their dominance of that industry soon followed.

Another example: Malcolm McLean released his patents for the four-corner fittings and twist-lock mechanisms royalty-free to the International Organization for Standardization

Incentives are Important

There is also the question of how do you motivate people through positive rewards as opposed to negative rewards.

Clay Shirken, for example, believes in negative rewards — your company will go out of business if you don’t act.

Mr. Hagel seems to lean more towards positive incentives — He recommends shifting perceptions of risk and reward.

Crisis is an Opportunity

During crisis, we magnify risk and minimize reward. That’s an opportunity for a shaper is to come in and flip that.

You should magnify perception of reward and discount the perception of risk. If you do that you can motivate people to make investments around your strategy, you can reshape entire markets or industries.

Shapers Can Start off Small (even within other platforms)

You don’t need to be a large company to be a shaper. Visa at one point was a no-name startup. Malcolm McLean was a trucker from Arkansas.

Startups can be very successful shapers if they mobilize the three elements above — Shaping View, Shaping Platform and Shaping Acts and Assets —  together.

Facebook is a current shaper. There are also opportunities to be shapers within an ecosystem — a company called Social Media Networks is creating a platform for Facebook to help faciliate aedvertising revnenue.  It’s a  shaping play within the broader Facebook ecosystem.

Making Money Even If You’re Not a Shaper

Here are some key lessons for you to make money in these shaping strategies even if you’re not the Shaper.

1) Be Acute in measuring a Shaper’s capabilities and potential for success. You ought to be comfortable that that Shaper is going to pull it off.

2) You’ve got to be clear about what niche you’re operating in…and what’s truly distinctive that insulates you from the rest of the participants.

3) Leverage Skills — You have to think about who else is out there in the ecosystem to take full advantage of the ecosystem. Who are those people and how to I build those relationships so that we all gain value from the shaping strategy.

4) Ultimately, the power of these shaping strategies is that you are able to learn faster. How do you learn from the experience of everyone else (not just your own experience)…and how do you adapt for your own sake.

Final Thoughts

The core message: not everyone is going to be a shaper. But more and more markets will be shaped over time.

The key question: do you want to be a shaper…or do you want to be shaped? You can make a lot of money either way. But you have to understand the rules of the game in order to succeed.