CONTENTS
A. Introduction 3
B. Part I - Analysis of Strategic Capabilities of Wikipedia under RBV Model 4
Resource Based View Model in Wikipedia Perspective 6
Heterogeneity and immobility of Wikipedia resources 7
VRIO Nature of Wikipedia Resources 8
C. Part II - Wikipedia in Blue Ocean Dimension 9
Elimination Aspect 10
Performance Raise Aspect 11
Reduction Aspect 12
Creative Aspect 12
Complexity Theory: The Wikipedia Case 13
D. Conclusions 15
Bibliography 17
Introduction
Wikipedia is the largest international online encyclopedia with free access and free content (Ling, 2011) . It is supported by the Wikimedia Foundation, a non-profit organization registered and operating in the United States (The Wikimedia Foundation, 2011). In addition, Wikipedia was several times ranked the sixth most visited in the world (Samoilenko & Yasseri, 2013). The research also demonstrates that Wikipedia is the most popular database of academic references. As a result, the articles from Wikipedia effectively compete with the renowned commercially-based encyclopedic, such as Encyclopedia Britannica (Rush & Tracy, 2010). Statistically, every second student in the world used Wikipedia while making his academic assignments, as well as around 30% of the business professional obtain required market and management knowledge from this source (Sullivan, 2009).
Although Wikipedia is a unique project, which has substantially changed contemporary educational landscape, it is particularly noteworthy emphasizing that Wikipedia is a successful business venture with remarkable financial management, marketing approach and unique selling proposition. The founders of Wikipedia have never positioned their brainchild as a profitable project, yet in accordance with 20153financial report of the Wikimedia Foundation, the organization generated more than $75 million in revenue, and $24 million in profits.
Analyzing the causes of Wikipedia successful financial and marketing performance may be essential for adapting its experiences into the profit sector. Thus, Reagle (2010) argued that successful enterprises from the non-profit sector may give valuable lessons to the profit-focused segment of business. In other words, the practice illustrates that the non-profit sector in general and the Wikimedia Foundation in particular is especially effective in developing effective business solutions, which may be applied in the profit segment.
In addition, partially as a result of Wikipedia and similar projects development, the idea of social enterprise emerged on the today’s economic horizon (Rumelt, 2011). Many notable scholars agreed with the idea that further proliferation of such companies will be helpful for concurrent solution of the societal economic and social problems (Lescovec, Huttenlocher & Kleinberg, 2010; Holt & Cameron, 2010). The bigger the number of companies, whose activities are focused on rectifying the evils and woes of our community, is, the better world we will be living in.
The purpose of this research is two-fold. Thus, the first section of this paper explores strategic capabilities of Wikipedia as a business organization relying on the Resource-Based View (RBV) approach. As a framework, which prioritizes company resources, as the most critical element of successful performance, it is the most effective solution for understanding and analyzing the secrets of Wikipedia assets management. The second section of this research focuses on analyzing the potential of Blue Ocean strategy as the best explanation of Wikipedia successful performance, both financial and product-focused.
One of the most popular modern management analytical techniques used to analyze the effectiveness of a company strategic performance is a so-called resource-based view (RBV). Together with other popular analytical techniques, such as Porters Five Forces analysis or 4P Framework, RBV remains a popular and the most effective technique for understanding whether a company has sufficient resources to retain competitive advantage on the market (Rumelt, 2011). In addition, this approach helps to diagnose whether such resources possessed by the company have VRIO attributes, which are essential conditions for achieving and retaining competitive advantage (Kiechel, 2010).
Resource-based view should be contrasted with the industrial organization view framework, which has been popular in the past (Kiechel, 2010). Thus, one of the most essential discrepancy between the two is that Resource-Base view argues that the key factor in achieving and sustaining competitive advantage is exploitation of a firm’s internal factors. Industrial-view approaches profess an opposite opinion. Yet, the practice shows that only 40-50% of the company superior performance is attributable to the resource-based factors. 20-25% of the market share possession is relatable to the industry-based effects, and 20-30% relate to various other factors and seasonal fluctuations (ibid., 2010).
However, as far the case of Wikipedia is concerned the RBV factors are prevalent in its market share retention campaign for several reasons:
The bargaining power of the encyclopedia ‘customers’ is minimal. In fact, the existence of this platform depends on the donations of 3% of its readers and 28% of its editors who make regular donations. In fact, several studies confirmed the idea that by the beginning of 2015 the Wikimedia Foundation, which the administrator of the portal, has amassed the funds sufficient for maintain the web site for the next decade (Samoilenko & Yasseri, 2013). The new fundraising campaigns are started to increase this fund and to research & develop advanced improvements. Thus, it can be concluded that the influence of customers is minimal from the purely financial viewpoint.
