What Facebook, Amazon and Whatsapp all have in common is they have invested in infrastructure that they provide to people like you and me for no cost, whether it’s to organise an event or message a friend.
They have created a network effect and having reached critical mass, have been able to generate revenue by selling services to advertisers through the “shop window” they provide.
Facebook is an example of a network effect. Initially, its creators invited fellow students at Harvard University to join. Some did, some didn’t, but many people talked about it…which led to more people going to the website to find out what the fuss was about. But because you needed to be invited to join, they then asked people they knew who were on it to invite them. Then, through conversation with friends outside of Harvard, more and more people wanted to join and so the creators opened up beyond their initial target audience. The rest is history, but they are different layers to this network effect.
When Facebook reached a critical mass of users, advertisers started seeing the value in it, but many didn’t want to take the risk of moving their budget to a platform which had many users, but no evidence of how effective advertising would be. So Facebook enabled organisations to create pages to promote their products…initially for free. This created its own critical mass to such an extent that by the time brands decided to focus on Facebook as a key marketing channel, Facebook made it more and more difficult for them to promote themselves without paying for ads. Because brands had invested resources in using Facebook as a primary channel, paying for ads was less expensive than finding a new strategy.
Amazon have gone a step further and have sold their base infrastructure to people — their servers. They can extend services using their channels to their audiences like Amazon have done with the Kindle.
But local government have also invested in infrastructure — be it their libraries, parks or their estates.
They use their infrastructure to attract existing audiences to new services — like co-locating targeted services to develop new business models, from Common Library to the Library Lab, from the Remakery to Park Hack and from the Ideastore to Gateways.
I recently met Sukhdev Johal, who developed ideas around how councils could better leverage their physical assets and infrastructure and here is what he proposed — much of which has been documented in the “Enfield Experiment” by @chakrabortyy summarised here.
Where there is new infrastructure put in by councils (or our public service partners, i.e. TFL) in a particular neighbourhood, could there be a “neighbourhood stipend” for any new eveloper (be it to put in new houses or a new supermarket) that helps pay for the advantage that infrastructure is giving them. This stipend could then be used by that micro-neighbourhood like a community budget. You can even get like a mini-BID set-up to run it.
We could be charging infrastructure providers — be it broadband, electricity or water — to be able to dig up our streets — given how putting pipes or cables in is a pre-requisite for getting to their customers and how councils and the local communities/businesses currently pay for the nuisance this causes — either through paying for streets to be cleaned up or through the lost business
We could be getting trustees from the pension funds the council uses to invest in infrastructure like housing (through SPVs potentially) where you get an average 12% over 7–10 years whereas traditional pension funds you get around 5% — in theory a fund’s fiduciary duty is to get the best return for their shareholders. Councils could also be borrowing and investing in each other’s pension funds.
We could be using planning for social value, i.e. when a supermarket wants to set up in the area, we could be looking at the overall impact this has on the economy around it, rather than just on the number of jobs it creates (especially if it means jobs are lost as a result from other businesses) and for example negotiating how they can localise more their supply chain
What future value propositions could local government develop? What future revenue models could their develop?