Open-pored, not porous
How digital transformation welds companies into ecosystems18 Feb 2020
"Hybrid reading – i.e. digital and analog reading using several devices in parallel – has established itself. We are constantly working on our service offerings like web readers, cloud and apps to provide our customers with the best all-round reading experience," says Nina Hugendubel, managing partner of the eponymous bookstore chain.
Her company is co-founder of the Tolino Alliance, which has been countering Amazon’s lead in the book trade since 2013 with its own German platform offerings centered around the Tolino eReader. As a result, it now has market share on a par with Amazon's Kindle, as the successful family entrepreneur reported in an interview with Frankfurter Rundschau newspaper on the fringes of the most recent Frankfurt Book Fair. Not a foregone conclusion in a market where the fear of cannibalizing one’s own offers, as well as of disruptive intruders and falling sales, have been around for years.
The eBook: Once launched as a beacon of hope in digitalizing the book industry, it actually never surpassed a single-digit percentage of total book sales. Even industry insiders have been singing a requiem for the eBook. The German Publishers & Booksellers Association (Börsenverein des Deutschen Buchhandels) reports slightly less eBooks sold (-3.9 percent) and slightly lower sales revenue (-0.6 percent) in this segment for the first three quarters of 2019 year on year. And all this, even though the book market as a whole has shown a slight uptick. In 2019, sales over the main distribution channels (including Amazon) rose by 1.4 percent, and even at bricks-and-mortar bookstores by 0.5 percent. The best performance was achieved by the nonfiction book segment, which showed sales growth of almost five percent.
So: Who is writing the success story of Tolino’s David versus Amazon’s Goliath in this overall context? And it’s actually a bigger David than just Tolino, because behind Tolino are the heavyweights in the German book trade: Thalia, Weltbild, Mayerscher, Osiander and Hugendubel. And Libri, one of the book industry’s biggest booksellers and logistics providers, is also involved. They are all in the upper range of SMEs, which have a long tradition as family-owned businesses, for most of them, right up to the present day. Together with eBuch, Libri is also the operator of the platform genialokal.de, which also gives small, local bookshops a digital face. Although the company is also a direct mail-order company, anyone wishing to support their favorite bookseller simply selects it as the pickup location on the platform and immediately sees whether the book they want is in stock there. The revenue then lands with the local retailer.
Successful platforms in a tough market climate
Tolino and genialokal are two examples of the successful establishment of platform business models in a tough market environment. What they have in common is the openness of the players to cooperation. Of course, they are still in competition with each other, the big players with each other and the small players with the big ones. But they have an even bigger opponent, namely Amazon, which CEO Jeff Bezos started from his garage in Seattle in 1994, and which by now is dominating the market for more than just books.
The eCommerce colossus belongs to the octopus known as "GAFA" – Google, Amazon, Facebook and Apple – which has long been more familiar with us and our lives than any trusted "mom-and-pop" shop around the corner. And yet that's exactly where the opportunity for one’s own platform lies, one that can defy even the biggest players. It is crucial to know the needs of customers and promise them a clearly recognizable benefit. In the case of the book market, it is the intelligent combination of abundant content, convenience in ordering and delivery or personal pickup as desired, reliable technology and customer proximity that makes the difference. In addition, there is the emotional component that turns books into a cultural asset worth protecting and encourages people to turn their backs on the industry giants.
However, opening up to cooperation with competitors in the process of digital transformation is no small matter, especially for medium-sized companies and family businesses. After all, their long traditions and success as hidden champions, global niche market leaders and quality specialists are usually based on hard-won advances in knowledge, engineering and secret recipes. And nobody gives these away lightly. The basic posture of hunkering down in your snail shell was taken for granted for generations. And then, suddenly, you’re expected to join forces with your competitors, bundle technologies, configure products into solutions, and even develop the main innovations in cooperation with your competitors? "Coopetition" is what consultants call it – cooperation and competition combined. This can send cold shivers down your spine.