The company has virtually no competitors in the segment of knowledge amassment and distribution. Either they competitors are profit-oriented (such as Encyclopedia Britannica), or they do not allow editing by the ordinary users (such as Scholarpedia) (Dalby, 2009). In any case, the number of Wikipedia users is substantially higher, which makes its dependence on competition virtually non-existent.
Finally, the demand for information and knowledge never declines, even during the most dramatic economic recessions. The studies showed that during 2008-2010 economic recession the number of regular Wikipedia users kept on growing at 8-11% annually (Ransbotham & Kane, 2010).
Thus, it appears reasonable to make an assumption that Resource-Based View is the best evaluative solution for understanding the following critical issues of market dominance:
What resources does Wikipedia possess?
How does it use these resources to remain the number one database of academic and general knowledge in the world?
What may be the future implications of this approach to market share increase and retention?
Resource Based View Model in Wikipedia Perspective
Resource Based View model is one of the most prevalent approaches to achieving competitive advantage used by the profit and non-profit segments nowadays (Kiechel, 2010). The main rationale behind this framework is that the companies should prioritize the development of its assets instead of trying to find the best competitive environment. In other words, the advocates of this approach argue that it is highly more effective to harmonize external opportunities with the existing resources, than attempting to acquire new skills and resources for each distinct market opportunity ( ibid., 2010). Thus, the resources possessed by a company are pivotal for achieving organizational excellence, and this dogma is especially intrinsic to Wikipedia.
The first step in analyzing RBV dimension of a company is parsing the company assets into the two main categories.
Tangible assets. This type of assets encompasses equipment, land, building and other physically shaped things and items. The only physical asset that has relative market significance for Wikipedia is the servers, where Wikipedia (and other popular wikis – Wiki How, Wiki Answers and others) are stored. Although physical destruction or alienation of this property is highly improbable, if this scenario unfolds the impact on Wikipedia performance will be devastating. In order to ensure adequate protection from this risk, the company runs several back-up copies of everything stored on the portal, so that all information can be easily restored if anything happens.
Intangible assets. This category of assets is critically important for success of Wikipedia. Thus, this type of assets includes reputation of this project, and its popularity among the users. Other relevant intangible assets of Wikipedia are its mission and vision, supportive connections with the leading technological companies in the world and strong governmental support.
Heterogeneity and immobility of Wikipedia resources
Among the key aspects, which determine why Wikipedia is so successful is that its critical intangible assets are heterogeneous and immobile (Reagle, 2010). Thus, the first aspect means that organizational skills, capabilities and resources are different from those, which are leveraged by other companies. In other words, because the resources owned by Wikipedia are heterogeneous, they are distinctly different from those, which are owned by its competitors. No other company can use the same fundraising model used by Wikipedia, because no one has the same base of loyal users, as Wikipedia has. Even donations from 3% of the users are sufficient to generate sufficient revenues to keep the operations afloat and growing further (Halfaker et al., 2012) This model may not be used by Encyclopedia Britannica, which number of customer is substantially smaller.
The second dimension is immobility. This aspect signifies that the resources cannot be quickly replicated by other companies, making implementation of the same strategies by the competitors impossible (Kiechel, 2010). It is impossible and illegal for the competitors of Wikipedia to replicate its physical assets (copying its articles for commercial purposes is a violation of the copyright law), neither can they use its brand name. The only way for them is to obtain similar intangible assets, which will take a long time and many resources.
VRIO Nature of Wikipedia Resources
VRIO framework is essential for understanding whether the company is capable of achieving long-term competitive advantage. Four fundamental questions should be answered in this context.
Firstly, with regard to the value of resources of a company, they are considered genuinely valuable, if they help to develop a product, which have high value to the customers of the company. In Wikipedia context, the resources it possesses produce the most valuable product in the market segment. Additionally, a substantial portion of the company resources is concurrently its customers, because the product of Wikipedia is mainly produced by those, who create it. The costs of production incurred by Wikipedia are minimal and confined only to the expenses necessary for maintaining databases, web interfaces and other technological developments.
Secondly, the rarity dimension is used to understand to how many companies similar resources are available. In other words, the result of valuable resource accessibility to several market players concurrently invariably leads to the condition of competitive parity. Not a single competitor of Wikipedia has the resources, which are core to its success – large readership and active editorial involvement of the users can be easily acquired by the competitors.
