Saturday, April 14, 2012

The value of non-moneterized transactions

Would you be willing to continuously provide services to Ferrari for free, just to be able to tell other potential clients you have Ferrari as a reference customer? Would you be willing to provide your technology and IP to one company, free of charge for exclusive use in their industry, just to get rights to the improvements they plan to make on your technology through investments in R&D? How much would the brand awareness be worth if the logotype of your new technology was seen on some customers' products - enough to get the technology for free? If access to one of your customers' customer data would help you improve your products and services towards all your customers, should you really charge for your products towards that customer? If a company provides you with substantial market data in exchange for your anonymized customer data, who is creating most value for whom? If you help develop other companies' key resources do you think they could reduce the price for you or provide you with more support? If you grow the market for other companies could you get something in return? If you provide tons of non-monetary value to your employees would they be happy with lower or even no salaries?

It would be a great mistake to believe that the revenue streams are the only measure of potential or existing value creation. It merely records the netting after barter has taken place.

When designing business models, do not limit your thinking to customer value creation and revenue streams.


  1. Hej Anders, I'm curious to know how this is typically analyzed before entering into negotiations with a partner? Does it come down to gut feel of the potential value that the partnership could offer; further estimating potential revenues with or without the collaboration to see what has the better 'net' result?

  2. Hi Nigel,
    Great question. My experience is that the "typical level of analysis" is highly correlated with the size and the experience of the firm. For start-ups this translates more to gut feel of the potential value, with some basic calculations, for incumbents it translates to NPV calculations of different scenarios based on a large number of assumptions. At the same time, for a start-up, one collaboration can be the making or breaking of their business model.

    To determine what is the better 'net' result is also an interesting question. Translating the different collaboration alternatives, or combination of alternatives, into potential cash flows and risks, to estimate present value is one thing. The crucial thing from a business model perspective is also the context of the collaboration. What is the purpose of the collaboration? If it is to spread a technology for wide use providing the rights and incentives to the collaboration partner to sub-license might be a great thing to do. If it is to to get a reference customer for the technology with the ambition to make money from licensing the same technology to other companies, providing rights to sub-license might be the worst thing to do. If you want to build your asset base and you have limited R&D capabilities, getting access to improvements might be more valuable than royalty rates or upfront payments etc.

    The answer to this, from my perspective, is to do more business modeling... to see how access to improvements could reduce your costs or improve the capacity for your own operations, to see how the use of your brand on premium products will impact your ability to price your technology, to see how much you will cannibalize your own products in terms of volumes or margins when providing core technology and IP to collaborators/competitors etc. This is however, more than what I think is "typically analyzed before entering into negotiations with a partner".


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