A new MOOC launched online on EdX today.
Today (18.6.21), we also launched a new MOOC (asynchronous online), instructor-led course on Platform Business Models:
https://www.edx.org/course/platform-business-models
If you are interested in platform business models, consider enrolling in the course today.
Cheers,
Srinivasan R
Writing after a long time …
Have been busy completing a book. Launched today in an online event.
Book is now available online: https://www.springer.com/gp/book/9789811628375
Print version will be available soon.
Cheers,
Srinivasan R
A colleague and I were organizing an online hackathon around the current pandemic, COVID-19. We were seeking innovative ideas both in the healthcare and policy spaces. We had a good number of responses, but I was struck by how little we are willing to “disrupt” the healthcare industry. For long, the Indian healthcare industry has not been disrupted, as much as many other industries have been.
Disruptive innovation: A primer
Before we proceed further, let us quickly understand what disruptive innovation means. The concept was introduced by the late HBS Professor Clayton Christensen. Disruptive innovation (DI) is a process by which a smaller company with fewer resources can successfully challenge established incumbents in an industry. As the incumbents focus on improving their products and services for their primary (most profitable) customers, they exceed the needs of some segments, and ignore the needs of some other segments. These overlooked segments are the targets for the new entrants, who deliver a specific functionality valued by these customers, typically at a lower price. Incumbents chasing their highly profitable customer segments, tend to not respond to these new entrants. The new entrants gain significant industry know-how, and move up-market, delivering those functionalities that the incumbents’ primary customers value, without losing the advantages that drove their early success with the hitherto overlooked segments. When customers in the most profitable segments (primary customers) begin switching from incumbents to new entrants, they begin providing new entrants with economies of scale. Coupled with learning and economies of scale, the new entrants “disrupt” the industry.
There are various examples of disruptive innovation. For instance, film distributors (cinema halls and multiplexes) were serving connoisseurs of movie consumers – those who valued the experience of the movie halls. The network of movie halls and the audio-video technology was the primary source of competitive advantage in that world. Netflix entered this industry targeting a segment of customers who wanted to watch movies but could not afford the travel to the movie hall and uninterrupted time/ attention. They would trade-off the experience against the quality of content, and therefore were willing to watch movies at home, using their own devices. Movie watching became a personal activity, rather than a community experience. Netflix, leveraged their library of movies as a source of competitive advantage, and captured this market with low prices in the form of an innovative pricing strategy – watch as much as you can for a monthly subscription fee (as against unit pricing of every movie that was the industry standard then). Armed with the learning of consumer preferences (now being digital, Netflix had micro-level data on consumer preferences than the multiplexes in shopping malls), it moved up-market. It leveraged on the convergence between entertainment and computing, as TVs became smart, and computer screens became bigger and bigger. The incumbents continued to ignore Netflix with the reasoning that it would take time for the connoisseurs of movies to shift. The allowed Netflix to compete for original content and piggy-back on the convergence in the home entertainment space.
Typically, disrupters have different business models, given that they target different consumer segments, provide differentiated value, and possibly have a different pricing scheme. A lot of these disruptive innovators adopt a platform business model intermediating between different user groups (like Airbnb or Redbus), servitization (like ERP on the cloud), or different pricing models (pre-paid pricing of mobile telecom services in emerging markets).
Innovation in the healthcare industry
I aver that Indian healthcare industry had not witnessed disruptive innovation for the following three reasons. One, even though primary healthcare is considered a public good, a lot of Indian consumers are willing to pay for high quality tertiary and quaternary healthcare (either they could afford it or have access to state/ private insurance). That marks low price sensitivity for the entire industry. Coupled with information asymmetry between the care givers and patients, the patients are risk averse as well. Two, given the high investments required in setting up tertiary and quaternary, the industry has become highly corporatized and consolidated. A few large corporations dominate the entire industry. The economics of the large corporate healthcare provider requires them to have a tight leash on metrics that matter for profitability (including, increased use of automation and robotics in high labour-intensive routines and use of manual labour in routines where unskilled and semi-skilled manpower is easily available, reducing the patient’s average length of stay, and optimizing the average revenue per occupied bed). Three, the organized healthcare providers have been quickly encapsulating all attempts at democratizing healthcare. For instance, when glucometers and pregnancy testing kits became consumer devices, the clinics and physicians began building an ecosystem around these devices to not let entire therapy become owned by the patient. When you went to your endocrinologist with your blood glucose charts, she would insist that home devices are error-prone and ensure that you test again at the clinic! Not so much for the additional cost of testing again (which could be minuscule), but the perception that healthcare is the domain of certified experts would be reinforced.
