Digital platforms reach critical mass

Of all the complex technological developments confronting companies today, the one with the most immediate impact is digital platforms. The collection of cloud-based software and services used to drive business have developed over the last decade as firms have built on, or moved core functions on to, digital platforms.

This trend has now reached critical mass that it is set to transform business within the next two years. This is the conclusion reached in the AGCS Trend Compass 2019, a report that identifies the most important technological, business and socio-economic developments of the future.

“The internet enabled a shift away from the rigid business processes of the past to digital platforms,” says Fernanda Navarro, AGCS Head of Innovation. “These are proliferating and growing dramatically in size and scale. Early follower companies are now replicating pioneers and the results will define the economy of tomorrow.”

The AGCS Trend Compass assesses 25 trends in six different categories, including Artificial Intelligence, Socio Economy, IT Infrastructure and Cities & Mobility. Digital platforms was the trend assessed by more than 200 AGCS experts to be not only the most pressing in Sourcing & Distribution, but also across all categories.

Platforms enable the direct digital interaction of two or more user sites. They bring together communities of buyers and sellers so goods, information, jobs and services can be freely offered or requested. This creates markets of enormous scale. 

Seven out of the ten most valuable companies globally are based on a platform business model, Alibaba, Alphabet, Amazon, Facebook, Tencent and others have all grown exponentially and seized market share from established businesses. Such firms combine and recombine open-source software, cloud computing and social networks to create new services. 

However, “pre-internet” companies have also developed innovative models that extended digital platforms beyond the fields of travel, books, social media and music. Digital platforms are making significant inroads into areas such as banking, energy, transportation and even healthcare.

“I think there is a growing urgency in business about digital platforms and that is across all industries,” says Adeline Roupillard, Head of Digital Distribution at AGCS. In her role, she oversees MySmartGate, a business-to-business (B2B) platform that offers underwriting solutions to more than 3000 users in seven countries, giving them the ability to quote, bind and renew business online in a few clicks. 

Using insurance as an example, Roupillard explains that companies seeking to broaden beyond traditional one-to-one customer relationships began introducing digital solutions in the early years of this century. This led to the rise of extranets, private networks that allowed authorized partners, vendors and customers to access information and products on an organization’s network.

“That was innovative, but expensive,” comments Roupillard. “It was also unsatisfactory for brokers as they needed as many different interfaces as they had partners, while customers could only access one carrier’s product offering.”

That siloed approach broke down as intermediaries created platforms on which multiple carriers could offer products. Other platforms arose, such as customer digital comparison tools (DCTs) which now play an important role in insurance distribution. In the United Kingdom, for example, over half of motor insurance policies are sold via digital comparison tools.

Today, marketplaces are emerging that reconcile various systems. One example is the PPL in London, which is an electronic placing platform for insurance and reinsurance based on the Amazon model. In April, the PPL announced 50,000 risks have now been bound on the platform.

“You will see more such cooperation in the development of digital platforms,” says Roupillard, “because otherwise, the platform game becomes a monopoly game.”

Early platforms reshaped and have come to dominate entire markets by redefining how participants interacted. In other industries, where platforms have not emerged as quickly, companies cannot afford competitor’s platforms to become the standard because then they will be tethered and pay a significant cost to do business. 

Digital platforms will play an ever-increasing role in the economy. Internet traffic on 176 platform companies identified by the Center of Global Enterprise accounted for 25% of all internet traffic worldwide at the end of 2015. This traffic over these platforms had increased by 40% between 2010 and 2015. Forrester estimates that B2B eCommerce will reach $1.2 trillion and account for 13.1% of all B2B sales in the US alone by 2021.

Much of the urgency, however, concerns what comes next. As the name implies, platforms are a base for services built on top. This enables third parties to develop their own presences and interactions creating a network between different user groups.

As the number of users increases, the platform attains higher value for other vendors or advertisers or in terms of the information about interactions. McKinsey argues such digital ecosystem have the potential to realign global markets, thus ushering in an era of “sectors without borders.”  

“This is clearly the direction the trend compass is pointing to,” notes Hannes Distler from AGCS Organization and Business Transformation. “Traditional and narrowly defined industries based on vertically integrated corporations are giving way to complex ecosystems of immense value.”

This highlights one of the most dramatic developments of the last 40 years. In the 1990s, the largest firms were mostly in manufacturing or energy, companies that made or produced physical items. Today, the dominant companies are in technology and services.

The leading companies gradually changed from those making physical items to those providing information and services. With this change has come a change with the value of a firm no longer being based on intangible assets, but rather intangible ones such as brand, data, intellectual property (IP), networks and platforms, which entail a new set of business risks requiring unique risk transfer options.

The FAANGs (Facebook, Apple, Amazon, Netflix and Alphabet’s Google) and other tech companies are looking for non-traditional multi-line solutions that combine a portfolio of risks such as IP, reputation or cyber into a single insurance contract.

Positive user experience is key for the success of a platform, says Ahmet Batmaz, Global Head of Engineering Risk Consultancy at AGCS.

“Platforms allow data and information to be combined in real-time and available at the touch of a button,” he explains. “This is a dramatic change from occasionally receiving a PDF report. It provides incredible value in terms of transparency and convenience, as well as a better understanding of the specific risks of individual businesses.”

Another advantage of platforms is the massive number of customer interactions they support, all of which generate data. This “digital feedback loop” is used for product development that is often more advanced and customer-centric in comparison to standalone offerings. 

Batmaz is running a pilot project at AGCS to assess the viability of an online market place for consultancy services. “We are validating the need with clients,” he says. “Personal business-to-consumer experiences form similar expectations in the business-to-business world and customers in various industries show good interest in wanting mobile, instant online responses and 24x7 access to products and services.”
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