In December 2017, at a gathering of about 200 of the top U.S. CEOs in New York, one of the people at the summit was Larry Page, the founder of Google and CEO of Google’s parent company, Alphabet. In front of this group, Page was asked what he would do with the $86 billion in cash that Alphabet had at the time (mostly overseas) if U.S. tax policy changed and he was able to bring that money back to the United States. His answer was surprising yet telling -- he said simply, “Traffic lights.”
In fact, two other times in the next 15 minutes, when Page was asked about topics that had absolutely nothing to do with traffic lights, his answer each time was “traffic lights.” He went on to explain that he sits at his desk in Mountain View, California, most mornings and watches his employees sitting at a traffic light, waiting to come to work. Oftentimes no traffic is moving in any direction. He sees this as a waste of time that reduces productivity and impacts the environment (from engines idling for minutes at a time).
Yet, Page wasn’t talking specifically about traffic lights. He was thinking many steps ahead. He was looking into the future and envisioning how, when cars are automated and start talking to each other, we won’t need traffic lights at all. Cars will slow, not stop, for other cars automatically. Accidents will be avoided and traffic will flow smoothly and unimpeded. In order for this to happen, however, an ecosystem must be built. Cars need to be increasingly autonomous and inter-vehicle communications must be predictable and secure. And so it’s not about traffic lights, but the elimination of traffic lights that would result from successfully interconnecting vehicles -- not the objective of interconnecting them. Furthermore, it’s about building all the components of the ecosystem so that we will no longer need traffic lights.
In order to fully understand the ramifications of Page’s vision, think about today’s demands on our roads infrastructure. Currently we have constant calls for more roads to alleviate congestion in urban and suburban areas, for example. But in a world where most traffic is autonomous and interconnected, we will actually have an over-abundance of roads. We just use them inefficiently today.
The impact of autonomous, interconnected vehicles extends well beyond automobile (and related) production to impact road construction-related firms and industries -- from asphalt and paving companies to heavy equipment to laborers to local municipal and federal highway budgets.
All of this requires thinking many steps ahead. Larry Page is one of the few individuals who publicly talks about strategic control points in interconnected markets. He clearly “gets it.”
The Competitive Ecosystem
In reality, competition happens not only at each stage of the industry’s value chain, but also across multiple layers of an entire ecosystem of connected market opportunities. While the concept of a value chain is often inward looking based on processes, the concept of a competitive ecosystem is market facing, including both internal processes as well as market-based effects. Good companies today are able to leverage competitive strengths in one market to competitive advantage in another.
A key to the success of companies today is leveraging strength in one market (for strategic advantage) and margin extraction in another. For example, Amazon has leveraged its publishing and supply chain strengths to extract margins for unrelated categories in its marketplace to the tune of about 20 percent. Google leverages strength via its core-sponsored search and advertising businesses to support a bevy of other seemingly unrelated businesses -- from insurance to television and movie content to mobile phones and mapping.
Keep these principles in mind when considering where to pursue strategic control points in interconnected markets:
1. Chain reactions. Today, a chain reaction of competitive interactions occurs not just within a single industry, but across industries. Think of a dynamic competitive ecosystem where one part of the ecosystem can have a substantial impact on another part. For example, Local Motors, a company that additively manufactures (3D prints) automobiles, has developed a 3D printing platform with a wide range of interconnecting value chains and interconnected industries. Local Motor’s capabilities in 3D-printed automobiles can be leveraged into countless manufacturing applications, industries and industry value chains. In fact, Local Motors is producing 3D-printed microwave ovens for GE, helping Airbus create revolutionary part supply networks, and more.
2. Build your core with thoughts to the ecosystem. As you build, develop and enhance your key core competencies, think how to extend these across related -- and unrelated -- industries. Do unique points of strategic control at your core extend well to other industries? Look for situations where, if your firm controls certain capabilities, it prevents (or makes it difficult for) others to compete.
3. Have a vision. The “traffic lights” example is compelling because Alphabet has developed a history or competencies that enables it to “connect the dots” across multiple industries. For example, the Android operating system, Google Maps and the acquisition of Waze and Nest give Alphabet the ability to extend location-based information across industries.
The common theme of successful companies today -- think Google, Apple, Amazon, Tesla and Alibaba -- is not just that they exert the power derived from owning a point of strategic control, but that they have the foresight to own the point of strategic control in the first place.