I was listening to a podcast from Michael G Jacobides this morning. Prof. Jacobides is the Associate Professor of Strategic and International Management at the London School of Business, and his April 2008 interview points to the importance of controlling key bottlenecks of emerging industries to “gain an architectural advantage.” In the later parts of the interview, he likens this change to the difference between tactical and guerrilla warfare. As he puts it, “we’ve all seen what happens when you try to fight guerillas with tactical methods.”
He points to Apple, which controls and orchestrates innovation across many interdependent firms, rather than seeking to control the iPod and iPhone ecosystem entirely in-house. (Some open-source advocates would certainly take issue with this argument, but I would argue that generally Apple has taken the role of orchestra conductor more than monopolist.) He also points to Google, which touches key leverage points of well-established industries (health care, mobile telephony, advertising) to reshape them in outsized ways. It is not necessary for Google to ‘own’ these industries or to attempt to take them by force. Instead, it is enough to identify and lay hands on a bottleneck.
All of this reframes the idea of first-mover advantage. Where in the past it was enough for a firm to invent and implement a solution first, moving forward it may be more important to identify and cultivate the space around a key bottleneck region of an emerging industry. Once a firm has some leverage over the bottleneck, the mission becomes one of cultivation, not domination; the firm will thrive by creating and orchestrating an ecosystem of firms around that bottleneck.
Locally, this line of thinking reminds me think of two local Denver-metro firms: Forest City, and Tendril, Inc. One can see the Stapleton development in east Denver as a version of creative control without ownership. A single firm, Forest City, manages to control the master planning of the development, but does not own the entire development. Instead, the firm created an ecosystem of 20+ residential and commercial developers, home builders, and businesses, to create a functioning community. While completed at about the same pace as Levittown, Stapleton seems to carry off fairly well the illusion that it has been around for 15 or 20 years.
In the emerging electricity demand management industry, a key local example is Tendril Inc., a firm that may be closer to a ‘bottleneck’ of the smart grid industry than its peers. It has targeted local and regional utilities to form alliances, perhaps understanding that the utilities will be key partners (if not outright controllers) in the smart grid ecosystem. Knowing that much larger players may eventually jump into the space, Tendril is seeking first-mover advantage not only with its hardware (which is itself no small matter in this industry) but also with its positionality. It will be interesting to see how they manage their alliances in the next 2-3 years.
