Session 4: Digital Platforms Strategies PDF

Session 4: Digital platforms Strategies Digital Business Two-year MSc Course coordinator: Nabila BOUKEF Ph.D Associate Professor in information Systems and digital transformation SKEMA Business School Course schedule...

Session 4: Digital platforms Strategies Digital Business Two-year MSc Course coordinator: Nabila BOUKEF Ph.D Associate Professor in information Systems and digital transformation SKEMA Business School Course schedule  Session 1: Rethinking strategy in the digital era  Session 2: Digital strategy formulation  Session 3: Strategy approaches and ambidexterity strategy  Session 4: Digital platforms strategies  Session 5: Differentiation strategies and competition in the sharing economy  Session 6:Digital strategy and Business process transformation  Session 7: Building digital capabilities and creating digital leadership  Session 8: Digital strategy execution in practice: Fostering innovation in the digital era Questions addressed during this sesion  What are the disrupting effects of platforms?  What are the characteristics of the digital platforms?  How do incumbent companies deal with the threat of the sharing economy platforms? Part 2 Why Drivers of digital transformation ? Analyzing the new rules of the games and opportunities enabled by the digital technologies Create a competitive Strategy approach Digital growth advantage Focus on Creating a What Creating a Adapting digital competitive strategy with sustainable platforms advantage with the constraints competitive strategie s ? digital technologies of the environment advantage Transform business with digital technologies How Transforming the processes ? Digital capabilities Digital leadership Investing in digital technologies Transforming the organization Managing the ecosystem Digital platforms strategies Network effect Session 4 Governanc e Differentiati Session 5 on Outline for this session 1. Platforms characteristics 2. The disrupting role of the platforms 3. Incumbent companies strategic response to Sharing economy platforms  Conclusion Reading  Zhang et al., 2018, “Established Companies’ Strategic Responses to Sharing Economy Threats”, MISQ executive, (17,1), pp. 24-25.  Täucher K. and Kietzmann, (2017)” learning from failures in the Sharing economy”, MISQ executive, (16:4), pp. 253-256 (not mandatory)  Chassin et al., 2018, “Reasons for failure of sharing economy business”, MISQ executive, (17: 3), pp. 185-199 (not mandatory) Platforms characteristics Example of platforms The 7 top ranked companies are platform businesses  Apple  Microsoft  Alphabet/Google  Amazon  Facebook  Alibaba  Tencent Platform definition  « A platform is a business that creates value by facilitating direct interactions between two or more distinct types of customers » (Rogers, 2016, p.56). This involved two main characteristics:  Different stakeholders are involved in the platform: they have different roles, contribute and receive different kinds of value.  Direct interactions between the different parties that take place through and is facilitated by the platform.  These different parties could not otherwise transact with each other. Marshall et al., 2016, HBR, p.58 2. The disrupting role of platforms Case study: Udemy Teamwork (part 1)  What are the key resources of Udemy?  How does Udemy create value ?  How does a digital platform like Udemy shape competition? The network of the producers and consumers is the main asset of the platform Producers: Consumer instructor s: s learners Platform The owner (udemy) The providers How does Udemy create value ?  Network effect (the platform is attractive for the learners when there is a large choice of online courses and for the instructors when there are more learners to purchase their course).  Orchestrating the relationships between the producers and consumers of the platform  Creating value for both consumers (learners) and producers (instructors) Key competitive advantages of a platform like Udemy  The business model is highly scalable ( the marginal cost of an extra learner and an extra instructor is small).  Speedy evolution to a new market (Udemy takes advantage from the virtuous cycle created between individual and business customers to develop an hybrid Business model). The move to platforms involves three key shifts 1. The network of producers and consumers is the main asset (the community and the resources of its members). The importance of the network effect. 2. Platforms create value by orchestrating relationships between external producers and consumers. The need to control access and governance of the different stakeholders. 3. Maximizing the total value of the ecosystem (need to focus on new metrics). Marshall et al., 2016, HBR, p.56-58 The network effect  The network effect refers to the fact that larger network creates more value for participants. The more people join the platform, the more, new people, will join in.  Greater network enables better matches between the consumers and the producers of the platform.  Example: facebook network (people join because it’s likely that they can interact with their friends, family…). The winner take-all the market: The emergence of small number of hub firms that dominate the market Examples of hub firms: Alibaba Google Amazon Apple Facebook Microsoft (Iansiti and Lakhmani, HBR, spt-oct 2017) Access and Governance While platforms take benefit from the network effect, rules are needed to control access as well as control of the participants activities in the platform.  The need to control access to the platform to maximize positive network effect (each new participant creates value to the network).  