by Nada Welker | Nov 29, 2021 | Market development & Trends
Streaming videos, shopping online or sending funny videos to friends – digital platforms are a natural part of our everyday lives. But there is much more behind these platforms: They embody the marketplaces of today and offer space for a variety of different business models. Digital platforms form the basis for social media providers, search engines, comparison and rating portals, and even online gaming. All these platforms pursue the same goal: they bring together providers and interested parties, or potential customers, in the digital marketplace and promote innovation and exchange. In short, supply and demand effectively meet. Digital platforms create new connections of customer groups, attractive markets, competitive advantages through better market development, and new sources of revenue. The platform economy creates added value and is an important building block for the convergence of industries.
Potential lies in growing market power
Digital platforms are often associated exclusively with social networks, including YouTube, Facebook or Instagram. However, the potential applications of digital platforms go much further. Consumer groups, companies and even government institutions are united there. Consequently, different platform segments established themselves. From business-to-business (B2B) to business-to-customer (B2C) to business-to-government (B2G) platforms, everything can be found on the World-Wide-Web today. Due to the increasingly steep growth figures, a wide variety of manufacturers and retailers are jumping on the platform economy bandwagon – and with good cause: Internet-based platforms take over important functions in business life and everyday life and offer enormous growth opportunities as a digital business model. The potential of digital platforms can be exploited either by setting up one’s own online platform or by simply using an already existing platform, e.g., as a sales channel. In 2020, 6 out of 10 companies in Germany were already using digital platforms or had already set one up by themselves.
Perceived risks of digital platforms
Despite the manifold advantages and opportunities, the platform economy also entails risks. A study on the importance of digital platforms for companies in Germany in 2020 found that some companies are still very reluctant to use digital platforms due to data protection and IT security requirements and a lack of qualified personnel.
There is also a perceived risk of excessive competition among platform users and operators as well as non-users. Due to the ease of market entry, competition among digital platform providers is increasing. Another risk factor is increased price pressure: In order to stand out from the competition, it is essential to offer attractive prices that are as favorable as possible compared with the competition.
The displayed statistics clearly show that it is predominantly non-users who still perceive many risks and disadvantages in the area of digital platforms.
“The winner takes it all”: One winner – many losers?
As already mentioned, the intensity of competition between digital platforms is enormous. Thus, it is not uncommon that in certain markets there can be a strong market concentration up to a monopoly position. This is also referred to as “the winner takes it all” markets. If one platform alone dominates a market, there is no longer any fair competition. Basically, 3 factors are responsible for the centralization of platform markets:
- The network effects characteristic of platforms: Platforms that already have many customers attract more and more new users due to their broad customer base. The value and also the attractiveness of a product or service therefore depends on how many other users also perceive the offer. Consequently, this platform dominates the market and can, for example, increase prices or turn previously free functions into paid ones.
- The scale effect: It describes the reduction in production costs due to a company’s economy of scale, which is reflected in falling unit costs of products or services. In terms of digital platforms, it is about collecting and analyzing data. Basically, providers who have a lot of data at their disposal have a decisive competitive advantage.
- Is the effort of a platform change worth it? – The lock-in effect: The time or financial effort required to switch from one platform to another is often perceived as an obstacle. For this reason, many users avoid switching.
These effects have an impact on the centralization of the market and have a negative impact on the intensity of competition. For small and medium-sized enterprises (SMEs), this makes it increasingly difficult to assert themselves in the market.
The basic rule in the world of platforms is: Grow so fast and strong that no one can compete against you, because size is the most important competitive advantage there.
Data collection and analysis is an essential part of the value chain of platforms. In the process, an almost unlimited amount of data is collected and further processed and made available with the help of algorithms. The more information that emerges from data analysis, the easier it is to determine the interests of the target group and thus develop a suitable advertising strategy. Accordingly, the extensive use of data enables continuous optimization and increased efficiency in product design, manufacturing, sales, marketing and other important areas of the value chain. Data – if it can be stored and meaningfully processed – therefore has an economic value. While individual data records do not yet represent a usable value, large data volumes, so-called Big Data, are becoming a resource. The need to provide usable data has not been a secret for a long time. For this reason, some service offerings are seemingly offered free of charge. In return, the user provides free access to his data. Accordingly, the competition of digital platforms in the product space is becoming less and less important and is increasingly focused on the data space. Consequently, the architecture of platforms is evolving into a data economy infrastructure.
[infobox headline=”Key points in a nutshell”]
- Digital platforms embody the marketplaces of today and provide a basis for the development of a wide variety of business models.
