How can incumbents react to aggressive competition from platforms? I propose here 3 strategic questions for them to solve to find a distinctive positionning.
Competition from platforms, how to respond?
In a previous edition, we described how platforms change value criteria and create new ones. The winners are able to rapidly capture high transaction volumes. In the face of these threats, established players have acted to defend their position.
One initial reaction is to position themselves on the same service as new entrants. For example, nearly all car manufacturers have developed (internally or by acquisition) mobility services. Toyota invested a billion dollars in Grab, the Uber of South-East Asia. Daimler purchased Chauffeur privé, a chauffeured car rental service platform. General Motors entered into partnership with Lyft, which has become a distribution channel for its cars. Renault on the other hand has opted for a different strategy by acquiring software solutions used by mobility platforms (iCabbi and Yuso).
Beyond the strategies based on a service as such, some players are attempting to acquire an exclusive source of data, often as part of a coopetition approach. Audi, BMW and Mercedes have acquired Here, a collaborative map and navigation service, so as to free themselves from dependence on Google Maps and Waze (also owned by Google).
We saw recently that the majority of the companies mentioned in the previous paragraph are stepping back and selling their service operations: BMW and Daimler are reported to sell their common subsidiary Free Now to Uber and GM shut down Maven, the service developed with Lyft. It is likely to be a consequence of COVID but it could also be the sign of a strategic tradeoff as the sign of the difficulty to operate the necessary culture change imposed by a radically different model.
(BTW if you read French and are interested in the digital transformation of mobility, you must subscribe to Stéphane Schultz’s blog, here is a deep analysis of the phenomenon I just scratch the surface of here).
Three key strategic questions
There are at least three strategic questions raised by the fact that data are progressively becoming the centre of gravity of new business models: allocation of resources between different models, understanding data-related resources and expertise, and building a single high-value positioning based on non-digital competencies.
- First of all, in this transformation, established players are required to manage several business models with different reasoning and demands (a product model vs a service/use model for example). How to organize the allocation of resources between these? Does one cannibalize the other? Is this a problem? Which structure to adopt? Is it preferable to separate activities to preserve their uniqueness? How to balance the right amount of synergy and complementarity?
- Secondly, if data are becoming a key resource, how do we gain access to them and acquire the expertise to make the most of them? Is it preferable to develop systems designed to generate data flows, or should we enter into strategic partnerships with players who have access? Is it wiser to develop internal competence or to make acquisitions to integrate it?
- Thirdly, above and beyond the data, which distinctive resources and skills are required to build a unique high-value positioning, without imitating the strengths of digital players or getting dragged into their territory? Digital players do have reasons to position themselves on the connected car and driverless car markets. But a car without a driver remains a car, and the capacity to mass-produce cars at an acceptable cost to consumers and at a level of quality and security that complies with regulatory requirements remains a capacity owned by the manufacturers.
As an example, you can read here the FT article published last week on Volkswagen CEO, Mr Diess. 2 quotes from this article:
- The danger is that electric cars, which contain far fewer parts than combustion engine models, will be commoditised. It is a scenario Mr Diess hopes to combat by owning the valuable customer data generated by vehicles that are ever more automated and connected to the web.
- “We have a chance, because the car is really complex and Google can’t do a car today,” Mr Diess said. “Elon [Musk] can make a car, but also with some limitations still. Can we get to his level? Yes, I think so. Many of the people working for West Coast tech companies are Europeans.”
The battle is therefore not over, it is in fact just beginning.