Data, ahoy!
As healthcare and data analytics come together, the industry is at the verge of disruption. Multiple wearable/ consumer devices capturing health data, medical equipment of the early 2020’s are more of computing devices generating gigabytes of data per observation, and increased adoption of remote sensors for public health (like thermal screening devices) would generate terabytes of data. Such a deluge of data is likely to overwhelm the legacy healthcare providers who hitherto relied on the extensive experience of the physician, for whom data was just a support.
There is an urgent need to allow for a variety of healthcare providers to operate in their own niches. For instance, given the developments in dental and ophthalmic surgeries, there should be no need to build infrastructure beyond ambulatory facilities. Increasingly, diagnosis and treatment should move to the home.
Disruptive innovation in times of COVID-19 pandemic
The unique nature of the COVID-19 pandemic means that healthcare must be provided at scale and speed. Given that the world is yet to discover a cure or vaccine, let alone a standardized treatment protocol, governments and healthcare providers need to move fast and scale up testing and care. Amongst the triad of quality, cost, and scale, the world would prefer low cost and high scale at speed, rather than wait for the best quality of care.
That is a world ripe for disruptive innovation. The under-served segments are baying for an affordable care programme that is good enough. Will the governments of day make this trade-off to ensure that “acceptable quality” testing/ care is provided to large sections of the population that are infected/ likely to be infected, at affordable costs?
Stay healthy, stay hydrated, stay safe!
Cheers.
(c) 2020. Srinivasan R
In my view, there are three outcomes of a successful digital transformation effort – improvement in efficiency (driven from speed and agility), enhanced experience (both at the customer and employee ends), and differentiation from competitors (through data/ insights-driven customisation). Such interactions need to be delivered omni-channel and ubiquitously (anywhere, anytime, and any device).
Agility: Digitalisation of specific processes require them to be reimagined, and therefore eliminates redundancies, reduces wasteful activities, and reduces overhead costs. All these contribute to increased efficiency and faster turnaround times.
Experience: As I have been arguing, good digitalisation should make lives simpler for customers, employees, and all other partners as well. As different stakeholder groups (customers, employees, and partners) engage with the firm digitally, there is significant reduction in variation of service quality, leading to consistent experience.
Insights: As digitalisation allows firms to capture data seamlessly, it is imperative to not just store data, but be able to generate meaningful insights from the same. And use those insights to develop customised/ innovative offerings to their stakeholder groups (customers, employees, and partners).
Omni-channel: The digital experience should be provided to their stakeholders across all the channels that they interact with. It is not just sufficient to digitalise certain processes, while keeping others in legacy manual systems. Imagine an organisation that generates electronic bills for its customers but requires its employees to submit their own bills in hardcopy for reimbursements!
Ubiquitous: The digital experience should be available to everyone, anytime, anywhere, and on any device. The entire purpose of digitalisation would be lost if it were not ubiquitous. Imagine an online store that only opened between 0800-2000 hours Monday through Friday!
As it can be seen, omni-channel and ubiquitous are hygiene factors (they do not create additional value with their presence, but can destroy value with their absence), and therefore are at the denominator.
As the world moves to more and more online work and learning, a colleague of mine triggered some thoughts in me – can everyone learn the same way online? Do our standard theories of learning work in the online world?
Of course, there are three kinds of teachers – those who dread online teaching (they believe that they will have no control over the students’ behaviours); those who are cautious (they believe that we can do somethings online, but not others); and those who are willing to experiment and adapt (they either believe that they can deliver as they are confident of their content that the medium does not matter). This discussion is for another day. Right now, let’s focus on the learners and their learning styles.
I believe that there are eight styles of learning in the online world. Of course, I do not claim to have scientific evidence that these are mutually exclusive and collectively exhaustive – possibly a research study is in order. These are anecdotal based on my own experiences of teaching face-to-face, purely online, as well as hybrid (some students face-to-face and some others online). There may be a range of other such classifications as well, from the classic Kolb’s learning styles inventory to more detailed studies.
The list, first
These styles are not mutually exclusive, and learners prefer combinations of these. These are just pure types. The combinations define one’s learning style.