- Digital platforms pursue the goal of bringing providers and potential customers together in the digital marketplace.
- Internet-based platforms perform important functions in business and everyday life and offer enormous growth opportunities for digital business models.
- There are 3 factors responsible for the centralization of platform markets: Network effects, economies of scale and lock-in effects.
- The extensive use of data enables continuous optimization and increased efficiency in product design, manufacturing, sales, marketing and other key areas of the value chain.
[/infobox]
A look into the future of the platform economy
Currently, one can speak of an evolution of the platform economy: Existing platforms continue to develop and attract more and more users, others are being pushed out of the market, and new platforms are being established. Looking to the future, it is still possible and advisable for a company to enter the platform economy. However, it is important to always keep an eye on technological developments, as change is the only constant in the digital world market. Furthermore, 53% of the companies in the aforementioned study state that there should be uniform rules for digital platforms throughout Europe in order to promote their use. In addition, half of the companies would like to see increased legal certainty. Likewise, public funding and support for cooperations with other companies to build digital platforms are perceived as important.
In 2030, it will hardly be possible to do without digital platforms. These will be indispensable mainly in the business sector. However, companies should also act with an eye to the future – if they have not already done so – and jump on the platform economy bandwagon.
We at magility always keep an eye on the latest developments in the platform economy and keep you up to date. If you have any questions, feel free to contact us!
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by Nada Welker | Jul 20, 2021 | Automotive Industry, Future Trends, New Mobility, strategy in change
The automotive industry is undergoing a profound transformation. Digitization and artificial intelligence are the two drivers that, individually but also in combination, have the potential to fundamentally change the business models of this industry. Back in 2018, we pointed out in our article “Smart Mobility- where is the journey of mobility heading?” that traditional carmakers will have to adapt their business models, because components that cannot be digitally controlled or integrated are no longer relevant for automotive manufacturing today. “Smart mobility” as a key element of the “smart city” is the order of the day, i.e. the increasing networking of transport infrastructure and means of transport, and only vehicles designed to match this integration are still marketable today. OEMs are making correspondingly great efforts to keep pace with developments and to influence and shape them through technical innovations and the adaptation of their business models. However, in doing so, especially with regard to the all-dominant topic of autonomous driving, they are encountering fierce competition from established IT giants, which is ensuring that there is a growing willingness to enter into strategic collaborations in important fields.
Transformation from pure automaker to integrated mobility group with software expertise
As a result of the advancing digital transformation and the increasing use of artificial intelligence, the entire automotive industry and its whole supply chain is undergoing a transformation process of unprecedented proportions. In this process, artificial intelligence offers completely new possibilities for adapting to the individual needs of vehicle owners and drivers. Functions such as the designable on-screen cockpit, voice control, control panels or touch screens for controlling interior functions such as heating, seats or navigation play a central role here. These technical innovations contribute to the fact that the car has long since grown beyond the stage of a simple means of transportation.
Last year, the software and technology company CARIAD was launched, a subsidiary of Europe’s largest automaker, the Volkswagen Group. CARIAD aims to accompany Volkswagen’s transformation into a digital, software-based mobility provider. This includes, among other things, the development of driver assistance systems and the software for autonomous driving. Furthermore, the focus is on increasing VW’s innovation speed, which should initially lead to a new automotive experience that seamlessly integrates into our digital world.
“The transformation in the automotive industry over the next ten to 15 years will be incomparable to what we have seen so far” (quote Volkswagen CEO Herbert Diess).
According to the Volkswagen Group’s own statements, 4,000 developers, engineers and designers from Audi, Porsche and Volkswagen are currently working worldwide on a uniform, central software for the vehicles of the entire Volkswagen Group. The uniform operating system is expected to find its way into all Volkswagen Group models starting in 2025. By that year, the number of employees is expected to grow to around 10,000. Almost 2.5 million EURO will be invested annually in the CARIAD software.
Current challenges for the automotive industry
In addition to the transformation to electromobility, advancing digitalization is causing fundamental changes in the automotive industry. While electromobility is exclusively about CO2-saving drive options, digitalization represents a more profound change for customers and, beyond that, for the entire mobility industry. Consequently, business models will change fundamentally in the future. This also becomes clear when looking at statistics that show how the distribution of sales in the automotive industry will change by 2030.
The statistics shown clearly indicate that digital services as well as new technologies and software solutions, which previously played hardly any role in the automotive industry, will account for a significant share of global automotive sales by 2030.
