Compounding Ownership Density

Nature does not hurry, yet everything is accomplished.

— Attributed to Lao Tzu

The world’s best companies have always been architected to improve in quality as they grow in scale. This worked in the past, up to a point. Analog organization structures struggled to scale agility, which prevented them from compounding their capabilities, products, and business models to effectively serve an ever-expanding range of categories, customer types, and use cases. Today’s best companies are defying past limits, requiring a new rubric for understanding corporate excellence.

Our CXC (customer experience compounding) underwriting framework reflects our current understanding of the critical dimensions that build a company’s no-brainer matrix (NBM), which measures its magnetism for an ever-broadening range of consumers and hyper-personalized use cases. This framework evaluates a company’s ability to compound across each corporate dimension, including its intentions, capabilities, business model, and agility to offer a growing number of fast-improving, no-brainer customer propositions.

The specifics of how each company achieves such compounding are less clear. For example, fluid business models are testing a variety of ways to combine first-party services and platform capabilities with enriching third-party ecosystems. The ideal business model architecture may differ by category and other customer and competitive specifics. However, we believe today’s hybrid business models can be compared—and their progress evaluated—by assessing their ownership density.

Ownership Redefined: Compounding All Contributions

Truly long-term “all in” owners learn to respect and encourage each contribution—however small—in order to best harness the natural, combined energy of each stakeholder. This, in turn, enables them to offer a layer cake of value for each consumer. Furthermore, such ecosystems are no longer idealist dreams, but a current reality and competitive need.

Part of what I’ve learned over the last five years is that we can’t just focus on building great experiences, we also need to make sure that we’re helping to build ecosystems so millions of other people can participate in the upside and opportunity of what we’re all creating.

— Mark Zuckerberg, founder-CEO of Facebook, Q2’21 earnings call

Now in terms of further cultivating the content ecosystem, I think what we wanted to be able to do is actually a funnel, right, in which it would include as many UGCs [user-generated content creators] as possible. But then we would also provide all the tools and all the operating procedures and guidelines as well as the monetization tools. [And we would] help these UGCs to really leverage our tools and make themselves into more professional providers of video content. And as a result, they will become PUGCs [profession user-generated content creators] over time. And these PUGCs would be offering very differentiated as well as high-quality content.

— Martin Lau, president of Tencent, Q1’21 earnings call

In order to compound ownership density, leading companies are beginning to redefine the very meaning of ownership in the business context. The conventional definition of ownership (“the act, state, or right of possessing something”) is accepted for business or property scenarios but seems arcane for the many ways in which people express ownership, even for those who are not technical owners in the legal sense. For example, a tourist can demonstrate ownership through sincere acts like picking up stray trash or sharing their joy with others. The same can be said of a TikTok creator, a Notre Dame football fan, a schoolteacher who helps students plant trees, a customer who leaves a helpful review for other customers and the company, and a newspaper delivery person who takes the extra effort to place a paper in the most convenient spot.

We believe today’s ultra-marathoner companies are discovering the many ways in which they can enable, inspire, and incentivize their ecosystem participants—including employees, partners, customers, and even society at large—to express greater ownership through ever more numerous forms of creative expression, personal growth, service to others, and commercial opportunities.

We have three important guiding principles that we keep finding ourselves coming back to. Make commerce creative, make the important easy, and make everything else possible. . . . We start every project here with a question. Does this increase the creative possibilities for a merchant or does it not? This is the why behind everything we do. The core question we ask ourselves. The primacy of creativity to commerce was the core bet of Shopify on day one. I mean creativity is the most human of traits. . . . We believe strongly that every successful business tells a unique story of their own. So, Shopify started with [powerful features and tools] for people to express themselves.