What’s more, ownership of a product – the outstanding quality of which is often the defining factor for German companies in particular – takes on a less important role. This is because platforms organize the interplay of interests, while the profane exchange of products or services and money between players is of secondary importance. The biggest market players don’t even have their own assets. AirBnB, for example, has taken on the hotel market without owning any real estate, just as Uber is overtaking the hired taxi market without its own taxis – but they bring customers and providers together and collect fees for precisely this mediation. And, because it makes shopping so convenient for customers and the actual providers can’t afford to lose the business, the platform operators collect a lot of money. This kind of power does not necessarily make you popular. But, as mentioned above, that is where the opportunity lies for the established players in the domestic, analogue market to successfully transfer their own business to the digital plane and thus achieve overall sustainability.
Understanding data-based interactivity
To do this, companies must first conceive of their business model as a data-based, interactive process. Who is interested in what kind of service(s) and how can that interest best be met? A product and its outstanding features can still play an important role in this, but it is generally the services surrounding a product that make the difference. This can be a community of users seeking to share experiences, tips and tricks, or the bundling of your own product with other products or services that are a good fit and thus help drive consumption and usage. The more attractive, interactivity-based offerings presented to customers, the higher the probability of their actually engaging with these offers, thus giving vendors the opportunity to learn from the interaction data and gain even closer knowledge of customer requirements. To do this, however, you need to operate the platform yourself. Because only then do you own the customer interface. Only as an operator will you have full access to the data.
Hans Winterhoff, a partner at KPMG and Global Lead KPMG Innovate, summarizes the challenge as follows: "Protecting the crown jewels and yet identifying the data that, in interaction with third-party data via an easy-to-use platform, offers added value to customers and other interested parties – that is the art. One of my favorite examples of a functioning platform ecosystem of mid-sized companies is the agrirouter. Just have a look: https://my-agrirouter.com/en/ ."
Indeed, the benefits of agrirouter are immediately apparent. The platform is used for universal data exchange between agricultural machinery and agricultural software from different manufacturers – one of the core problems involved in digitalizing agriculture. Farmers, contractors and dealers can use agrirouter to network with machine manufacturers, app providers and equipment manufacturers – individually configured with rules for data exchange that can be changed at any time. The user determines who exchanges which data when and with whom and pays for the software usage and telemetry connection purchased from the respective service provider. The platform operator simply charges the provider a flat rate per connected user, staggered according to the range of functions. This way, everyone benefits from fast connections via certified telemetry interfaces, from an open and secure solution and from lean processes. Whether the tractor is from Case IH, Deutz-Fahr, Fendt, Massey Ferguson or Steyr is just as unimportant as whether the equipment for soil tillage, sowing, fertilizing or harvesting is from Amazone, Grimme, Krone or Lemken. All of these manufacturers and many others are well versed in coopetition via agrirouter.
Ultimately, it is a question of creating an ecosystem in which various performance elements can be intelligently linked. And mastering information technology becomes a core competence. At industrial and manufacturing SMEs in particular, it is important to breathe computing power into products, connect them, analyze and exploit the resulting interaction and transaction data, and use this data to create applications that meet customer needs. The resulting benefits grow with the degree of networking and the integration of other providers of products, applications and services – generally disproportionately.
Apple shows the way
For twenty years, the Apple ecosystem has convincingly demonstrated how this can work. The hardware was initially the iPod, the value of which not only consisted of a cool device design, but above all in access to iTunes – at that time a pure music platform on which thousands and later millions of tracks became available in no time at all, easily eclipsing any record collection, no matter how large. With the advent of the iPhone and iPad came photos, videos and navigation. The App Store started in 2008 with 500 apps. Ten years later, Apple’s app sales alone amounted to 46 billion dollars.
