Human beings assemble themselves and form a kind of super organism. Super organisms have properties that cannot be understood just by studying the individuals. – Nicholas Christakis
It took thousands of years to build churches and print books to inculcate social order. Information trickled down from popes, generals, and giants of industry to guide life and work. Then TV came along, and another group of old white men decided what we should know and see. Then, in 1994, WWW showed up on magazine covers and everything started to change. The world’s knowledge was digitized, hierarchies began to crumble, new communication channels and marketplaces sprang up. And, everything was great, well, mostly great.
Let’s get right to the point: networks of aligned people are powerful, always have been, but now that they’re all connected they operate a lot more like a live organism than a hierarchy. What comes with this new life form is a great opportunity to supercharge the social sector — how we support lifelong learning and provide youth and family supports. We haven’t quite figured out how to do it but the opportunity set seems to get better every month.
Networks Have Changed Life and Work
A Wharton study of 1500 organizations (using machine learning to scour big data sets) found four primary business models:
- Asset builders: manufacturers, distributors, and retailers (WalMart, Ford, FedEx)
- Service providers: consultants, bankers, educators, and lawyers (Aetna, JP Morgan, Accenture)
- Technology creators: biotech, healthtech and fintech (Microsoft, Oracle, Amgen)
- Network orchestrators: social, business and financial (TripAdvisor, RedHat, Uber)
The study found that networks, on average, yield the highest growth, margins, and returns. Study leader Barry Libert said, “Network Orchestrators, which leverage intangible assets, and real time interactions, apply to all organizations regardless of industry.”
The study also found a surprisingly large performance differential, the authors called it a Multiplier Effect, owing to the new rules of strategy introduced by network versus firm-centric business models.
The Network Imperative, a book based on the study, urges adoption network-based business models. Co-author Megan Beck said “After conducting this detailed research, we are finally able to quantify the value of platform and network-based businesses. Our research supports our hypothesis that these new business models – which are based on two-sided revenue models and customer co-creation – are more scalable than traditional organizational strategies that are based on one-sided, supply driven competition founded in the industrial.”
Using machine learning, the study scoured language of organizational strategy and concluded that mental models led to business models. Leaders of networks regularly use words like platform, network, digital and mobile to describe their firms and investment strategies where others talk about property, plant and equipment.
Platforms Promote Network Effects
Authors of Platform Revolution suggest that platform based business beat the alternative because they:
- Scale more efficiently by eliminating gatekeepers,
- Unlock new sources of value creation and supply,
- Use data-based tools to create community feedback loops, and
- Invert the firm (users run the place and create the value).
Platforms that get better with each new user exhibit positive network effects. Large well-managed platform communities produce significant value for each user of the platform. Value can be driven by the power of social networks (can I get connected?), demand aggregation (can I buy stuff?) and app development (can I do stuff?). Platforms promote valuable exchanges of information, good/services and currency. The ability to monetize the value exchange is key to a scalable and sustainable platform.
Most platforms are information factories but with little or no control over inventory. They rely on user co-creation and match content and connections at scale using algorithmic filters. Getting these core interactions right is the key to scale (think Facebook v. MySpace). As co-authors, users are invited into platform operations.
Sangeet Choudary, a co-author of Platform Revolution, offers 16 principles for digital transformation in his platform manifesto:
1. The ecosystem is the new warehouse: Scale is achieved through the efficient organization of ecosystems and processes towards value creation.
2. The ecosystem is also the new supply chain: Organize ecosystem resources and labor through a centralized platform coordinating actions.
3. The network effect is the new driver for scale: Scale is achieved by leveraging interactions in the ecosystem.
4. Data is the new dollar: More data absorbed leads to more monetization opportunities
5. Community management is the new HR management: Manage communities like distributed employees; enable the learning and development of producers.
6. Liquidity management is the new inventory control: Matching supply and demand efficiently is the only way that a platform can hold the two sides together.
7. Curation and reputation are the new quality control: From hierarchies for quality control to curation and reputation management.
8. Users journeys are the new sales funnels: From acquisition and activation to nudges along journeys.
9. Distribution is the new destination: Meet consumers by distributing services across their journey planning for multi-point connectivity.
10. Behavior design is the new loyalty program: Creating habits ensures users stick around. Network effects also create stickiness.
11. Data science is the new business process optimization: Shift from repeatable internal process to repeatable ecosystem interactions.
12. Social feedback is the new sales commission: Design social feedback to encourage producers on a platform.
13. Algorithms are the new decision makers: Algorithms leverage employees and ecosystem inputs to perform gatekeeping and resource allocation roles.
14. Real-time customization is the new market research: Serve the most relevant content from producers to interested consumers, balance relevance with serendipity.
