Have you seen the latest announcements from Apple recently? And I am not talking about new devices, but about their new services, such as Apple Card, Apple Arcade, Apple TV+, Apple News+. Why should a hardware driven company offer services? Especially, services for markets which have already some dominant players?
What will be the next big (economic) thing, within or after the "digital era"? I joked about brain-as-a-service years back, as the X-as-a-Service movement started. "Are you serious?", I was asked. "Of course!". Just think about Alexa as assistant system. It can act as your extended brain, to solve calculations or remember what to do.
▶ The era of everything-as-a service has manifested and is the new normal.
More and more core business processes and products of banks are challenged by new technology or non-banking competitors.
First, technologies like blockchain claim to have the potential to disrupt the industry by eliminating the trusted middleman, the bank itself, by applying cryptographic algorithms on a distributed ledger. It will be interesting to see if the technology is disrupting the business or if it is (only) enhancing and improving it.
Second, non-banking companies are emerging into the banking market: Apple with a credit card, Amazon with a credit card or N26 as a mobile-first bank. What they are mainly doing is, to provide additional channels or services to the customer, which banks have ignored or only halfhearted tackled in the past. One could say, these new players have managed to better understand the customer than traditional banks. To include a buzzword: The user-experience (UX) is simply better.
To stay relevant as a bank, it seems, that providing a solid back-end for the core banking business could be a strategy to survive. Thus, payment or banking-as-a-service is getting more popular these days. Let others (*) do the client-facing business who have specialized in it. Focus on offering B2B services and let others do the B2C business with your service(s) in the background. With that, you could scale your business by having the service integrated in many B2C offerings. Further, you can profit from specialists doing the client facing business without building up a department for that.
(*) Others are not necessarily competitors, but your own, home grown "start-ups", which profit from knowledge and proximity of the parent company, but without the limiting processes and politics.
▶ B2B services enable novel B2C services
Similar to banks, insurance products are getting ubiquitous. Apple care, the service which apple offers to give you additional support for your product, is very similar to an insurance product. More general, you can buy for many products on amazon an insurance for warranty extension, loss, etc.
Also here, a client is not contacting an insurance company (any more). If they want an insurance, they use amazon's offering. The only solution for insurance companies is to provide their products, knowledge, claims handling, etc. — as-a-service — and let, e.g., amazon offer it for them.
Thus, core insurance business need to focus on B2B solutions, and let others do the client facing B2C business. Web portals to compare insurance products are more and more dominating the market, and insurance products need to compete against each other.
▶ Services are ubiquitous, integration is key. APIs enable deep integration into other services and products.
Another interesting movement can be observed within mobility services. Whereas classic car sharing companies own cars, the new mobility services run without cars. Uber is probably the most known example, where a company does not own anything, except the market place to connect people with drivers. I believe, that we will see this "Uber-fication" in many more areas.
▶ Service can be offered without owning anything
The classical hotel business faces disruption by everyone, who puts their room on Airbnb. One difference regarding the service offering is the lot size. Hotels usually offer hundreds of rooms, and need to fill them, whereas individuals are only offering one room.
Similar to private apartments, office space is also usually bought or rent in bigger chunks. New service offerings allow to rent single office rooms flexibly.
The hotel and office space market is a good example of how existing services can be enhanced by reducing the lot size. Individual offerings can be made which many people prefer over standardized, off-the-shelf services. And the best: All to a competitive price.
▶ New business models can be enabled by reducing the lot size of the service.
What is a DVD? The whole world is streaming movies now via Netflix, Amazon, and many more. An economy of renting DVDs was disrupted by streaming the content. Only possible because of enhancements of technology and fast, stable internet for everyone.
Music streaming services such as spotify have disrupted the music industry. Who is buying CDs or mp3s anymore? Already the introduction of mp3s was a disruption, but streaming has disrupted the digital format. iTunes sales are declining since years.
▶ New technology can disrupt existing (digital) business models
Netflix & Co, know their customers so well, that they can forecast which new movies or serials they need to produce to make them happy. Even low cost productions are highly successful.
▶ Understanding the customer is a key differentiator
The gaming industry is probably also running crazy after google's announcement recently: Google Stadia. A gaming streaming service. That means, instead of buying games and the dedicated hardware, you can play games by paying a monthly fee. You do not need a high performance PC any more, only a good internet connection. That means, hardware like a Playstation is not required any more. Everything can be run in the cloud.
That may lead to declining hardware sales if more and more consumers switch to the service. The market for graphic card manufacturers and gaming consoles will decline. Even Steam, the platform for buying games, could be disrupted, if people buy less games. Games, which are exclusively for a dedicated device, will be available on every device which can be connected to the internet.
They may protect themselves and prohibit using their games on googles shared hardware or make it an exclusive title for a platform with some DRM protection. But I assume, this can only hold for a limited period of time until the consumer's pressure is too high (remember DVDs?).
▶ Disruptive services have a negative impact on dependent markets
We will own less. And this will have a massive impact. Why having a phone when you can get it as a service? Why having a car when you have mobility as a service? Why having any product when there is a service for it?
But I need a supermarket? Buy it online. Nearly anything in Maslow's hierarchy of needs can be provided as-a-service. If it's not there yet, you will see the next unicorn startup soon.
▶ Nearly everything can be offered as a service
New shared economies will emerge, i.e., physical devices can be shared among individuals, e.g., cars for mobility services. Thus, less cars need to be produced. Countries who rely on their car industry, like Germany, may feel the impact very soon. The utilization rate of a car is quite low today, but if more people adopt mobility-as-a-service, the utilization rate of cars can be increased (more people share the same car). Hence, less cars need to be produced. With self-driving cars this will increase even further.
▶ Major industries and the people working in them are faced with change and need to adapt
And this is only scratching on the surface. Thinking one step further: If people do not need to spend big amount of money, they do not need specific banking service anymore, i.e., huge loans. Banks need to find new business models for declining requests for classic products.
▶ Services will make classic business models obsolet
Stores for food and clothes? Maybe they will also vanish from our cities if we continue buying more and more online. On the other hand this will lead to a major logistic challenge to distribute the products. Traffic? Parcel services?
▶ New services create new challenges but also opportunities
There are several strategies to sustain relevant for companies. Some I can think of are:
And the individual, who is faced with disruption of its company?
This era of Everything-as-a-Service is already changing a lot in our daily life's. And it will accelerate and change more and more. We will own less and at the same time have more. Only time can tell if this is good or bad for the individual, respectively society.
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