The Value of Demand Generation and the Evolution of Middlemen in the Internet Era

The Value of Demand Generation and the Evolution of Middlemen in the Internet Era

In today's digital age, the concept of "whoever generates the demand captures the value" holds significant importance. The internet has revolutionized the way businesses operate, creating a shift in how value is created and captured. Middlemen, who once controlled supply and profited from it, are now being commoditized as markets become more efficient. This article explores the dynamics of demand generation, the changing role of middlemen, and the potential for value capture in the post-internet era.

The internet has brought about a barbell effect, characterized by both consolidation and fragmentation. This means that while some companies are aggregating demand and capturing profits, others are specializing in niche markets. In the pre-internet era, controlling supply was the key to profitability. However, in the post-internet era, companies that are able to aggregate demand and provide the best user experience emerge as winners. This creates a virtuous cycle, where a superior user experience attracts more consumers, which in turn attracts more suppliers, further enhancing the user experience.

Value capture in the internet era is closely linked to value creation. The best companies, which offer exceptional experiences, will be able to capture a larger share of the value they create. As the market becomes more efficient, suppliers, including venture capitalists, may face commoditization. Venture studios, for example, have the potential to replace traditional VCs as they offer a more streamlined and efficient approach to investment. This highlights the power that aggregators hold over middlemen and the need for middlemen to adapt or risk being squeezed out.

One notable example of a company recognizing the importance of adapting to the changing landscape is Twitter. The social media giant is actively working on a "big overhaul" of TweetDeck, a popular tool for managing Twitter accounts. The company acknowledges that it has not given enough attention to TweetDeck and its developer ecosystem in recent years. Twitter realizes the pivotal role that developers play in fueling innovation and has committed to providing them with more support. This embrace of the developer community demonstrates Twitter's understanding of the value of demand generation and the importance of fostering a vibrant ecosystem.

To thrive in the internet era, businesses and middlemen must undergo a mindset shift. They must recognize that their role goes beyond simply routing supply and demand. Adding significant value along the way is crucial to remaining relevant and avoiding commoditization. Collaboration and innovation are key. For instance, if players in a sports industry teamed up and started a new league, fans would likely switch and pay for it directly. This illustrates the potential for middlemen to seize control and capture value by leveraging their influence and making bold moves.

In conclusion, the internet has fundamentally changed the dynamics of value creation and capture. The shift from controlling supply to aggregating demand has given rise to a new era, where the best companies provide exceptional user experiences and capture a larger share of the value they create. Middlemen must adapt to this changing landscape, or they risk being squeezed out. Embracing the power of demand generation, fostering innovation, and adding significant value along the way are crucial for businesses and middlemen to thrive in the internet era.

Actionable Advice:

1. Focus on creating the best user experience: Invest in understanding your target audience and consistently strive to provide them with exceptional experiences. This will attract more consumers and suppliers, leading to increased value capture.
2. Embrace collaboration and innovation: Look for opportunities to collaborate with other players in your industry to create new value propositions. By leveraging collective strengths, you can disrupt traditional middlemen and capture value directly.
3. Foster a vibrant ecosystem: Support and engage with developers and other stakeholders in your industry. By nurturing a thriving ecosystem, you can tap into their innovative ideas and create a mutually beneficial environment for value creation and capture.

Remember, in the internet era, whoever generates the demand has the power to capture the value. It's time to adapt, innovate, and seize the opportunities that lie ahead.