Why you don't have to own ‘stuff’ to scale a business

Humans and enterprises have always worked to own “stuff” and then trade access to it at a profit. That has been the essence and logic of business - to own scarce commodities that others value and then supply at a cost.

Traditionally, therefore, value has always been generated by, say, owning more land, more equipment, more factories, more buildings, more people. The more you had or “owned” the wealthier you were.

Companies have always been designed to grow in order to take advantage of economies of scale.

That is why a supermarket chain would measure its success by how many physical stores it has, how many employees, as well as footfall.

Increasingly, this old linear thinking of business is being challenged in the current digital technology-enabled exponential world.

In 2007, the then Finnish mobile giant, Nokia, forked out a staggering $8.1 billion to acquire a navigation company by the name Navteq. At the time, Navteq dominated the in-road traffic sensor industry and like any traditional company, Nokia thought that acquiring those sensors would enable it dominate mapping, mobile and online local information.

Unfortunately for Nokia, a small start-up in Israel called Waze saw the opportunity differently. “Instead of massive capital investment in in-road sensor hardware Waze opted to crowdsource information by leveraging GPS sensors on its users’ mobile phones to capture traffic information,” observes Salim Ismail of Singularity University.

By mid-2012, Nokia’s market valuation had tumbled from $140 billion to $8.2 billion, more or less the money used to acquire Navteq. Meanwhile, in 2013, Google acquired Waze for $1.1 billion, at a time when Waze had no physical infrastructure, no hardware as well as 50 million “traffic human sensors”.

Nokia invested heavily to acquire and own billions worth of physical assets while Waze simply accessed information on user-owned technology. Nokia's was a classic case of linear thinking while Waze was exponential thinking.