The elaboration
The four axes
Let us look for examples/ instances where each of these styles would work the best. Visual would work best when the inter-relationships are complex and can be represented through visual cues (or simulated cues), whereas physical world work best when the relationships could not be represented, but need to be experienced as a whole. How would like to take a virtual tour of the Pyramids of Giza?
Auditory style of learning works best when the brain remembers patterns, and rhyme precedes reason. Whereas, verbal style is most suited when reason is preferred over anything else. In other words, when specific words and phrases (like catchy acronyms and slogans) capture the imagination of the learner, verbal is best suited. Imagine trying to learn Vedic hymns purely through printed textbooks!
Solitary learning works best when one can reflect effectively by shutting out external cues; whereas social learning depends on feedback and reinforcement from others for learning to take shape. Imagine learning public speaking in social isolation, or seeking social confirmation and feedback in the process of poetry writing!
Logical learning style works best when the relationships could be detailed and represented as a series of cause-effect relationships. However when such relationships cannot be established, we learn through emotions. Imagine the calls for action in the play, Julius Caesar – “Friends, Romans, and Countrymen!” I would think the crowd responded more to emotional appeals than reason!
Architecting the online class
As learners and teachers in the online world, one needs to be cognisant of their own preferred styles across these four (continuums) axes. For instance, a class on machine learning would tend to be highly visual, verbal, solitary, and logical; whereas a music class is likely to be more physical, auditory, interpersonal and emotional.
The learning context has to be chosen appropriately suiting the styles – of both the content and the learners. The technology has to suit the same. Imagine for instance, a group of 400 learners tuning into a class on brand management through an online medium like Zoom. The instructor has pretty much little choice other than delivering a lecture, with text chat from the class as real-time feedback, and thence the basis for interactivity. On the other hand, if the class size was smaller, say around 40, may be the instructor could use case analysis as well. As a case teacher, I have managed to interact (two-way) with as much as 30 students (from a group of 44 active participants) in a single 90 minute class. I taught a case-based session on digital transformation imperatives online to a class of 50-odd students. I used a combination of visual and interpersonal styles, without compromising on the logical arguments as well as pre-defined frameworks. I used two separate devices – an iPad with an Apple Pencil as a substitute for my whiteboard, and my desktop screen sharing as a projector substitute. I was able to cold-call as well! That way, my class was visual, logical, verbal, and interpersonal.
To the same cohort, I taught another session on implementing a digital transformation project, using another short case-let. This session in contrast, was more visual – the framework was largely on the whiteboard than on the slides; less verbal, a lot emotional and logical, and less interpersonal (more reflective observations about what would work in their own firms).
What works best is also driven what are the learning goals. Of course, these learning styles should be the same for synchronous (live classes), asynchronous sessions (MOOCs), as well as blended formats.
In summary, the architecture of an online session should include elements of the learning styles (driven by the learners and instructors strengths, as well as the content being delivered). Apart from the learning styles, the architecture should include three other components – the form of interaction, the immediacy of feedback loops, and the nature of interaction networks. The interactivity could be both audio-video or text; the feedback loops between the learners and the instructors could be immediate or phased; and the peer-to-peer interactions may or may not be required/ enabled.
I look forward to your comments, feedback, and experiences.
Cheers.
(c) 2020. Srinivasan, R.
I wrote about how platforms are glass box organisations, given their network effects. But there are a lot of black boxes out there. In the digital platform space, there are a lot of firms that operate as black boxes. The glass box metaphor was heavily drawn on the internal culture of the firm, that is, what the employees of the firms do. This post is about what the employees don’t do.
Before I elaborate, let me highlight the work of one of my doctoral students, Sandeep Lakshmipathy. He elucidates four primary value creation opportunities of multi-sided platforms: Discovery, matching, transaction, and evaluation. In short, discovery platforms help reduce the search costs for the sides of the platform (think Craigslist), matching platforms use filters and algorithms to ensure that the preferences of both sides are catered to while delivering a match (think Tinder), transaction platforms reduce the frictions and transaction costs in interacting with the other sides of the platform (think MasterCard), and evaluation platform enable ratings/ reviews/ recommendations/ feedback of the service (think Yelp). Sure, some platforms provide multiple value, like Uber provides discovery, transaction, and evaluation; whereas Airbnb provides all four.
Our focus today is just matching platforms, and how they create more and more opaque black boxes.