Different governance mechanisms (standardization of the service, incentives to comply with the policy of the platform). Platform strategy is different  Light in assets: platform business can achieve higher margins.  They can grow extremely fast  Winner takes all  Economic efficiency  Higher competition between platforms Challenges faced by platforms  Relationships within the different participants to the platform may evolve: Example: Zynga was a game producer on facebook and then created its own platform.  Fierce competition between the platforms to create a network effect and force the competitor to either exit the market or focus on a segment of the market. Example: Sidecar vs. Uber and Lyft. Focus on the specific case of platform based sharing economy Characteristics of the sharing economy platforms  Two-sided or multi-sided platforms (facilitating the interaction between two or more parties from the supply and demand side of the platform).  Sharing economy platforms do not able the selling and buying of goods.  Sharing economy platforms facilitate peer-to-peer rental or sharing of the resources or the services (temporary access). Case study Udemy : Analyzing the risks Teamwork (part 2)  Identify the risks that Udemy faced  How did the company manage these risks?  How did the hybrid Business model enable Udemy to better manage these risks? Risks faced by How did Udemy cope with How did the hybrid Udemy this risk model enable Udemy to cope with this risk Higher costs of Development of learning Virtuous cycle between: developing both content and the network of 1-individual customers market sides expert first. and business customers. 2- business customers and the supply side participants. Lower customer lock- The development of features The HBM enables higher in that enable students to retention rate (customer engage in the platform. support service as a (learning library with primary point of customer interaction features) contact) Low control over Imposing detailed design Selecting higher quality service quality guidelines for the instructors. courses Higher competition Development of a Hybrid The HBM generates a business model sustainable income Main risks sharing economy platforms face: Täucher K. and Kietzmann, (2017)” learning from failures in the Sharing economy”, MISQ executive, (16:4), p. 260. Examples of platforms failure Täucher K. and Kietzmann, (2017)” learning from failures in the Sharing economy”, MISQ executive, (16:4), pp. 253-256.  Common reasons of failure in the sharing economy  Lack of providers  Insufficient analysis of the sharing market  Trust and safety  Hidden resources requirements  Non scalable technical designs  Unclear legal environment  Business termination through acquisition Chassin et al., 2018, “Reasons for failure of sharing economy business”, MISQ executive, (17: 3), pp. 193. Different response strategic options 1. Strengthen business as usual 2. Invest learn-act 3. Step-out and partner 4. Hybrid 5. Expand-and-compete Zhang et al., 2018, “Established Companies’ Strategic Responses to Sharing Economy Threats”, MISQ executive, (17,1), pp. 23-40. Strenghten business as usual  The company maintains its current business model and try to better serve its customers by improving its products or services.  The strategy consists on maintaining its customers and attract new ones in the market segment where the competition from the sharing economy is not prevailing.  Example: FedEx is not facing an intense competition from the sharing economy platforms notably in the global market. The company focuses on improving the scale and the density of its distribution network. Invest-learn-act  The company invests in the sharing economy to learn more about its business model and customer preferences.  This strategy can help the company improve its products or services in order to better meet the customers expectations.  Example: Hayatt invested in onefinestay. Illustration: Hayatt Drivers of digital transformation: Competition: threat of the sharing economy Customers: changing taste of the customer and the willing of the company to adapt its brand experience to meet this change. “We’ve always … looked at this whole sharing economy dynamic as a broad consumer issue and a consumer behavioral change. And we’ve always been drawn toward it, not … away from it because we feel … we need to learn from what we’re seeing evolve in the market and how consumers think and how they behave. … [We’ve] been experimenting with how we could potentially extend the brand experience for Hyatt customers and also understand how we may be able to interface with and help support different kinds of stay occasions outside of our hotels.” Mark Hoplamazian, President and Chief Executive Officer, Hyatt Hotels Corporation Strategic response: - Invest in onefinestay - Run tests to better learn about the sharing economy and how it can be integrated in its business model. - Implement initiatives to improve customers experience Zhang et al., 2018, “Established Companies’ Strategic Responses to Sharing Economy Threats”, MISQ executive, (17,1), pp. 23-40 Step out and partner  The incumbent company partner with a sharing platform from another industry.  This partnership aims to attract new customers and create value for the existing ones (new services or new products).  