15. Plug and play are the new business development: API is the contract and the integration interface.
16. The invisible hand is the new iron fist: Rather than hierarchy, opt-in behavior design and gradual nudges (through the invisible hand of data, algorithms, and APIs).
Interesting, right? Platforms create an entirely new way to think about scale, particularly impact at scale. Some of these axioms may not seem to apply to your effort to lead a school or an impact org, but consider these questions:
- Instead of focusing exclusively on internal issues and telling people what to do, could we focus more on edge/external interactions (e.g., parent involvement, student agency, donor engagement, partnership development, community-based learning opportunities)? (#1, #2)
- How could we collect more and better data about our customer/client/student interactions? (#5, #11-15)
- Instead of focusing all of our energy on employee evaluations, how might we leverage community feedback? (#5, #7)
- How might we encourage co-creation? When could consumers (clients, teachers, learners) become producers? (#5, #8)
- How might we study and improve the experience of our client/student? (#8, #10)
- Rather than imposing a change agenda on a hierarchy, how might we invite innovation and nudge progress? (#16)
Business Models for Impact Organizations
Impact initiatives start with a vision for a better state and plan for change. Increasingly impact organizations are adopting network strategies, leveraging the power of platforms, and incorporating business models that support scale and sustainability. There are seven relevant business models for impact organizations:
1. Philanthropic: Grant supported direct services or advocacy.
- Advocacy: Achieve, Alliance for Excellent Education, 50CAN, Edutopia
- Networks: XQ, ConnectEd, YouthBuild, Future Ready
- Content: Khan Academy, CK12, Gooru
2. Public service: Provide a public service with public reimbursement.
- School districts, charter management organizations (most of which operate as platform networks)
3. Sponsored: Advertisements or sponsorships to access the network.
- NPR, EverFi, EdSurge
4. Fee-based: Earned revenue through the direct sale of products or services.
- Testing: ACT, ETS, College Board, Measurement Inc.
- Marketplace: Udemy, Teachers Pay Teachers
5. Subscription: Users pay an annual fee to become a member or subscribe to access the network. The objective is long-term retention and recurring revenue.
- Networks: Big Picture, NAF, CAPS Network, EdLeader21
- Platforms: i-Ready (adaptive learning), Canvas (learning platform)
- Content: Education Week, Planet3, PLTW, AVID, ST Math
6. Freemium: Users gain limited access to free resources (which may be supported by advertising) and pay a premium for added features; works well for online services with low acquisition costs but high lifetime value.
- Platforms: Edmodo, ClassDojo, Schoology, Moodle
- Content: Open Up Resources, EL Education (professional learning services in support of open education resources)
7. Franchise: Subscription to comprehensive model, platform, learning opportunities and brand.
- Acton Academy, AltSchool, Cisco Networking Academy, New Tech Network
The first four categories may use a platform. The last three categories leverage platforms. While this platform stuff is tempting from an impact standpoint, it’s not a no-brainer. I’ve seen nonprofits try membership platforms that have fallen flat. I’ve seen platforms try freemium with a lot of free and little premium.
Only a handful of impact organizations will achieve the viral growth and network benefits of massive platform networks, but every organization can benefit from the thoughtful use of platforms including enhanced interactions, co-creation and empowered frontline actors. There is no excuse for imposing a top-down hierarchies when a dynamic learning organization is called for.
Many impact organizations used mixed business models including philanthropic support (#1) to get started and design new programs and earned revenue (#6) or subscription (#5) to build a sustainable impact organization.
Some organizations start with one business model to prove core viability of their premise and then migrate to a second business model for scaling (for example AltSchool starting as tuition based managed network and migrating to franchise).
Some of the network business models look like marketplace but networks require:
- Affiliation: members/subscribers make an affirmative decision to associate,
- Access: members/subscribers gain access to network resources (brand, services, information sources, premium content), and
- Interdependence: it’s the co-creation, transactions, and flows between members that create mutual value.
Networks add value by getting bigger and better. Bigger networks create more interaction opportunities (e.g., a chamber of commerce adds more business members, Coursera adds more university partners). Better networks create more value per transaction (Canvas adds video capabilities, New Tech Network adds elementary grades). The critical success factor for any network is keeping perceived value greater than perceived cost.
Platform powered networks hold the potential to create dynamic engines for good–better teaching conditions, better learning opportunities, better tools, better supports–propelled by leaner smarter organizations.
For more see:
- How School Networks Work And Why That’s Important
- How Networks Make The World Better
- Acton Academy: Building a Student-Centered School And Global Network
- What’s The Next Big Idea? Microschool Networks
- Smart List: 75 Top School and Charter Networks
This blog is part of a multi-year campaign studying networks and their effect on education and transformation. Our work will culminate in a book publishing in 2018. Learn more and join the conversation using #NetworkEffect.
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