Matching platforms
In one of our conversations about the difference between discovery and matching platforms, Sandeep quipped about the difference between choosing a tomato sauce on an e-commerce platform and choosing a partner on Tinder. While it is sufficient for me to like the tomato sauce, it is not important for the tomato sauce to like me! Unlike this, in a matching platform like Tinder, it is imperative for both sides to have liked each other. Here is where the algorithms kick in. Magic! Matching algorithms.
Matching algorithms are technically taught in graph theory. Graph theorists discuss two types of matching – common vertex matching and bipartite matching. Common vertex matching is used to match, for instance, people with similar interests, like students in a class interested in a specific project. On the other hand, bipartite matching is used to match two subsets with each other, like buyers and sellers in an e-commerce platform. There are various algorithms used by graph theorists, including Hungarian maximum matching algorithm, Edmond’s matching algorithm, and the Hopcroft-Karp algorithm. The specificity of the algorithms notwithstanding, each of these algorithms work on the basis of three things – the specific preferences as limiting criteria, the minimum matches to be returned, and the maximum matches possible.
Imagine when you search for books to read on a peer-to-peer book-reading platform, and based on your preferences, you get exactly one recommendation. Just not sufficient enough choice, right? On the other hand, irrespective of the filters you add, if the recommendations do not change (the same titles keep appearing) and you get a recommendation of 5632 books, you feel overwhelmed. Both sides of the matching algorithms, there is a problem – of underwhelming and overwhelming choice. It is exactly to solve these problems that matching algorithms collect enough data from the users.
Some algorithms start with providing random matches, and based on the expressed user preferences, gradually mature their matching. Some others start at one extreme – like the shopping assistant in a mom-n-pop retail store. Once she’s estimated your broad preferences and budgets, she is most likely to start with showing you options very close to your budget. Pretty much like the default sorting algorithm (lowest price first) in the case of travel/ hotel aggregation platforms. Again, the platforms “learn” based on your expressed preferences.
Expressed preferences to profiling
Now, how do these platforms learn, and what do they learn about your preferences is the black box. Based on a few expressed preferences, these matching algorithms may end up profiling the user, and start providing more and more matches based on that specific profile. Sometimes, these preferences may be specific to a context – like me searching for a business class air ticket (when the client has agreed to pay – I travel economy otherwise!). The algorithm has no way of separating out such preferences without access to a large number and variety of such searches. And such preference-based profiling is easy.
Have you wondered why you get “more relevant” advertisements on a Google search results page than on YouTube? Both owned by the same firm, and possibly can share the matching algorithms. However, the way one could profile search users based on their text inputs and matching them with appropriate websites and advertisements is far easier than in the context of video content. Video content may be devoid of explicit tags that are indexed, may contain sarcasm, the audio and video content may be inadequate, or just non-existent. So, there are days I have been left wondering why I was exhibited a particular advertisement in the beginning of a YouTube video. Sometimes, I conjure up my own hypothesis about what actions in my history, the cookies on my browser/ device (my kids do use my iPad), and what specific search terms triggered those. Black box!
Customization-personalization or privacy: A trade-off
This is no simple trade-off: the one between customization and personalization and privacy. By exposing my preference for a particular sport (like cricket) to YouTube, I get to see a lot of interesting cricket video suggestions, right up front on the home page. By subscribing to specific channels, liking certain content, and commenting on some others, I help YouTube learn more about me. These actions provide enough inputs for the platform to customize the match and personalize suggestions. However, there are limits to when such expressed preferences breach privacy. Like when my phone’s AI assistant suggests a wake-up time for me based on my first appointment of the day, or when my wearable device chides for not walking enough during the day (how many steps can you walk in days like today, when the entire country is under lockdown?).
This is not new; and it could be creepy. Remember the 2012 story about the US retailer Target sending out mailers about baby care to a teenage girl, and the parent discovering it? Neither the local Target store had a clue, nor did the parent. The Target central database was able to predict something as personal as teenage pregnancy! Target realized that they were spooking people, and would randomize the offers, like putting ads for lawn mowers next to diaper coupons. But still, they knew!
Dealing with black boxes
I wish I had a set of recommendations for you! One day, possibly. But today, this is just a personal trade-off. As for me, I wouldn’t mind sharing my location data with my phone as long as it provides me good navigation services. And my food delivery app to know where I am, so that I get choices from hyper-local restaurants. I would go one step further and allow my photos app to have my location access so that I could organize my photos by date and location. But to allow location access to online newspapers, no.
