Salesforce, Digital Chair
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Traditional companies need to evolve. Quickly.
The observation is known by all: Europe is fighting to bring forth new technology giants capable of competing with the GAFAs (Google, Apple, Facebook, Amazon) and now with the BATXs (Baidu, Alibaba, Tencent and Xiaomi). Europe focuses on the development of fiscal and regulatory frameworks with government initiatives such as the GDPR (General Data Protection Regulation). These measures are certainly necessary to monitor the development of digital technology, but they do not directly contribute to accelerating the digital transformation of European companies. The challenge of this transformation is twofold: to increase the number of European digital unicorns (start-ups that have exceeded $ 1 billion in market value) and to give traditional companies room to maneuver to ensure their survival and growth in the world. disintermediation.
This threat of disintermediation, which was originally embodied by the GAFAs, actually comes from a larger group of actors, aggregators who run a platform business model: Airbnb (rental of housing), Blablacar (carpooling), Spotify (music) or even KissKissBankBank ( financing) … There are many examples. Articulated around the coupling of suppliers of goods and services with BtoB or BtoC customers, facilitated by technological innovation, platforms profoundly change the way business is conducted and offer a better customer experience and increased innovation capabilities.
Appreciated eight times their turnover
This outperformance translates into a much higher valuation than traditional business models. According to a recent study by BearingPoint, which uses an artificial intelligence algorithm to analyze the 4,500 listed US and European companies, companies operating a platform business model are rated on average eight times their revenue, compared to twice for companies whose business model is based on tangible assets and three times for services. In 2017, the GAFAMs (GAFA + Microsoft) generated an EBIT almost equivalent to that of all CAC 40 companies. The stock market assessments of the digital giants are broadly comparable to the GDP of most European countries. The unprecedented investment capacity behind these figures can only widen the gap with regard to tomorrow’s large investments.
Faced with this threat, there are two choices for traditional companies: to specialize and risk being aggregated as a result of a reduction in margins and market shares, or even to become aggregators to enrich their offerings and offer a better customer experience.
The recipe for successful entry into the platform economy is ultimately quite simple: Position yourself as a facilitator of as large an ecosystem as possible, aggregate third-party services and make good use of data to adapt the offer and proposal value to customer expectations. But according to the BearingPoint study, Europe is lagging behind in adopting a platform business model: There are twice as many pure platform operators in the US, and their valuation, as well as their growth, is significantly higher. Zalando, Schibsted… there are still few examples of large European companies.
A winning and proven strategy
But the chances of seeing the birth of a European Google or Facebook in the coming years are extremely small. Salvation is likely to come from a development of traditional companies towards a “hybrid” model. This involves diversifying the historical business model (whether it is based on assets, sales of services or even technological innovation) towards platform operator activities (ie linking a large number of customers and suppliers).
Combining multiple business models is a winning and proven strategy: The most valued companies in the world are those that have been successful in diversifying their business model portfolio. Moreover, our view of GAFA needs to evolve: these companies, whether born in digital or not, now have a hybrid business model. Amazon, for example, is both an asset manager with its distance selling, a service provider with its cloud and an ecosystem orchestrator with its platform that makes it possible to expand its offering and offer a better experience.customer.
Some large European corporations are in the process of taking this turn. Thus, in the BtoB industry, Siemens or Schneider Electric are developing IoT platforms. In the automotive sector, many players, such as BMW with “CarData”, are launching platforms designed to collect vehicle data and make it available to service providers (insurance companies, parking operators, etc.). Faced with the development of reservation platforms, hotel industry players, such as AccorHotels, are also moving towards a hybrid business model by investing in less capital-intensive activities. Our study shows that traditional companies that have taken this step towards a “hybrid” model have almost doubled their valuation and growth rate compared to companies with a single business model. As these examples show, the change in business model does not necessarily mean a radical transformation with a total question mark over the existing: it can follow an evolutionary and incremental trajectory by exploiting current strengths. It is clear that the development of a large traditional company towards new business models will not happen overnight.
Still too little investment
At the strategic level, despite awareness, investment is often limited to small experiments: 95% of the investment is still intended for yesterday’s economy and only 5% for tomorrow’s models. In other words, digital transformation is even more focused on the transformation of the historical operating model than on innovation in the form of the business model.
At the operational level, several barriers still need to be overcome to move towards a platform economy: insufficient value proposition for customer needs, lack of transparency in the information system, lack of skills and inappropriate management …
Traditional European companies’ path to growth goes through hybrid business models and the development of new value-creating models. To achieve this, they should quickly define a bold strategy for adopting and implementing innovative business models based on platform technology. To do this, they can draw inspiration from GAFA while relying on the significant resources at their disposal: a large market, numerous suppliers and partners, highly qualified staff, first-class technical capabilities, huge amounts of data and stable policy environments.
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