Competition gives rise to strategic cooperation
In the mobility services sector, the two competitors BMW and Daimler are entering into a strategic alliance to cooperate in some business areas in the future. The aim of their cooperation is to drive forward automated driving. By networking the expertise of the two technology leaders, the aim is to generate tangible benefits for customers as well as cost savings. As early as 2025, the first self-driving cars from Daimler and BMW are expected to be on the road on highways and parking without human control, i.e. with autonomy level four of five of the so-called SAE levels. The SAE levels describe how independently and autonomously a vehicle can act in road traffic. Level four includes complete control and monitoring on highways and when parking – but in city traffic, the driver must still intervene himself, which is why the steering wheel and pedals must still be present.
BMW and Daimler board members agree:
“Instead of individual stand-alone solutions, we are concerned with a reliable overall system that brings tangible benefits to our customers” (quote Daimler CEO Ola Källenius)
Waymo in first place in the transformation to autonomous driving
Waymo was launched in 2009 as Google’s self-driving car project. For several years, Waymo has been involved in the future operation of autonomous vehicles and holds the leading position in this sector.
“We are building the world’s most experienced driver” (quote on Waymo website).
Waymo’s vehicles have already been tested several times on public roads, numerous traffic situations have been recreated, and the collected data from these journeys has been evaluated and used for further developments. This is therefore not a driver assistance system in which the driver is still actively at the wheel, but a fully autonomous technology. The “Waymo Driver” has full control from pickup to destination. Using a perception system that decodes complex data collected by multiple sensors and accurately captures the environment, it can detect and identify pedestrians, vehicles, stop signs and more. The goal is to make traffic on the roads safer and easier. Since April 2, 2018, the first self-driving vehicles, without a driver behind the wheel, have been registered in the US state of California – so far without any major incidents or traffic accidents.
Apple as a serious competitor of the future?
What is certain is that the software in the vehicle will become one of the most important revenue generators in mobility in the future. Autonomous driving will make an important contribution to individual mobility. For this reason, it would not be unlikely for the IT group Apple to enter the automotive industry. Its distinctive software competencies could open up new opportunities and doors for the technology company. Reports about the probably planned “Apple Car” have been circulating for 2 years already. When and whether an electric vehicle from Apple will actually reach market maturity is currently still written in the stars – but it is not unlikely!
[infobox headline=”Summary in a nutshell”]
- Traditional automakers will have to adapt their business models, because components that cannot be digitally controlled or integrated are becoming less and less important.
- Artificial intelligence brings new opportunities for customization to meet the individual needs of the driver.
- The technology company CARIAD, a subsidiary of the Volkswagen Group, is taking its first steps toward transforming Volkswagen into a digital, software-based mobility provider.
- BMW and Daimler are entering into a collaboration to advance automated driving. As early as 2025, the first self-driving cars from Daimler and BMW are expected to be on the road.
- This is autonomy level four. It includes complete control and monitoring on highways and when parking.
- Waymo is engaged in the future operation of autonomous vehicles and takes the leading position in this field.
- It is a fully autonomous technology – so there is no need for a driver to be in the car.
- Digitalization is leading to a decisive transformation in the automotive industry – and we are right in the middle of it.
[/infobox]
If we allow ourselves a leap in time to the year 2030, the automotive industry could look like this:
- Mobility providers use higher-level traffic control to utilize traffic and reduce congestion.
- Autonomous vehicles make up at least 30% of vehicles in cities, including mainly buses and cabs.
- Extensive connected services and electric drives are implemented in new vehicles.
- Full synchronization of connected services in the car and smartphone apps.
- Possibility of switching on equipment elements for the vehicles.
- New production and logistics concepts: 3D printing of spare parts and components.
- Driver assistance systems have become so established and advanced that they can learn independently and individually from the respective driver through the use of AI and thus cover individual customer needs.
- At least 50% of business processes in the automotive industry are automated.
As a result of digitalization, the automotive industry is facing a decisive transformation: car manufacturers are being driven to adapt their vehicles to the spirit of the times and to rely on new digital business models. The trend toward autonomous driving is becoming increasingly relevant: Currently, we are still at the stage of partially automated driving using assistance systems. In some vehicles, you can already find functions such as automatic overtaking of other cars, automatic lane changing, and the ability to leave braking and parking to the vehicle without the driver’s influence. However, fully autonomous vehicles can so far only be used on test tracks with special permission. Yet, the full-scale deployment of autonomous vehicles is already being planned. But it is still uncertain when the necessary infrastructure and legal framework will be in place. We at magility will be happy to keep you up to date on further developments in the automotive industry. The transformation is picking up speed, and we are right in the middle of it. If you have any questions, please feel free to contact us!