Happy matching.
Stay home, stay safe, stay healthy.
© 2020. Srinivasan R
Way back in September 2017, David Mattin of Trend-Watching wrote about Glass box brands. He argued that organizations are moving away from being black boxes (where customers could only see what was painted outside) to glass boxes, where everything that happens inside and outside of the organization is visible to everyone.
The primary arguments of the glass box world are: (a) in an era of social media and high organizational attrition, even the mundane activities like routines and rituals are visible to the outside world; and (b) trends like automation, inequality, and globalization have led to “meaningful consumerism”, bordering on activism. Therefore, consumers are making choices about their brand affiliation and loyalty based on the company culture and values, apart from other considerations.
If the internal culture is the window of the brand to the outside world, it is important for every organization to meaningfully nurture it, articulate it, and live it. I am not going to dwell on how to develop your internal culture and values, but the implications of the glass box metaphor in the context of platforms and digital organizations.
Multi-sided platforms as glass boxes
By definition, multi-sided platforms (MSPs) have many “sides” that drive network effects. For instance, a guest chooses to use Airbnb while travelling because she values the number and quality of hosts. When Airbnb doesn’t treat one side well, it directly impacts the quality of interaction with the other side and affects the strength of network effects. Which in turn, affects the willingness to join (WTJ) and willingness to pay (WTP) of the users on the other side. The quality of the platform deteriorates and can even degenerate into a “market for lemons”. Such dynamics of network effects ensure that platforms do not unduly favor one side over the other, especially when there are cross-side network effects. However, these do not include how the firm treats its employees – remember Travis Kalanick and Uber?!
Digitalization and glass boxes
The omnipresent social media and the constant need by employees and customers to document share their experiences online (most often with the general public, including strangers) has been one of the drivers of glass walling of organizations. Isn’t it why the digital platform that allows for employees to review their workplaces called glassdoor.com? Sure, glassdoor.com monetizes its corporate side of the network through its recruitment services, but its primary differentiator is the large volume of anonymous employee reviews of the work culture and salary structures. We know that when the side that is being reviewed is monetized, it is in the interest of the firm to have good quality reviews on the platform, failing which it finds it difficult to attract enough quality candidates. There is enough incentive to witch hunt people who write bad reviews, as well fill the site with paid/ fake reviews to overshadow the “real” bad reviews. It is still a glass door after all, not a glass box!
Digitalization of employee experience holds a significant potential in managing the quality of the brand, as perceived outside the firm. A lot of firms focus on improving customer experience in their digitalization journeys, but employee experience is equally critical (read more about it in one of my earlier posts). Good employee experience ensure that the positive experiences have spill-over effects on efficiency, performance, internal culture, as well as customer experience. A variety of organizations including VMWare, SAP and IBM have laid explicit focus on improving employee experience in their digital transformation journeys.
Stay home, stay safe, stay healthy!
(c) 2020. Srinivasan R.
It is interesting how much management as a discipline borrows from other disciplines. Much like the English language. That is for another day. Today, working from home, I got reading a lot of marine biology. Yes, you heard it right, marine biology. It is about Remora fish, and its relationship with sharks and other larger marine animals. Students in my IIMB MBA class of 2020 have heard of it in one of my sessions in the platform business course and a couple of groups also used this concept in their live projects.
What is a Remora and what is its relationship with Sharks?
The Remora is a fish. It is possibly the world’s best hitchhiker. It has an organ that allows it to attach itself to a larger animal, like a shark or a whale. The sucker-like organ is a flat surface on its back, that allows itself to attach to the belly of a shark. That is a reason why it is also popularly known as a sharksucker or whalesucker. Remoras have also been known to attach themselves to divers and snorkelers as well. The sucker organ looks like venetian blinds that increase or decrease its suction on the larger fish’s body as it slides backward or forward. They could therefore be removed by sliding them forward.
Remoras can swim on their own. They are perfectly capable. But they prefer to attach themselves to the larger fish to hitch a ride to deeper parts of the ocean, saving precious energy. Their relationship with the Shark is unique – they do not draw blood or nutrients from the Shark like a Leech. They feed on the food scraps of the larger fish by keeping their mouths open. While the Remora benefits from its attaching to the Shark, it does not significantly benefit or harm the Shark. Some scientists argue that Sharks like the fact that Remoras feed on the parasites that are attaching themselves to the skin of the Shark and thereby keeping them healthy. Some others are concerned about the drag experienced by Sharks as they swim deeper in the oceans, which can be significant when there are dozens of Remoras attached to the Shark. Both of these are not that significant enough for the Sharks to either welcome Remoras to attach themselves to their bellies, nor have they exhibited any behaviour to repel these Remoras away (like they do with other parasites). Read more about Remoras’ relationship with Sharks here.
