By Software AG Vice President Mohamed Cassoojee
Digitalisation has done so much more than just shift expectation and transform innovation. It has created digital divides, rifts between internal pillar and external deliverables, and redefined the ideals of engagement and growth. The fundamental business models are changing and organisations are falling into two camps – those who face the customer, and those who supply the customer.
“It is a visible shift across the corporate landscape as organisations determine their camp and what role they are set to play going forward,” says Mohamed Cassoojee, Vice President and Country Manager at Software AG South Africa. “Some of the models that look towards the customer are now referred to as the Platform Businesses, operating within the Platform Economy.”
These businesses aggregate services, combine products and deliver these to the customer on a platform platter. They ultimately own the customer data and the information that defines them. This model grows through the network effect – the more people using a platform, the more it attracts.
“An excellent example of this in action is, of course, Airbnb and Uber. Neither of these companies own the assets they promote, they facilitate and collect on the income off the top. What’s interesting, is that if you look at the valuations of these organisations compared with the traditional ones, they are extremely high,” adds Cassoojee.
If you take BMW, for example, they have a market cap of under $US 55 billion with around 125 thousand employees, whereas Uber has a market cap of $US 70 billion, was only formed in 2009, and only has around 7000 employees globally.
In addition to this, there is an evolution within the customer space that is being changed by digitalisation. The user is becoming the prosumer – directly influencing the development of a product and supporting the organisation in bettering services based on their input and influence. It’s a marked difference from a product being something that’s made, marketed and sold.
Now it is innovated, evolved and refined through internal and external input and processes. An example of a company that has done this to impressive effect is Apple with their iStore. They created a community of people who develop apps and services for them. It makes in the region of $US 30 billion of which Apple takes 30% off the top. A neat $US10 billion just for managing a platform.
The other camp consists of the backend business, the traditional organisation manufacturing a product that is sold onto the consumer or commoditised. Banks may shift into this space as fintechs continue to elbow them aside to become the front-end of the financial market.
The banks will become the processing engine while the customer ownership sits with the start-up and the innovator. Some banks may do both, and already there are organisations that have long recognised the potential effect of the digitalisation end-game and have opted to keep their feet firmly planted on both sides.
These changes are not taking place just on the technology frontier either. McCormick Spices has created a customer platform where users can rank and rate the products while sharing recipes and testing flavours, and they’ve maintained their production of the spices on the backend. McCormick Spices developed a community around the brand that embraces the influence of digitalisation across the traditional and the customer-facing platform.
“Organisations need to focus on the end goal of the digitalisation game and know exactly which camp they plan to live in, and how to make it work for them. Ultimately, every interaction is an opportunity, every frustration can be monetised, and every shift in the market can steer the business towards success,” concludes Cassoojee.