— Tobi Lutke, founder-CEO of Shopify, Shopify Unite 2021, June 29, 2021

Timeless institutions have always offered value to (and inspired contributions from) each constituent in a variety of forms—beginning first with an offering of essential services and infrastructure, then compounding their value in other ways. Take global cities, for example. They offer both ease of entry and a path to deeper commitment. They provide a plethora of social and commercial opportunities. These opportunities are both collaborative and competitive. A city is organized to serve and be served by residents and visitors within a metropolitan ecosystem comprised of many smaller ecosystems, accelerating individual growth and offering entertainment and entrepreneurial opportunities for all.

In Q1, we announced that about 7% of our business was coming from orders outside of restaurants. And that has grown sequentially, and it’s grown certainly faster than our restaurants business. And it does touch upon the strategy of creating both a marketplace where we’re generating incremental demand and really building best-in-class point solutions category by category, where we bring everything inside the neighborhood to consumers in minutes, not hours or days. And then on the other side, we are also building a first-party capability on behalf of retailers and merchants so that they can create their own digital businesses. The goal of DoorDash has always been to create the largest local commerce marketplace as well as the largest local commerce platform. And we think that this strategy is certainly playing out not just in our core and original category of restaurants but now also heading into other categories.

— Tony Xu, founder-CEO of DoorDash, Q2’21 earnings call

As Amazon and Tencent are learning from ByteDance’s and Shopify’s examples, a platform’s job is never done. From Barnako to Baroda, Shopify has eased entrepreneurs’ ability to launch local and global brands in a way that Amazon’s marketplace has yet to nurture. Similarly, ByteDance inspires regular folks to create snackable videos for bored viewers with a fervor that WeChat and Facebook have yet to harness.

Both Amazon and Tencent must learn from these younger competitors when it comes to structures and tools that can inspire greater creative expression to the point of blurring the lines between creators and consumers. At the same time, Shopify is learning that it must offer more robust logistics and other essential services. And ByteDance is attempting to address a broader range of customer use cases within short video and beyond, including longer videos, ecommerce, and video games.

Along the way, compounding value for customers also requires each platform to collaborate well even with its own competitors. After criticizing Amazon’s marketplace model for years, for example, Tobi Lutke shows some signs of his collaborative spirit extending in all directions.

I’m inspired by entrepreneurs that hit their goals. Their success pushes us all forward. Some reach for space, some reach for independence. They all aim impossibly high. Congrats @JeffBezos and @richardbranson.

— Tobi Lutke, founder-CEO of Shopify, Twitter, July 21, 2021

In an increasingly digital world, Shopify sees itself as an essential commerce infrastructure that allows as many people as possible to participate. . . . But at the same time, we also build a platform that allows developers to build products for merchants, adding to this infrastructure. This has been a core idea since we first published APIs in the early 2000s. You see this interplay here between the Shopify platform that we’ve been evolving on one side and the ecosystem of partners, designers, app developers who build on top of it all. All of us combining forces to help entrepreneurs become successful merchants. This has been the absolute key to Shopify’s success. 

— Tobi Lutke, founder-CEO of Shopify, Shopify Unite 2021, June 29, 2021

Strong institutions can decay when they stop learning how to compound their ownership density from their own and other ecosystems. Is it any surprise that, over the long arc of history, nature seems to favor more open ecosystems for mobility across exclusive communities—nations and cities being the clearest examples—over closed structures that fail to respond to an evolving reality?

We believe the leading corporate platforms can learn many lessons from cities’ metropolitan design, infrastructure, and systems in order to broaden their value and inspire ownership density across their ecosystems. They can also learn from the factors that act as barriers to scale for cities—high costs, criminal and other malicious actors, environmental challenges, and various forms of mismanagement.

Large corporates must do more, but Amazon, Apple, Facebook, Tencent, and other platforms are beginning to accept their responsibilities in order to both address social pressures and improve consumer experience. For instance, Instagram recently updated its default setting in Explore to limit sensitive content, while Amazon has voluntarily raised its minimum wage. In order to continue compounding, the platforms must find other ways to build social trust and a sense of ownership.

