How Facebook is like Ikea.

The economic mysteries of daily life.
Jan. 19 2008 7:13 AM

How Facebook Is Like Ikea

They get their customers to do the work—and to enjoy doing it.

Ikea. Click image to expand.
Ikea

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: 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?

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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 organization 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.

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 also design their own stylish living spaces, equipping them with tape measures and printing almost 200 million catalogs that also serve as design manuals. It also devoted huge energies to helping its suppliers and designers play their part. Ramirez and Normann explain that rather than passively buying what the suppliers offered and reselling it, Ikea provided suppliers with technical assistance, equipment, guidance on standards, and even a kind of dating service that introduced them to new business partners.

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 $600,000, why are cheap sofas to put in it still such a tempting offer?

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

Not many technology companies have succeeded in mobilizing 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. Game-console manufacturers live or die with the companies that produce the games. And eBay is an old-school dot-com company that has created a near-unassailable position: The buyers go there because the sellers go there, and vice versa.

Facebook, like Ikea—and like Microsoft—has mobilized an army of independent suppliers. In Facebook's case, they are developers who produce applications that can be plugged into the Facebook platform. In all these cases, the idea is the same: If Facebook (or Ikea) can woo the customers, independent suppliers will be queuing up to help, and if the independent suppliers are queuing up, Facebook (or Ikea) should be able to woo the customers.

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.

Tim Harford is a Financial Times columnist. His latest book, The Logic of Life, will be published in paperback on Feb. 10.

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