Strategy

Management Article

Presentation

Created By-
Arjun Roy (I003)
Siddharth Jain (I033)
Rishabh Mishra (I043)
Puneet Malhotra (I053)
Aniket Nandedkar (I063)
The Hub Economy

Business models for creating and capturing value are shifting, giving rise to the new “hub economy,” in which
networks and data are the organizing principles. This, in turn, is creating a winner-take-all world, where a
small number of hub firms, such as Amazon, Alibaba, Facebook, Google, Apple, and Microsoft, dominate. The
hub economy is disrupting traditional businesses — from retail to automotive, hospitality to health, manufac-­
turing to finance — across the spectrum. The very same technologies that promised to democratize business
are now threatening to make it more monopolistic.
The problem & Solution

The Problem The course of action; the How

The hub firms, are capturing a disproportionate and growing

Companies can offer their services and

share of the value being created in the global economy. This

products on multiple hubs.
trend threatens to exacerbate already dangerous levels of

income inequality, undermine the economy, and destabilize

Companies need to use their assets and

society capabilities differently,

The hubs should fully consider the long-term

societal impact of their decisions and to

Who needs to Step up? prioritize their ethical responsibilities

The hub firms themselves and the companies that are part of

the global economy

The Digital Domino Effect Metcalfe's law

Metcalfe’s law involves connectivity. It

states that a network’s value increases
with the number of nodes (connection
Moore’s law points) or users— the dynamic we think
of as network effects. Example:
migration from payment tools to the
Computer processing power will
broader financial services and
double approximately every two
insurance that is seen at Ant Financial
years. The implication is that

performance improvements will

continue driving the augmentation

and replacement of human activity

with digital tools. This affects any

industry that has integrated

computers into its operations—which

pretty much covers the entire

economy
The Digital Domino Effect
Albert Lazlo’s Barbasi’s position

Example: The

Albert-László Barabási and Réka

introduction of IOS

Albert are credited with the

and Android in

discovery of the “scale-free network”

transformed the

concept; namely, that the websites

communication

forming the Web exhibit

mathematical properties. According
industry by

changing its

to the BA model, if the network hardware centricity

expands, nodes will pref­erentially to network

link themselves to hubs; that is, to structures centered

the websites that have the most
connections.
The Automotive Industry
Earlier car industry used to be all about

Smartphone mirroring

differentiating features, but now that we

solutions, such as Android

are moving towards a hub economy in

Auto and Apple CarPlay,

the automotive industry as well,

have become key features

OpenCar and Apple Carplay software

in hundreds of car models

will play a great role here.

in 2018. Mainstream

automotive OEMs, such as

In the future, cars will become less about

Ford, GM, Groupe PSA,

the driving experience and more about

Honda and Volkswagen,

the apps and services offered by

have the highest

automobiles. The car features that

percentage of new

buyers will care most about—software

vehicles sold with the

and networks—will be largely outside the

capability, either as a

automakers’ control, and their price

standard or optional

premiums will go down threatening the

feature
manufacturers' core business. Apple is

stepping up its plan to enter the car

market and aims to launch a self driving

electric vehicle in 2025

The Automotive Industry

Around the world, over 80% of new cars

One alternative ofto Google and

sold support CarPlay, Apple said last year.

Apple is OpenCar, recently

That works out to about 600 new models,

acquired by Inrix, a traditional

including cars from Volkswagen, BMW,

auto supplier. Unlike Apple

and Chrysler. Toyota, one of the longest

CarPlay and Google’s Android

holdouts, started including CarPlay in 2019

Auto, the OpenCar framework is

models. fully controlled by the car

manufacturer. To take on the

It’s also a top feature for many drivers and

established giants, OpenCar and

car buyers. Twenty-three percent of new

Inrix will have to develop an

car buyers in the U.S. say they “must have”

effective advertising or

CarPlay and 56% percent are “interested” in

commerce platform or adopt

having CarPlay when buying a new vehicle,

some other indirect

according to a 2017 Strategy Analytics

monetization strategy by

study. When Ford’s highly anticipated

partnering up with companies

electric F-150 goes on sale, it will support

with required potential
CarPlay
Strategies followed by auto manufacturers
Auto manufacturing companies are exploring a

pay-per-use model for their cars and are

acquiring, launching, or partnering with car-as-

a-service providers

GM, for one, invested $500 million in the ride-

sharing service Lyft, and its luxury-car division is

now offering a monthly car subscription

service.

Daimler launched a car-sharing business called

car2go. Several manufacturers have also

invested in their own research into driverless

vehicles or partnered with external providers

Beyond these business-model experiments,

automakers will need to play as the hubs do, by

participating in the platform competition that

will determine value capture in the sector

 The course of action to resolve the problem

With enough
Multihoming- a
Firms can also shape
They need to use
The hubs should

foresight and
practice enabling
competition by
their assets and
fully consider the

investment,
participants on one
investing to ensure
capabilities
long-term societal

traditional firms can

hub’s ecosystem to
that there are
differently,
impact of their

resist by becoming
easily join another—
multiple hubs in each
transform their
decisions and to

hubs themselves, as
can significantly
sector— and even
core businesses,
prioritize their

we are seeing
mitigate the rise of
influencing which
develop new
ethical

especially in the
hub power. For
ones win. They can
revenue
responsibilities to

internet of things
example, drivers and
organize to support
opportunities, and
the large

(IoT) space. GE is the

passengers routinely
less-established
identify areas that
economic

classic example of
multihome across
platforms, thus
can be defended
ecosystems that

this approach, with

different ride-sharing
making a particular
from encroaching
increasingly

its investment in the

platforms, often
hub more viable and
hub firms and
revolve around

Predix platform and

checking prices on
an industry sector
others rushing in
them
the creation of GE
Uber, Lyft, and Fasten more competitive in
from previously

Digital. the long term disconnected

economic sectors
Ethics of Network Leadership
Leaders of hub companies have rational and

ethical reasons to support the economic

vitality of not just their direct participants but

also the broader industries they serve

Building and maintaining a healthy ecosystem

is in the best interests of hub companies and

they need to incorporate value sharing into

their business models, along with value

creation and value capture.

Preserving the strength and productivity of

complementary communities should be a

fundamental part of any hub’s strategy. Google

and Apple invest heavily on developer

community whereas Uber was criticized by its

surrounding communities of drivers and riders

for its insincere company practices .