By so doing, the incumbent company can access a large scale sharing platform’s ecosystem. Example: Hilton partnership with Uber. Illustration: Partnership of Hilton and Uber Drivers of digital transformation: Competition: threat of the sharing economy. However, Hilton is providing a differentiated service compared to the sharing economy. “[Compared] to Airbnb, we are essentially in different businesses. … What we provide for our customers is something different. Our whole business is focused around delivering very consistently a high-quality product wrapped in authentic heartfelt service. Our customers tell us every day that they want more of it, not less of it. I think it’s something very different than what is provided in the sharing economy.” Christopher J. Nassetta, President and Chief Executive Officer, Hilton Worldwide Strategic response: This partnership enables Hilton to :  provide a seamless travel experience (access to the information provided by Uber users related to the local attractions and restaurants, use an Uber ride to the hotel).  Simplify customers’ travel experience (integrate application, check hotel information, check in and request the digital key during the ride to the hotel).  Attract new customers from Uber Zhang et al., 2018, “Established Companies’ Strategic Responses to Sharing Economy Threats”, MISQ executive, (17,1), pp. 23-40 Hybrid  The incumbent company integrates varying degrees of platform based sharing economy model into its traditional business.  This mixed strategy enables the incumbent company to maintain its strategic position.  Example: Facing the competing of the sharing economy, DHL integrates some aspects of the sharing economy in its business model. Illustration DHL Drivers of digital transformation: Data: this refers to the new technological capabilities Customers: change in their behaviors (use of technology) and their expectations (sharing). Competition: disruptive effect of the sharing economy “From our roots as a courier service in the 1960s, we know that sharing is not new. What is new are the tools and attitudes with which people are sharing: smartphones and mobile technologies combined with shifting societal values are allowing companies with new business models to proliferate at unprecedented speed, scale and valuation.” Matthias Heutger, Senior Vice President Strategy, Marketing & Innovation, DHL Customer Solutions & Innovation, and Markus Kückelhaus, Vice President Innovation and Trend Research, DHL Customer Solutions & Innovation Strategic response Integrate Pilot services based on the sharing economy business model (For instance: Myways in Stockholm crowdsourcing platform that connects senders with people willing to help them transport their parcels). Zhang et al., 2018, “Established Companies’ Strategic Responses to Sharing Economy Threats”, MISQ executive, (17,1), pp. 23-40 Expand and compete  The incumbent company reinforces and strengthens the existing part of their business model that already resembles a sharing economy model in order to be able to compete directly with the sharing economy disruptors.  Example: Whyndham reinforces its timeshare business (considered as having key aspects of the sharing economy business model). By so doing, the company strengthens its strategic positions.  Illustration Wyndham Drivers of digital transformation Competition: the threat of the sharing economy. However, there are some similarities in their business model with the sharing economy. “[With] our timeshare exchange and vacation rental offerings, Wyndham Destination Network is a major player in the sharing economy. But unlike the big online marketplaces, our model goes well beyond linking supply and demand. As the world’s largest provider of professionally run private accommodation, we connect travelers seeking the authenticity of homestay with owners looking to rent their property … we offer both of these groups a range of services to ensure a smooth experience.” Stephen Holmes, Chairman and CEO, Wyndham Worldwide Strategic response Acquisition of sharing economy platforms which enable the platform to expand its timeshare. Integrate vacation rentals and timeshares to its loyalty program. Zhang et al., 2018, “Established Companies’ Strategic Responses to Sharing Economy Threats”, MISQ executive, (17,1), pp. 23-40 Conclusion  Takeaways  Platforms are disrupting the businesses (Higher margins and value produced by positive network effect, they can grow faster)  Platforms are also facing challenges (the need to consider the different risks and set up rules to control access and the activities in the platform).  Incumbent companies need to cope with the threat of the platforms and adapt their strategy.  There are five strategic responses to the disrupting effect of the sharing economy that can be pointed out: Strengthen business as usual, invest learn-act, step out and partner, hybrid and expand and compete.  Competing in the sharing economy 1- Create a network 2- Control access and 3- Differentiation strategy effect governance mechanisms (Next session)  Control access Develop both sides of the platform  Set up governance (provider and mechanisms consumer). (standardization of the service, incentives to Consider starting comply with the with the provider policy of the side. platform …) What is next? Digital platforms strategies Network effect Session 4 Governanc e Differentiati on Session 5 What’s coming up next  Session 1: Rethinking strategy in the digital era  Session 2: Digital strategy formulation  Session 3: Strategy approaches and ambidexterity strategy  Session 4: Digital platforms strategies  Session 5: Differentiation strategies and competition in the sharing economy  Session 6:Digital strategy and Business process transformation  Session 7: Building digital capabilities and creating digital leadership  Session 8: Digital strategy execution in practice: Fostering innovation in the digital era AT HOME WORLDWIDE* * Chez vous, partout dans le monde