This relationship between the Remora and the shark can be termed as commensalism, rather than symbiotic. If the Sharks indeed value the fact that Remoras can help them get rid of the parasites from their teeth or skin, then we could term this relationship as mutualistic.
Remoras and platform start-ups
What is a platform researcher studying Remoras? A platform start-up could solve its Penguin problem using a Remora strategy. It could piggy-back on a larger platform to access its initial set of users, with no costs to the larger platform. Let’s consider an example. A dating start-up struggles to get its first set of users. While it needs rapid growth of numbers, it should ensure that the profiles on the platform are of good quality (bots, anyone?). It has two options: developing its own validation algorithm or integrating with larger platforms like Twitter or Facebook for profile validation. It could create its own algorithms if it needs to validate specific criteria, though. It could use a Remora strategy, by attaching itself to a larger Shark in the form of Twitter or Facebook. This has no costs to Twitter or Facebook, and if at all, contributes to marginal addition of traffic to Facebook/ Twitter. However, for the start-up, this saves significant costs of swimming down the depths of the ocean (developing and testing its own user validation algorithms).
Remora’s choice
Don Dodge first wrote about the Remora Business Model, where he wondered how both the Remoras and the Sharks made money, if at all. Building on this, Joni Salminen elaborated on Remora’s curse. Joni’s dissertation elaborates two dilemmas multi-sided platforms face – cold-start and lonely-user.
The cold-start dilemma occurs when a platform dependent on user-generated content does not get sufficient enough content in the early days to attract more users (to consume and/ or generate content). There are two issues to be resolved in this case – to attract more users to sustain the platform, and in the process balancing the numbers of content generators and content consumers.
The lonely-user dilemma occurs when a platform dependent on cross- and same-side network effects tries to attract the first users. A subset of the penguin problem, on this platform nobody joins unless everybody joins. There is no intrinsic value being provided by the platform, except that being generated by interactions between and among user groups.
The cold-start dilemma can be typically resolved using intelligent pricing mechanisms, like subsidies for early adopters. For example, a blogging platform can attract influencers to start blogging on their site, by providing them with premium services. As they resolve the cold-start dilemma, and they attract enough users to blog and read (generate and consume), they could get to a freemium model (monetize reading more than a specified number of posts), while continuing to subsidising writers. The key is to identify after what number of posts, does one start charging readers, as too low a number would reduce the number of readers and high-quality writers would leave the platform; but on the other hand, too big a number of freely available posts to read, the platform may not make any money at all to sustain.
The lonely-user dilemma can be typically resolved by following a Remora strategy. By leveraging the users on a larger established platform, the first set of users could be sourced easily en masse. However, just having users is not sufficient – there is an issue of coordination: getting not just sign-ups but driving engagement. It is important that registered users begin engaging with the platform. Some platforms need more than just engagement, they are stuck with a real-time problem: like in a multi-player gaming or a food-delivery platform, we need gamers to be engaged with each other real-time. Some other platforms need users in specific segments, or the transferability problem: that users are looking for others within a specific segment, like in a hyperlocal delivery platform, a matrimony platform or a doctor-finding platform. Such platforms need to have sufficient users in each of these micro-segments.
A Remora strategy could potentially help a platform start-up overcome these two major dilemmas – cold-start and lonely-user. By porting users from the larger platform, one could solve the lonely-user problem, and through tight integration with the content/ algorithms of the Shark platform, the Remora (start-up) could manage the cold-start problem.
Remora’s curse
The decision to adopt a Remora strategy is not just simple for a platform start-up. There may be significant costs in the form of trade-offs. I could think of five significant costs that need to be considered along with the benefits of following a Remora strategy. These costs include (a) holdup risk; (b) ceding monetization control; (c) access to user data; (d) risk of brand commoditization; and (e) exit costs.