Leveraging Nature’s Diversity: The Clearest Sign of Ownership Density

The number of gay, lesbian, bisexual, [transgender, and queer] elected officials has continued to surge, growing by about 17 percent in the last year to [986] nationwide — more than double the number just four years ago, according to a new annual report. Their ranks now include two governors, two United States senators, nine members of Congress, 189 state legislators and 56 mayors, according to the report from L.G.B.T.Q. Victory Institute, which provides training to candidates seeking public office. . . . Every state except Mississippi now has at least one elected officeholder who identifies as L.G.B.T.Q., the report said

— Shane Goldmacher, “L.G.B.T.Q. Elected Officials in U.S. Number Nearly 1,000, Rising Fast,” The New York Times,July 28, 2021

Whether among nations, cities, sports teams, or universities, high-performing ecosystems have always been more diverse than others—with diversity being both a driver and a natural outcome of performance. Benchmark (global best) companies are beginning to reflect similar diversity both internally and among their external ecosystems. For example, Amazon serves everyone from a student buying batteries, to small businesses building on AWS, to mega-customers procuring services for billions per annum. Within software, Microsoft serves an even more diverse set of user personas (e.g., system administrators, developers, non-technical employees, and students). Facebook and Google granularly match content from advertisers and creators based on the specific needs and inclinations of each consumer. And Alibaba is expanding the breadth of its ecommerce propositions in order to serve a broad range of needs for the same individual consumer.

For our China retail marketplaces, a key strategic area for our incremental investments is to evolve from one super app of Mobile Taobao into a multi-app product matrix. . . . So, when we used to talk about marketplace-based core, it was Taobao and Tmall. But now we’re working hard on building all of these different businesses, each with its own unique and compelling value proposition and collectively forming a matrix of marketplace-based core businesses. . . . We already have a very large consumer base with over 900mn [Annual Active Consumers], and they all have different preferences. In fact, the same user could well have different preferences and different needs when interacting in different contexts for different use cases. So, it’s very important to us to be able to cater to all of those different kinds of needs and demands with an appropriate product matrix.

— Daniel Zhang, CEO and chairman of Alibaba, Q1’22 (Jun-end) earnings call

Here again, the corollary to cities is clear—a single platform with diverse neighborhoods, interest-based communities, and unique offerings serving both basic and luxury needs. Entertainment is a clear example of a vertical that is further fragmenting along use-case and user-type dynamics. Within the broader category shift from linear TV to online streaming, the high growth reality TV segment is now being served by a creative renaissance across multiple short-, medium-, and long-form video platforms. And the content itself is fragmenting across UGC (user generated content), PUGC (professional UGC), and professional creators who are further fragmenting to serve segments of female and male users within hyper-niche interest-based categories through a gradation from entertainment to informational videos.

Within ecommerce, our research also suggests consumer behavior is segmenting into multiple sub-sub-categories of use cases and customer types served distinctly by each platform. Our version 1.0 NBM for ecommerce (a small part of which is presented below) is inclusive of all shopping options for consumers, including physical stores. While Amazon stands out globally for its Prime subscription offering, it still has much to improve in order to become a no-brainer across most categories for US consumers, especially women. Alibaba, meanwhile, appears to be leading both in its strength across the NBM and, thanks to its social commerce and other customer- and category-specific initiatives, in ownership density.

Salesforce and Microsoft appear to be strengthening their ownership density, both through learning from one another and by proficiently copying younger competitors’ open platforms that are easier to implement and integrate.

Furthest along in ownership density are the naturally open social and information “advertising” platforms, with each deepening and broadening its social, entertainment, and commercial services.

We believe it is no surprise that nature inspires (and, in the long term, demands) corporates ecosystems to compete and collaborate with each other to serve the diverse, creative needs of consumers and creators. This corporate evolution is a natural outcome of the truth of human diversity. Furthermore, this evolution is consistent with the decay and reformulation of many traditional institutions, as chronicled by the World Values Survey, in favor of more open systems that celebrate our natural differences and inspire positive self-expression.