Thirdly, in imitability context, the resources of Wikipedia are impossible to imitate (Ransbotham & Kane, 2010). Not only is it costly to imitate it, but also impossible due to the competitors’ products. Wikipedia is the only encyclopedia in the world, which is being self-created by the users. Other knowledge databases are completed by the experienced professional academics, and shifting to the use of open collaborative product development will be destructive to their key competitive advantage over Wikipedia – scientific credibility and objectivity (Rush & Tracy, 2010).
Finally, the organizational aspect of resource management by Wikipedia is particularly notable. The resources do not constitute any value unless the company is sufficiently organized to obtain value from their use. Wikipedia is one of the few organizations, which manages to generate profits from a completely freely available product.
Overall, RBV framework exemplarily demonstrates how Wikipedia approach to resource acquiring and management helped this organization to reach performance excellence. The Wikimedia Foundation acquired unique resources, which, in their turn produced a unique profit generation model, which can hardly imitated by the competitors.
In addition to RBV framework, performance excellence of Wikipedia may be explained through the lenses of Blue Ocean Strategy developed in 2005 by professors W.C. Kim and R. Mauborgne (Chea, 2009). This theory describes that the existing market are ‘red oceans’, where the market players have already defined and mutually accepted the boundaries and the rules of competition. The competition in these red oceans tend to intensify over the time because the number of the market players increase progressively.
In contrast, ‘blue oceans’ are the markets, which have not been identified yet. Thus, they are not tainted by the competition, and the first market entrant can set its rules. The opportunities for rapid growth and develop in the ‘unexplored’ markets are much more significant than in the known, worn-out industries, and the companies should focus on seeking or even creating these ‘blue ocean’ markets, where the competition is still non-existing. The most successful examples in this regard are Cirque du Soleil, Southwest Airlines, Home Depot and Dyson (Chea, 2009)).
Yet, the scholars have different views regarding whether rapid popularization of Wikipedia falls within the scope of Blue Ocean framework. The proponents of this idea argue that Wikipedia is one of the most vivid illustrations of the new market areas exploration and development (Rumelt, 2011). Meanwhile, the opponents virulently emphasize that the Blue Ocean approach is justified for profit-oriented business ventures only (Sullivan, 2009). In other words, they highlight that not only the market should be new, but also this market should present high ROI opportunities. Wikipedia, in their view, follows a non-conventional method of profit generation, thus making it equal to the non-profit organizations, for which the Blue Ocean framework is non-applicable.
In order to understand whether the Blue Ocean is a sound explanation of Wikipedia strategic success, the one should analyze the elements of its ERRC (which refers to Eliminate-Reduce-Raise and Create) matrix.
Elimination Aspect
Wikipedia has removed several issues, which were previously relevant in the encyclopedic knowledge market. In particular, it was especially successful in:
Removing the price for this product, hereby receiving unprecedented cost advantage over its competitors (Reagle, 2010). Neither Encyclopedia Britannica nor Scholarpedia ever offered completely free content, because the both giants of academic knowledge relied on conventional methods of profit generation (paid subscriptions).
Removing geographical boundaries – the Wikipedia Foundation prioritizes the development of Wikipedia as a multilingual source. Though the highest number of the Wikipedia articles are published in English (3,9 million), for the most popular article entries the translations in more than 30 languages are available (The Wikimedia Foundation, 2011).
Removing production overhead expenses – Wikipedia does not pay the authors of its article entries, thus, its payroll expenses are substantially lower than those of other companies’ are.
Removing academic bias – because the articles published in Wikipedia are the products of collaborative efforts of the multiple authors, who represent different schools, academic mainstreams and cultures, they are among the most reliable and neutral (Ransbotham & Kane, 2010). Some academics, however, strongly believe that many Wikipedia hosted articles are much lopsided are seriously inferior to the entries of Encyclopedia Britannica in terms of objectivity and neutrality. Yet, several studies have shown that academic reliability of the both databases is comparably similar.
Performance Raise Aspect
The most significant accomplishment of Wikipedia is that it raised accessibility for those, who either cannot afford using proprietary databases of academic knowledge, or do not understand English on a sufficient level. Not a single competitor offer similar features, thus making Wikipedia unique in this segment (Wilkinson et al, 2007).
Wikipedia also has better product because its journal entries are unprecedentedly deep and comprehensive. Currently, it is as five times as big as Encyclopedia Britannica is, providing many small details.
In addition, Wikipedia is one of the first project, which is self-creative and self-correcting, meaning that it that the nature and the depth of its articles are determined by the users themselves. The users have the option of requesting an article, as well as the users may ask for clarifications on the ‘talk pages’. In other words, it is the user, which determines what product will be developed, not the company, which tries to predict what the user will buy.
