Create more value than you capture

Here is why I am so fascinated by the free classifieds concept and in particular free job boards — they create more value than they capture. I came across this thinking in a post by Aaron Wall today and realized that it perfectly illustrates a serious flaw in the typical job board business model. Generally speaking and within reason, we capture as much value as we can. And that makes us vulnerable, inspires competition and limits our growth. The quote that grabbed me comes from Tim O’Reilly’s blog:

At O’Reilly, we always say "Create more value than you capture." All
successful companies do this. Once they start capturing more value than
they create, their market position erodes, and someone displaces them.
It may take a while but it happens eventually. If Google takes too much
of the pie, it will be a great opening for a new competitor. Right now,
because Google is creating the most value for the ecosystem,
competitors continue to lose share. If they started taking a lot more
of the revenue, Microsoft’s share would go up, plus new startups would
have an opening that they don’t have now.

The job boards that most violate this rule are the boards that charge candidates. And that also includes Monster.com and CareerBuilder.com even though basic service is free for jobseekers — I hope they picked that up from us back in the years when we pioneered the upgrade model.  We gave up charging candidates long ago.

Other great examples of value extraction include forcing candidates to view pitches for Universities before they can view job postings.

At LatPro.com we work hard to maintain high quality and that means turning away business which we do regularly. That is a form of creating value instead of capturing it. For example, we just turned down some CPM display advertising that wasn’t a perfect fit for our audience. But, will this be enough in the long term?