Most intangible asset measurements have been top-down: Investors theorize a contributing factor and then try to figure out how to measure it. Studies have been performed using different approaches to determine such value.
What has been developed is now known as EVA, or economic value added.
Some perceived value drivers translate into market value; others do not.
It suggests that in the connected economy, connections matter. Alliances are incredibly, even decisively, important.
HERE’S WHAT DRIVES VALUE (IN RANK ORDER):
Studies have shown a set of value drivers for Internet companies, because in no other industry are accounting values less relevant in explaining market capitalization. These drivers were culled from a stand-alone studies Forbes did on e-commerce firms. Here’s their list, in order of importance:
(1) alliances, (2) innovation, (3) eyeballs (usage traffic), (4) brand investment, (5) stickiness (minutes spent on Web pages).
Three categories had substantial effects on e-commerce market values. The most important was the number of alliances and alliance partners. Investments in innovation (captured by research and development and capital expenditures) ranked close behind. Perhaps the most widely discussed driver of e-commerce value—the number of “eyeballs” viewing a Web site—was measured by using data on a site’s visitors, reach, or market share, and the number of hyperlinks to other sites.
Forbes found that a high visitor count also was strongly associated with market values, supporting the push by e-commerce companies to drive traffic through their sites at almost any cost. Taken together, these three category relations indicate that the strength of an e-commerce company’s network—both in connections to its customers and alliances within its economic web of suppliers and other partners—has a profound effect on a firm’s value.
By contrast, investment in building brand awareness has no statistical association with market values. So much for those millions spent on Super Bowl ads. Big marketing campaigns may boost the egos of company executives, but the research suggests they do little to raise a firm’s value. Equally surprising, “stickiness”—vaunted as the next competitive step after eyeballs—proved only a minor contributor to value. This analysis was completed in the year 2000[i]
So what does this all mean to us as individuals? For individuals involved in the networked economy, it provides a set of levers that, if effectively applied, can prepare you for individual performance and increase in market value.Consider what we do with the medium of social networking and the related emergence of adoption. What are the attributes of participation within adult and business communities leveraging social networks as the medium? It appears obvious that the attributes closely match the drivers of value defined in the older study by Forbes. These include:
- alliances with others for both personal and professional gains
- innovation, our collective communities repeatedly fine news ways to leverage the medium
- eyeballs, Have you noticed the craze for expanding ones quantity and quality of connections and viewers to your blog post?
- brand investment, whether our businesses or us as individuals we investing time to build our brand for future opportunities
- stickiness- time spent on our profiles and in our communities reviewing our content
As time goes by, a model will evolve to identify new value-creation drivers, while maintaining enough flexibility to adapt to the constantly changing nature of the companies and individuals that are producing value in the connected economy, The Relationship Economy. Our individual strategies should be aimed at thinking through what value we can create and exchange with other individuals and communities as a whole.
The definition of ones value is the critical answer which facilitates the five drivers of value previously mentioned. When you define your value offering and how it can be leveraged through the medium of social networks you have defined a new means for wealth creation.
Today developers and networking platform operators are capturing the economic values. Tomorrow, when individuals define their value and unite with a purpose, the economic gains will be afforded to the users who leverage the five drivers of value creation. The shift will create The Relationship Economy and it will disrupt markets globally.
What say you?
[i] Chris Ittner and David Larcker are co-directors of the Wharton Research Program on Value Creation in Organizations. Jonathan Low is a senior research fellow and Tony Siesfeld is a senior manager at Ernst & Young’s Center for Business Innovation. Michael S. Malone is editor and Geoff Baum is a contributing editor at Forbes ASAP.
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About Jay: Jay Deragon’s professional career includes providing strategic management consulting services to Fortune 500 companies as well as local small businesses. He has consulted with numerous industries spanning over 25 years of professional experience globally. His current professional endeavors are all centric to the disruptive nature of the social web. He writes at Relationship Economy and provides social media strategic services to businesses large and small. Jay Deragon is an avid student of the emerging landscape of all things social and the subsequent impact on business dynamics. Since 2004 Mr. Deragon has been actively studying, sharing and learning how business as unusual is changing business methods, models and relationships. Life is a journey and the experiences along the way provides learning that furthers the experiences if we know how and what to learn. for more info go here http://www.relationship-economy.com/?page_id=2 |
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