Reduction Aspect
Wikipedia reduced many essential disadvantages associated with traditional paid providers of academic knowledge. Thus, there is no need to register anymore – Wikipedia articles are freely available to anyone, without any technologically imposed barriers (Samoilenko & Yasseri, 2013).
In some ways, Wikipedia removed the necessity of getting professional research assistance, because virtually anything is available there. The people, who are highly occupied, may, therefore dispense with hiring independent research assistants, who assist with their search inquiries.
In addition, the creation of Wikipedia removed the necessity of hiring translators to understand the material in another language, because multinational versions are available.
Creative Aspect
Finally, the founders of Wikipedia created several features, which shaped the newly created market of free knowledge. Thus, Wikipedia virtually created a new market place, which amasses knowledge about everything. Encyclopedia Britannica, its closest competitor, is more orientated on providing ‘westernized knowledge’. Wikipedia has answers to any languages for any cultural dimensions.
The founders of Wikipedia were also particularly innovative in shaping its monetization model. Not a single company has ever relied on public donations as the main revenue source so extensively. Therefore, Wikipedia became virtually invulnerable to the dynamically changing purchasing power of the customers.
Additionally, Wikipedia created unique collaborative environment, which encourages everyone to take part in developing the new entries, as well as discussing them online. As a result, it provides a unique opportunity of cultivating the importance of academic knowledge. Some scholars noted that being actively engaged in Wikipedia development could replace traditional academic education. Practically, the information posted there is so deep and comprehensive, that it sometimes exceeds academic curriculums.
Complexity Theory: The Wikipedia Case
Some scholars also believe that successfulness of Wikipedia may be most illustratively explained through the lenses of complexity theory. Although this opinion is not popular in the business community, it is definitely worth delving in the specifics of this theoretical framework.
Complexity theory of organizations evolved from different organizational studies and strategic management. Thus, the main purpose of the complexity theory is to understand what the most effective type of behavioral for organizations is in uncertain and non-linear business environments (McMillan, 2014).
Despite the fact that complexity theory revolves around the principles of unpredictability, uncertainty, still it has several important underlying elements:
Complexity theory: Business framework
Firstly, one of the most important element of a complexity theory framework is the idea that the most effective organizations are those, which are capable of ‘self-organizing in a spontaneous manner’. In other words, there is no authority, which regulates an organization. However, there is always an authority, which defines vision and mission of an organization, its philosophy and purpose. Wikipedia is the most precise illustration in this context: while it is being created by the hundreds of thousands of users around the world, the rules and the principles are still developed by its founders – Larry Sanger and Jimmy Wales.
Secondly, complexity theory purports that though the changes are unpredictable and continuous, they happen through many small stages. The companies, therefore, do not have a luxuriant opportunity of dealing with one change at a time. Wikipedia is a vivid illustration of how the market of encyclopedic knowledge developed, and what the reaction of the Wikipedia to this changes was.
Thirdly, another essential element of a complex system is that there is absolutely no possibility to predict the outcome of a particular change (McMillan, 2014). Complexity theorists also argue that due to the infinite number of complicated interactions between participants of the market, the number of potential outcomes is simultaneously endless. By choosing its fundraising model and development style, the management of Wikimedia Foundation efficiently responded to the uncertainty of the market change outcomes. Encyclopedia Britannica failed to understand this principle, and the number of its subscribers substantially shrunk.
Finally, in a business dimension the performance of Wikipedia fits the description of a complexity theory, because it understands the importance of non-linear management. In Wikipedia, the management does not interfere into the day-to-day affairs of the project, confining its role of ensuring compliance with the project rules and vision development. In other words, Wikipedia follows one of the key postulates of complexity theory: its management, emerges from the market, it does not adapt to it.
Conclusions
Secondly, though heavily criticized by many of the today’s business analysts and scholars, the Blue Ocean strategy vividly described why Wikipedia was so successful. Not only it explored the new market, but also it helped to grow it mature, as well as it managed to identify the most optimal method of monetization. In addition, it is Wikipedia that determined the boundaries of the market and the rules for potential new market entrants. Not a single company contrived to enter the market of free knowledge yet, and the chances that someone will do in the foreseeable future are minimal. Thus, the founders of Wikipedia may be though to have fully followed the advice of professors Kim and Mauborgne, whose Blue Ocean approach yields the richest results.
Finally, though this idea has not received popular scholarly support yet, some theorists actively argue that successfulness of Wikipedia is attributable to the complexity theory. In particular, the Wikimedia Foundation is particularly effective in structuring its management in a non-linear manner, and in performing under uncertainty. In contrast to its competitors, Wikipedia management practices emanate from the market, but not simply adapt to it.
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