Digital Barbarians at the Gate

In virtually every sector traditional markets are being disrupted by Barbarian insurgents – who appear to be able to capture customer loyalty from wherever they enter the value chain.

In a recent article Albert Meige, Academic Director of the HEC Paris executive program ‘Leading the Digital Transformation’ and CEO of Presans, uses the case of the mobility market to help us understand the dynamics of market disruption by insurgency and what companies might do to face up to threats.  

How can a company like Total, the long-established mega-corporation, whose activities span oil fields and renewable energy to filling stations, position itself to integrate the power of digital into its economic model? – a power often deemed capable of challenging the hierarchy of a value chain from any point of entry.

But is that right? Is it true that all the starting points are equal in the race for digital transformation? Or on the contrary, do actors such as Total not have the initial advantages necessary for the construction of dominant digital platforms?

1. Are platforms and value chains orthogonal?

Michael Porter’s 1985 framework for competitive advantage suggests a linear reading of a sector of activity, in which each actor seeks to improve its position in relation to its close competitors in order to increase its margin. The digital Barbarians break this model by adding a completely new layer of intervention in the market, and furthermore, when the customer relationship is captured en masse by the new platform layer, it hits the margins of all providers wherever they are on the value chain of a product.

This begs the question: Can a platform develop from any link in the value chain? Are the platforms and value chains ‘orthogonal’? (i.e. do they bear no linear relationship at all? Can they just come from ‘left field’?). If so, then developing a platform strategy would not need to take account of the position of a company in the value chain.

To answer this question, Meige points to a digital analysis method developed by Philippe Letellier which focuses on three points: customers, pain points, and data.

For example, applying this method to Amazon: Jeff Bezos's choice to enter the book market was not a coincidence; he responded to the ‘pain point’ of the limited choice of books available in a physical point of sale. Subsequently, once Amazon’s platform was built and able to deliver an optimal customer experience, enhanced by the power of data, it became possible for Amazon to consider penetrating all kinds of other value chains (including fresh food).

In the case of companies that are not ‘digital natives’, even if every link in the value chain is considering a platform strategy, some links have an advantage. Platforms and value chains are therefore not orthogonal at first. They may become so after initial success.

The mobility market – the market that includes private and public transport and the transportation of goods – does not escape this rule. As urban mobility struggles with congestion and pollution, electric vehicles, usage-based rather than vehicle ownership models, and shared mobility modes are finding eager acceptance among commuters across the world creating a pain point in this market.

2. How to become a mobility platform

The major platform opportunity in the mobility value chain, is to offer the consumer a comprehensive integrated experience through an expansion beyond established historical fields of activity.

A virtuous circle links user experience and data. A better customer experience attracts more users, which allows more data to be generated, which in turn can optimize the customer experience. (The importance of data should not be overestimated though, as the starting point is the customer relationship and the user experience.)

The control of the relationship and user experience is based on three keys: proximity, frequency and attractiveness:

Proximity to the end user implies a customer base – a valuable asset, long and difficult to create from scratch. The size of the customer database influences the volume of data generated by the platform.

Frequency: the more transactions or interactions, the greater the viability of the platform. Transactions that are too far apart in time may discourage the registration of a customer on a digital platform.

Attractiveness of a platform stems from the functions to which it gives access. It is stronger when these functions cover three areas: the necessary, the excellent and the exclusive. It also assumes customer confidence. Without attractiveness, no users, so no data.

3. Who will be the Amazon of mobility?

Players in the mobility market include: vehicle manufacturers, car rental companies, public transport companies, taxis, bus companies, fuel and energy providers, financiers and insurers. It also includes Uber, Tesla and potential new players such as Amazon or Google. Considering proximity, frequency, attractiveness, which of these actors is best positioned to offer a mobility platform?

Total: a major energy operator

Proximity: Total has good proximity with a large customer base through its Marketing & Services branch, which manages the network of service stations.

Frequency: Replacing tires is a less common act than paying for a parking space or for a full tank of gas. Total is the provider with one of the highest frequency of transactions in the mobility market through its service stations.

Attractiveness: The pre-existing customer base is not enough. The emerging revolution will take the form of mobility-related applications allowing for a S.E.X. experience: simple, efficient, and sexy – able to attract new customers and create a new commercial base. In this respect, Total must innovate.

Total's position therefore benefits from enviable assets. It remains to transform the virtual into reality... or the opposite!

Manufacturers: a starting position more difficult than one might think.

Proximity: Established manufacturers are at a disadvantage in not being in direct relation with the final customers. Building a customer base of sufficient size is a major challenge for them.

Frequency: The transaction frequency is low. However, manufacturers practice leasing and can go further in the direction of mobility to rent.

Attractiveness: Cars are being designed to provide an attractive experience – but the competition is fierce.

The position of the manufacturers thus seems less good than that of the renters, who can use their customer base to negotiate favourably fleets of cars with the manufacturers.

Tesla: indisputable Strengths.

Proximity: A direct relationship with customers allows the building of a new customer base and the generation of massive data from all Tesla vehicles in circulation.

Frequency: A powerful data platform with regular updates on cars’ operating systems. The high frequency of interactions could be converted into high frequency transactions.

Attractiveness: Real attractiveness thanks to the design of the product and the services packaged with it.

Tesla is already a mobility platform, but on a small scale. The challenge is to create a large-scale mobility platform.

New players (Chauffeur Privé, Uber): the strength of the customer experience.

Proximity: Close proximity with the end user. A powerful customer experience allows them to build a huge customer base.

Frequency: The frequency of transactions is high.

Attractiveness: The attractiveness of these new players is already established, thanks to an excellent user experience.

The new players are in an interesting position in the mobility space. Their main challenge is to propose a scalable system in terms of infrastructure.

Today, Tesla is the only player in mobility that concentrates all its assets on creating a mobility platform that complies with the two technological and ecological drivers of mobility – but on a small scale. A giant like Total is in fact well placed to put its strengths of proximity and frequency in the service of the construction of a dominant mobility platform. But we have yet to examine the potential of Amazon.

Amazon: The barbarian is at the gates and can enter at any time.

Proximity: Amazon's proximity to the customer is maximum.

Frequency: Amazon's transaction frequency is maximum.

Attractiveness: Amazon attracts by being an undisputed trusted third party, no matter the vertical.

Nothing prevents a company foreign to mobility, but queen of the customer experience, to enter the world of mobility. The example of Amazon, a trusted third party for many consumers, is not absurd. If Amazon massively entered the mobility market by selling petrol, cars, or both, this could lead to lower margins for some or all other links in the chain. Amazon would, however, release a new margin based on its dominant platform position

Conclusion

For existing mobility players, digital transformation leads to strong convergences between links in value chains. When creating a platform, however, there is no orthogonality between value chains and the success of a platform strategy. Some assets such as the frequency of interaction and the existence of a customer base are difficult to create from scratch.

There remains the danger posed by actors of the Amazon type, kings of the customer experience. Their platforms are orthogonal to value chains. They create uncertainty in all sectors of activity and disturbs the tranquillity all of the links within the value chain.

The only answer to this type of margin-destroying Barbarian may well be to become a Barbarian yourself – to become the Amazon of mobility.

This is an edited translation of Albert Meige’s original article, which was written on the basis of his collaboration with the Total Group over several years and on his interview with Philippe Montantême, Director Marketing Strategy research of Total Marketing & Services, who we thank for the time he granted.