We spent the first week of our NYU Stern class talking about value creation. The goal is to ask the seemingly simple question as to how a given company creates value. The first step of course is to ask what we mean by value. Some students wanted to jump immediately shareholder value. But shareholder value is the *result* if a company both creates value and has a means of capturing (some of) that value.

So then what is value here? It is ultimately always that an enduser gets something they value. We started by talking about Facebook. What is it that endusers value about it? Students came up with lots of good points, such as feeling connected to other people, being entertained, the ability to send communications. This is an important exercise to go through for every company and surprisingly companies spend awfully little time on it. Importantly the question needs to be asked how a specific company creates value *relative* to the available alternatives, which could be competing companies but also possible substitutes.

The only way to build sustainable shareholder value is to create value. But even if you create value you still need to be able to capture some of it if you want to be a profitable corporation. A huge amount of value has been created in the world specifically because someone chose not to capture value, such as Sir Tim Berners Lee creating HTTP as an open standard. We then discussed how Facebook captures value. After some discussion we focused in on the core idea that Facebook (and similar companies, such as Twitter and Snap) aggregate consumer attention and then resell some of that attention to advertisers. Consumer information plays an important role here also, but largely a supporting one in that it makes the attention more valuable.

Now we also discussed that value creation as presented here is not necessarily the same as social value creation. Tobacco companies are of course a classic example. Clearly endusers experienced (short term) value — which explains why they were willing to pay for cigarettes. But long term it led to a massive health crisis in the form of increased lung cancer rates. We then briefly talked about situations where the way a company captures value may put it in conflict with its own value creation and potentially also with social value creation. Facebook is a terrific example in that regard and I will write a future post about that.