Platforms

Conversational Commerce as another challenge in e-commerce businesses

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The challenge for e-commerce businesses is, how to incorporate Conversational Commerce (or Voice Commerce). It is still in a preliminary stage, and it requires Artificial Intelligence. It can be used along the customer journey, but can only work with corresponding conversation capabilities and an adjustment of several business processes (a search with Alexa works very differently than a search on Google, for instance).

Conversational Commerce is also a multi-sided platform. As platform owner your challenge currently is the business model.

Challenges in e-commerce businesses

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For teaching advanced courses on e-commerce businesses I identified five major challenges:

  • Development of a (real) value proposition: There are so many e-commerce sites nowadays, why (and how) add another one? The answer lies in a convincing value proposition. The best theory to apply here is Christensen’s „Jobs to be done“.
  • Selection of the right business model: The main decision is whether to build a (multi-sided) platform or to go for the reseller model. Most executives think the platform model is the only reasonable choice in the huge e-commerce market. However, platforms do have some disadvantages and the reseller model with its better focus on customer experience may be the better option.
  • Usage of Artificial Intelligence (AI): AI is more and more used by the big players in e-commerce. How and where does AI really make sense and what does it mean for the business model?
  • Creation of new markets: In digital business, innovations are often disruptive. But there are also non-disruptive ways of creating markets and innovations; the Blue-Ocean Strategy can show you how.
  • Learning from Amazon’s strategies: Amazon is the dominant player in e-commerce globally – and it is successful. So what can you learn from it?

A framework for the digital economy

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For teaching my students I like to work with a framework to structure and summarize the course. So, here is one for the digital economy.

In digital business we usually deal with goods (or services) that are fully or partly digital. In order to understand the digital economy you, therefore, have to know the specifics of digital goods. What characteristics do digital goods have? How do the resulting cost structures look like? And what follows from that for developing pricing strategies for digital goods?

Having laid this groundwork, we can further analyze how digital goods are offered or used in markets. In these systems we have to deal with several characteristics as well. Very often network effects play a prominent role as well as switching costs and compatibility in developing a sound strategy for a digital business.

On top of all that, we see more and more platforms in digital business. For some businesses the market does not only consist of two parties (seller and buyer), but of three or more parties, i.e. they are multi-sided platforms. Multi-sided platforms not only combine all topics discussed with digital goods and digital markets, they present some further challenges (e.g. chicken-and-egg problem) for building and managing them successfully.

“Platformed” world

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Business is more and more becoming a “platformed” world. More and more of the largest companies (based on market capitalization) are platforms. For an economist, of course, this development is not surprising. Platforms exhibit massive economies of scale (supply-side and demand-side economies of scale/network effects) and, thus, are inherently driven towards fast growth.

Many business leaders are now confronted with competition from platforms and soon realize that it is very hard to fight against platforms. So some of them are thinking about becoming a platform themselves. But be well aware, that platforms need a much different management than conventional businesses.

Data are the digital fuel

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As many have pointed out already, data are at the core of the digital economy. Data are the digital fuel, they drive digital businesses. The more and better data you have, the more and better services you can offer.

Whether it is personalization, predictive actions or matching, all require data. What is important is not so much the amount of data you collect from each single user, but the combination of the data of your (and maybe even partners’) users.

The customer is key

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Customers can easily switch vendors in the transparent and often global digital marketplace. They are often hunting for the best deal and whichever vendor can offer this best deal will get the business (spot market).

The best deal is not necessarily the one with the best price, there are other values as well (e.g. convenience). And sometimes network effects are important and platforms are developing.

My thesis is that owning the customer is the central success factor in the digital economy. Whatever the specific situation looks like, vendors should not compromise on keeping their customer relationships. Otherwise they may end up as interchangeable subcontractors to dominating platforms.

This is just a first exploration into a plethora of topics. More elaborate thoughts will follow.