What is value capture?

Value capture refers to the process wherein entities (such as institutions or businesses) manage to secure and appropriate value from the products or services they create. It is often contrasted with value creation, where value is generated but not necessarily captured by the entity that created it.

C. Thi Nguyen, a philosophy professor, explains that value capture occurs when richer, subtler personal values are replaced by simpler, quantifiable proxies within institutional settings. For example, educational achievements may get simplified to GPA, and communication effectiveness may be reduced to Twitter likes and retweets. This oversimplification can seduce individuals into adopting these proxy metrics as genuine representations of success, thus capturing their broader, more nuanced values into more manageable, albeit less authentic forms 1.

Tren Griffin, an author, likens value capture to the concept of a "moat" in business, a term popularized by Warren Buffett. Moats represent sustainable competitive advantages that allow companies to capture value efficiently. These can include network effects, economies of scale, intellectual property, and brand strength. For example, companies like Amazon and Netflix benefit from network effects where their services become more valuable as more people use them 2.

Ben Gilbert and David Rosenthal, hosts of the Acquired, discuss the significant value creation by platforms like Google Maps, which subsequently allows Google to capture substantial value due to its dominant market position. They highlight the tension between delivering consumer benefits and potentially stifling innovation due to monopolistic tendencies 3.

In summary, value capture involves simplifying and quantifying complex values or benefits to make them manageable, often leading to significant sustainable advantages for businesses that can effectively manage these processes.