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The result is access to an unprecedented pool of information with immediate and total accessibility, as well as highly available and scalable computational power.

As a consequence, the barriers to entry into a market have plummeted, making an organisation’s own ability to change more of a factor than, say, cost. In many markets, therefore, digital technologies are redistributing value across incumbents and new entrants. Through data, digital enables access to new sectors, breaking down boundaries between ecosystem partners. In addition, the lack of perceived quality from the perspective of the consumer for certain current servicesoffers a source of inspiration for start-ups looking to disintermediate large enterprises. This technology-driven revolution is breaking and reforming value chains and their boundaries: no sector is immune.

Most frequently, digitally-oriented business models are positioning themselves between existing suppliers or distributors, and their customers. For example, aggregators, delivering products and services from multiple organisations, offer comparison-based value propositions (for example, Booking.com, insurance comparison sites and so on) or variety-based models with an improved customer experience (for example, Amazon), or indeed new services often with the goal to gain time for the customer (for example, Urbit, DatingAssistant.com, KelDoc).

Such aggregators build direct relationships with end customers, relegating established organisations to the role of supplier. This empowers them with rich customer data, enabling them to anticipate customer choices and link this to marketing and micro-segmentation activities. Such organisations become the de facto route for accessing the markets; they also gain the ability to negotiate rates (for example, Booking.com) and, clearly, create an additional channel over which traditional organisations have minimal control. Numerous digital start-ups describe their business models around this notion of becoming a new intermediary, forging a direct relationship with the end customer and offering the resources that the customer needs. To this regard, the phenomenon of crowdfunding, demonstrated by platforms like Kickstarter, rings alarm bells for financial specialists such as banks, investment funds, business angels, insurers and loan organisations. In the tourism sector, Airbnb connects travellers with property owners. In real estate, Pap.com in France and Rightmove.com in the UK impact the margins of estate agencies.

Established organisations are right to be worried. Once such start-ups have built their own relationships with customers as ‘mere’ aggregators, each can then start to offer services as fully-fledged service providers (for example, BlaBlaCar, Zenpark). This trend hinges, sociologically, on liberating the customer from relationships with incumbent providers – a high-risk strategy for an established provider but less so for a disruptive start-up. As the digitally-enabled customer becomes more footloose, able to easily switch between service providers (for example, taxi service), the market will open wider to new entrants.

Impact on a sector can vary: from the shrinkage of the addressable market for established players, right up to the complete destruction of the value chain and the emergence of new mechanisms and models for consuming very different services. Full-stack digital enterprises, of which Google and Amazon are leading the march, are not content to be a mere link in the value chain; they’re seeking to globally control the products and services their business models intermediate. To grow their client base, digital players can forcibly invest in a domain that is (in principle) foreign to them. Google launched itself into constructing a fibre network for example, rather than waiting for traditional operators to invest. Meanwhile, Netflix sidestepped the constraints imposed by production studios by developing its own TV series.

Such organisations will not be waiting around for traditional companies to re-take their market positions; more likely is that when the former group catch-up, they will find the market has already moved on, looking at other areas to aggregate and re-intermediate. The volumes of data created by clients and players across the ecosystem can enrich data from other industries, for example. The digital-first enterprise can therefore either propose it to existing clients as new services, or sell it to players in other industries (data as a service), carving out a first-mover position in whole new markets.

The bottom line is that established organisations have just as much opportunity to do the same if they are prepared to act as quickly, take similar risks and potentially cannibalise their existing models. Within this race towards intermediation and aggregation, only three possible scenarios exist: for an organisation to aggregate services, to be aggregated or to disappear completely. However, the choice of which path to follow is entirely in the hands of the business itself and how it decides to act.

  • Author

    Natalia Danon-Boileau

  • Eric Falque

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