Undercover Economist

Tape measure of success

Roughly five years after internet users caught on, the bookshops are suddenly full of books about the user-generated content that “Web 2.0” makes possible: the blogs, Wikipedia, Facebook and the rest. Well, you can forget them, because easily the world’s most profitable enabler of user-generated content opened the doors of its first superstore 50 years ago, in Almhult, Sweden.

It is now hard to imagine life without Ikea. A folk statistic would have you believe that one in 10 Europeans is conceived in an Ikea bed. But isn’t it pushing it a little to compare Ikea to Facebook?

I’ll admit that the similarities are not apparent at first sight. But a defining idea behind Wikipedia, Facebook and blogging platforms such as WordPress is that if you give people the right tools, they’ll use them to create wonderful things in collaboration with each other or with the organisation that provides the catalyst.

Ikea’s success is not so very different. Ikea keeps its costs and prices low by enlisting its customers – their time, their cars, their ambitions as interior designers, and their inflated ideas of their carpentry skills.

The management experts Rafael Ramirez and Richard Normann pointed this out in the Harvard Business Review back in 1993. Ikea, they argued, was a success because it enabled “value co-production”. This infelicitous term partly refers to offering consumers a discount to build their own furniture. But it means much more: Ikea recruited its customers to the idea that they could not only put up shelves but they could design their own stylish living spaces, equipping them with tape measures and printing almost 200 million catalogues that also serve as design manuals. It also devoted huge energies to helping its suppliers and designers play their part, rather than passively buying what these people offered and then re-selling it.

We all know that the formula works. But most successful formulas are easy to copy; this one is not, and that is the genius of it. In many ways Ikea seems to be offering yesterday’s business model: surely we have less time than we did 20 years ago, while having more money to spend on our homes. When a typical London home costs £300,000, why are cheap sofas to put in it still such a tempting offering?

Yet Ikea continues to thrive, proving how hard it is for competitors to muscle in on a business that has placed itself at the centre of a web of economic actors, all striving for the same goal: a funky sitting room for Steve and Alice from Croydon.

Not many technology companies have succeeded in mobilising an army of “value co-producers” in the same way. Microsoft is the most important exception, creating a platform that supports – and is supported by – the efforts of countless other software companies. Games console manufacturers live or die with the companies that produce the games. And eBay is an old-school dotcom company that has created a near-unassailable position: the buyers go there because the sellers go there, and vice versa.

Such a market position brings inevitable temptation to exploit it. Microsoft’s tangles with the competition authorities are notorious. Facebook’s new advertising system, “Beacon”, tells your friends about commercial sites you’ve visited; the project triggered a mini-rebellion among Facebook users. Ikea is an old hand at herding customers through a labyrinthine store layout. Customers don’t like it but lacking a good enough alternative, we tolerate it.

Or we tolerate it up to a point. My love affair with Facebook was brief and bland. And Ikea? Let’s just say that my children were not conceived in an Ikea bed, and leave it at that.

Also published at ft.com