After digital born companies paved the way to growth with platform business models, small enterprises and traditional businesses are entering the digital platform market in a second wave. But the vast majority of new digital platform start-ups will fail and the gulf between countries will increase in the coming years, according to a new research report by Accenture.
The report identifies the critical steps businesses and governments can take to succeed.
“Five Ways to Win with Digital Platforms”, published in collaboration with the G20 Young Entrepreneurs’ Alliance, reports that $20-billion was invested in digital platforms between 2010 and 2015 in 1,053 publicly announced deals. More than half of this investment took place between 2014 and 2015.
The report also shows that that China, India and the U.S will dominate the platform economy by 2020. The UK and Germany join them at the top of the Accenture Platform Readiness Index that assesses the ability of 16 G20 economies to support the flourishing of digital platforms.
South Africa and other emerging markets as well as European economies look set to lag behind, lacking sufficient business and socio-economic enabling conditions.
In fact, South Africa lags near the bottom of the list, above Italy and Russia but below Turkey, Brazil, Mexico and Korea.
“When you think of digital platforms, think of China and India as much as the US. These economies are using the power of platforms to create large scale markets very rapidly,” says Lee Naik, MD of Accenture Digital.
“Emerging markets and many European economies are in danger of missing out in the platform economy. Multi-stakeholder cooperation is required to address the fragmented digital markets and to support the greater levels of digital enterprise and consumption that successful platform businesses need.”
Accenture’s analysis shows that rankings on the Platform Readiness Index strongly correlate to the levels of digital platform activity and investment in G20 countries.
The report recommends that governments engage with businesses leaders to advance a range of policies that can create a rich enabling environment for digital platforms including the following actions:
* Prioritise data protection standards and rules: Drive the harmonisation of data privacy and data security legislation. Smooth cross-border data transfers.
* Design regulations with digital platforms in mind: Experiment with regulations alongside new technologies and business models. For instance, the UK’s Financial Conduct Authority’s “regulatory sandbox” allows start-ups to test ideas without immediately incurring all the normal regulatory consequences.
* Encourage cross-border electronic trade. Harmonise taxes and standards, consumer protection, contract laws and logistics infrastructure. The eWorld Trade Platform (eWTP), initiated by B20 China, aims to accelerate international policy collaboration to support SMEs.
* Invest in digital infrastructure: For example, the EU’s Payment Services Directive (PSD2) will empower start-ups to expand customer reach and encourage innovative business models.
* Think small, act big: Educate SMEs on alternative funding, such as crowdfunding and peer-to-peer lending; and on data privacy and consumer protection. Support SMEs with digital economic zones to support e-commerce.
Accenture notes that only 15% of Fortune 100 companies have developed digital platform business models to date and as few as 10% of new start-ups focused on digital platform business models will become profitable independent entities in the coming years. However, the report claims that successful digital platforms will proliferate as small businesses and traditional industries follow the lead set by digital-born platform companies.
Accenture identifies five factors critical to sustaining critical mass in digital platforms, which use new technologies to create large scale markets of customers and service providers.
* Proposition – Create differentiated platform services that extend beyond the point of transaction; and that support both customers on the demand side and service providers on the supply side.
* Personalisation – Target customers through tailored experiences across all channels, using customer data to anticipate needs and offer bespoke experiences.
* Price – Apply new pricing models, such as pay-as-you-go, ‘freemiums’, and subscription pricing to respond to peak demand.
* Protection – Embed trust at the heart of the platform, using both prevention and compensation techniques to attract customers and differentiate the platform.
* Partners – Scale the platform rapidly by identifying digital partners – such as app developers and payment service providers – who can enrich the platform experience and fulfil customer needs.
“Digital platforms are not just the preserve of digital born companies, like Airbnb and Alibaba, but are now becoming a default business model in most industry sectors, both B2B and B2C,” says Naik. “To enjoy efficiencies and high rates of growth, companies will need to transform everything from the way they co-create goods and services with third parties, tailor their offerings to customers, and price them dynamically. Crucially, they will only sustain critical mass by working with digital partners who can deliver the range of functional services that complete the customer experience.”