1.4 billion active devices, 500 million App Store visitors per week and a 30 percent share for Apple in every transaction – with those figures, Tom Sadowski, who has been with Apple for the last ten years and was responsible for the company’s App business in the German-speaking countries, sketches out Apple’s no. 2 business area. In his recently published book, "App Store Confidential", Sadowski emphasizes the economic relevance of this: "More than 1.7 million European jobs are directly or indirectly linked to the App economy: App developers, user interface designers, App analysts and marketers. The App Store is a gigantic job machine." In the meantime, Apple TV is complementing streaming on demand and with the Apple Watch, health and fitness data are also displayed. The latest addition is Apple Pay, which organizes payment transactions and financial data in the ecosystem and beyond. So far, so good.
But it gets really exciting when you take the Apple ecosystem into your car. The latter has its own data world and associated services such as driver assistance systems, security, navigation, repair and maintenance. By connecting both ecosystems – via Apple Car Play – the user experience is greatly enhanced. For the car manufacturers, suppliers and all other players in the mobility ecosystem, this is the key to the future, which we envisage above all as sustainable and autonomous driving. As long as we are not yet beaming, we will continue to invest time in mobility, but will probably want to integrate it into our lives in a completely different way in the areas of education, work and entertainment. This is the mobile market of the future – even for publishers, authors and booksellers, who can literally climb aboard by presenting new offerings.
How exactly? That can best be determined cooperatively. In an openness to radical change. Clayton M. Christensen, the mastermind of disruptive innovation and the author of "The Innovator's Dilemma" (1997), who died in January 2020, characterized the necessary approach in his last major interview – published in a recent MIT Sloan Management Review Special:
Looking back critically on the two and a half decades since the formulation of his innovation theory, Christensen notes that too much energy is being invested in innovations that simply seek to make good products better (sustaining innovation) or to achieve more with less resources (efficiency innovation). While the former at least generates manageable growth, the latter doesn’t even achieve that. Much more essential is the third form of innovation, i.e. "market-creating innovation", which creates new markets for new customers.
"I believe that the fundamental questions we’ve been asking for decades now apply just as much in a digital context as they do in an analog one. Who are your best customers? What is your organization capable or incapable of doing? What “jobs” are you trying to help customers get done in their lives? In what circumstances should you integrate, and in what circumstances should you modularize your firm’s and product’s architecture? Who are the nonconsumers, and what is limiting their access? These strategic questions are universal" says Christensen in his legacy.
TWENTY2X features platform economy think tank
The digital enterprise must be open-pored. But it must not become porous in the process. Medium-sized and family businesses in particular must open up to third parties without giving away their unmistakable core competence. This is indispensable for modern innovation management and the creation of digital ecosystems. Platform business models are a good example of this. An essential question is always: Do I want to operate the platform or do I want to bind myself to it, should I better enter into partnerships and let myself be invited to a platform that I can substantially enhance? What does the arrangement mean for the customer interface?
In any case, collaboration within and beyond one’s own company becomes much more important. Collaboration tools, smart sourcing and at the same time the protection of specific know-how play an important role at TWENTY2X, for example in the areas of "New Work" and "New Tech and Startups".
As a special offer for all entrepreneurs, managing directors and IT managers who are currently working on their innovation strategy and, in this context, are also working on platform issues or are planning to do so in the near future, KPMG and Hans Winterhoff and his team, together with IBM, HDI (Talanx Group) and the German Association of Small and Medium-sized Enterprises (BME), are offering the Platform Economy Think Tank at TWENTY2X. Business and IT decision-makers will receive a comprehensive overview from a macro and microeconomic perspective, along with new technology ideas and application examples. Afterwards creativity is called for, because concrete approaches for participants’ own businesses will be developed at a mini-design brainstorming workshop. Learning from and with each other is key, even after the think tank. The aim is to expand your knowledge, develop ideas and network with like-minded people every day from 10:00 a.m. to 2:00 p.m. in the SME Lounge in Hall 7. For further information and registration, visit twenty2x.de.
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