The innovation of the value capture: insights from the sharing economy

Combining market and non market elements for value creation

The innovation of the value capture: insights from the sharing economy

Gennaro Iasevoli, Cecilia Grieco

The value capture process refers to the mechanism through which an organization defines the origin of revenues, the different ways to receive money in exchange for its services, as well as the pricing strategies and the cost structure of the organization (Richardson, 2008; Osterwalder and Pigneur, 2010). Indeed, once the value is created, the organization face the issue of defining how to capture part of this value in form of revenue. Despite value capture is one of the three core processes of the business model of every organization, many of them might struggle to find the proper one, as capturing value is often much more difficult than creating it (Bock and George, 2018). This emerges as being particularly true for sharing economy companies, where the growing number do not correspond to the length of the lifespan these platforms enjoy (Plenter et al., 2017; Tauscher and Kietzman, 2017). Sharing economy companies provide the infrastructure through which individuals and eventually companies can access or share existing resources and assets in exchange of monetary and non-monetary benefits (Mair and Reischauer, 2017). While capturing value is a quite straightforward process for traditional companies that simply charge the customers for the value created (Kohler, 2015), it becomes much harder for this kind of platforms where the value comes from the increased use of idle capacity, and is often largely created by the users themselves.

Leaving beside the wider debate about the appropriateness of talking about profit generation in the sharing phenomenon, extant literature shows a scant focus on value capture in sharing economy. Ritter and Schanz (2018) describe revenue streams as coming from direct or indirect sources (e.g. charging consumers vs charging a third group subsidizing the consumers) and as being utility bound or unbound basing on their connection to parameters of use or not (e.g. usage fee vs subscription). Constantiou et al. (2017) underline the different degree of market mechanisms that can be in place in sharing platforms: on the one hand there are platform owners that price the service dynamically based on secret algorithms, while in other cases the prices – if any – are based on compensating or sharing the costs of the supply side.

Properly managing the value capture mechanisms is pivotal for sharing economy platforms as it can highly support their survival and their success. Indeed, differently from products that can produce only a single revenue stream, platforms can generate many (Zhu and Furr, 2016). A wrong revenue management has been proven to be among the main failure factors in sharing economy business models. On the one hand the transaction-centered nature of sharing economy hampers the creation of switching costs and customer lock-in strategies. On the other hand, the type of service often implies a low transaction frequency, when business models address a market in which product or service transactions occur infrequently (Tauscher and Kietzmann, 2017). As for these features of the sharing phenomenon, platforms should focus their attention on creating additional value by broadening the value capture opportunities, moving forward from relying on a revenue model that is often based on a single revenue stream (i.e. commission fee) (Laczko et al., 2019). Benefits in terms of increased platforms stickiness and improved profitability also depends on the ability to create revenue streams that are complementary and not interdepended among each other, making the platform viable in the long term (Laczko et al., 2019).

The innovation of the value capture formula sharing economy platforms are demanded to carry out, is consistent with the wider need to innovate the overall business model in order to stay competitive on the market. A static offering is indeed easily copied by competitors (Smedlund and Faghankhani, 2015). To innovate the business model means to adopt an innovation in company’s BM that is new to the firm, and whose results is an observable change in the firm’s practices towards its customers and partners (Hekkila et al., 2016).

Spieth and Schneider (2015) state that from a business model point of view, value capture innovation refers to the innovation of a firm’s core earning logic, either by changing the revenue model or the cost structures. As for the former, having new revenue models might mean to adopt more sustainable streams in which revenues are generated indirectly or over time through cross subsidization or life cycle values (Clauss et al., 2014; Clauss, 2017). As for the latter, cost structures reflect the strategic scope of a firm’s offering, and it can be changed consistently with the business model and the corporate strategy (Zott and Amit, 2008).

Giesen et al. (2007) refer to ‘revenue model innovation’ as one of the three paths to effectively innovate the business model. In their view this process includes the reconfiguration of the offering (product, service, value mix) and/or the introduction of new pricing models, citing Gillette’s razor and blade pricing strategy and Netflix’s introduction of new rental options as successful examples. Consistently, Hinterhuber and Liozu (2014) pinpoint on the importance of pricing strategy innovation, that have the potential to brings new-to-the-industry approaches to pricing strategies, to pricing tactics, and to the organization of pricing, to achieve increased customer satisfaction and company profits. These aspects take on a particular configuration in sharing economy platforms, where there are two or more sides involved, thus strategic decisions need to be taken also about the pricing issue of whether and how much the different sides are charged (Evans, 2003). The complexity of the pricing structure makes the revenue model very complex (Rochet and Tirole, 2003).

The purpose of this research stems from these premises and is focused on exploring the patterns and the paths of value capture innovation in sharing economy platforms.

The concept of pattern comes from Alexander et al., (1977) that define it as “a problem which occurs over and over again in our environment, and then describes the core of the solution to that problem, in such a way that you can use this solution a million times over, without ever doing it the same way twice” (p. x). Scholars have widely applied this concept to the business model and business model innovation phenomena (Johnson, 2010; Abdelkafi et al., 2013; Remane et al.,2016). As a pattern often describes a solution for only a certain part of a company’s business model (Weill and Vitale, 2001), the aim of this research is that of gaining insights about how this concept can be applied to the value capture mechanisms. As for the path, the goal of this research is to shed light on the steps that might lead from a starting to an arrival point, consistently with a wider interest emerged in literature towards the identification of the paths of business model innovation (Hekkila et al., 2017; Muezzellec, 2015).


#business model innovation. business model for sustainability #revenue model #Sharing Economy #value capture