Hold-up risk: There is a significant risk of the established platform holding the start-up to a ransom, partly arising out of the start-up making significant asset-specific investments to integrate. For instance, the dating start-up would need to tightly integrate its user validation processes with that of Facebook or Twitter, as the need may be. It may have to live with the kind of data Facebook provides it through its APIs. It may be prone to opportunistic behaviour by Facebook, when it decides to change certain parameters. For example, Facebook may stop collecting marital status on its platform, which may be a key data point for the dating start-up. Another instance of hold-up risk could be when Google resets its search algorithm to only include local search, rather than global search, thereby affecting start-ups integrating with Google.
In order to manage hold-up risks, Remora start-ups will be better off not making asset-specific investments to integrate with the Shark platforms.
Monetization control: A significant risk faced by Remora start-ups is that of conceding the power to monetize to the Shark. For example, when a hyper-local restaurant discovery start-up follows a Remora strategy on Google, it is possible that Google gets all the high-value advertisements, leaving the discovery start-up with only low-value local advertisements. There is also a risk of the larger platform defining what could be monetised on the start-up platform as well. For example, given that users have gotten used to search for free, even specialised search like locations (on maps) or specialised services like emergency veterinary care during off-working hours, may not be easy to monetise. Such platforms may have to cede control on which side to monetise and subsidise, and how much to price to the larger platform.
To avoid conceding monetization control to larger platforms, Remora start-ups need to provide additional value over and above the larger platform. For instance, in the local search business, a platform start-up would possibly need to not just provide discovery value (which may not be monetizable) but include matching value as well.
Access to user data: This is, in my opinion, the biggest risk of following a Remora strategy. Given that user data is the primary lever around which digital businesses customize and personalize their services and products, it is imperative that the start-up has access to its user data. It is likely that the larger platform may restrict access to specific user data, which may be very valuable to the start-up. For instance, restaurant chains who could have run their own loyalty programmes for its clients, may adopt a Remora on top of food delivery platforms like Swiggy or Zomato. When they do that, the larger platform may run a loyalty programme to its clients, based on the data it has about the specific user, which is qualitatively superior to the one that local restaurants may have. In fact, in the context of India, these delivery platforms do not even pass on basic user profiles like demographics or addresses to the restaurants. The restaurants are left with their limited understanding of their walk-in customers and a set of nameless/ faceless customers in the form of a platform user, for whom they can generate no meaningful insights or even consumption patterns.
It is imperative that platform start-ups define what data they require to run their business model meaningfully, including user data or even operations. It could be in the form of specific contracts for accessing data and insights, and/ or co-creating analytical models.
Risk of brand commoditization: A direct corollary of the user data is that the Remora start-up could be commoditized, and their brand value might be subservient to the larger platform’s brand. It could end up being a sub-brand of the larger start-up. For user generation and network mobilization, the Remora start-up would possibly need to get all its potential users to affiliate with the larger platform, even if may not be most desirable one. On a delivery start-up, hungry patrons may be loyal to the aggregator and the specific cuisine, rather than to a restaurant. Given that patrons could split their orders across multiple restaurants, it could be the quality and speed of delivery that matters more than other parameters. Restaurants might then degenerate into mere “kitchens” that have excess capacity, and when there is no such excess capacity, these aggregators have known to set up “while label” or “cloud kitchens”.
It is important that Remora start-ups step up their branding efforts and ensure that the larger brand does not overshadow their brand. The standard arguments or relative brand strengths of complements in user affiliation decisions need to be taken into consideration while protecting the Remora’s brands.
Exit costs: The last of the Remora’s costs is that of exit costs. Pretty much similar to the exit costs from an industry, platform start-ups need to be clear if their Remora strategy is something temporary for building up their user base and mobilizing their networks in the early stages, or it would be relatively permanent. In some cases, the platform’s core processes might be integrated with the larger platform, like the API integration for user validation, and therefore may provide significant exit costs. In some other cases, the platform may have focused on their core aspects of their business during the initial years and would have relegated their non-core but critical activities to the larger platform. At a time when the start-up is ready to exit the larger platform, it may require large investments in non-core activities, which may lead to disruptions and costs. Add to this, the costs of repurposing/ rebuilding asset-specific investments made when joining the platform.
Remora start-ups, therefore, need to have a clear strategy on what is the tenure of these Remora strategies, and at what point of time they would exit the association with the larger platform, including being prepared for the costs of exit.
Scaling at speed
Remora strategies allow for platform start-ups an alternative to scale their businesses very fast. However, it is imperative to understand the benefits and costs of such strategies and make conscious choices. These choices are at three levels – timing of Remora, what processes to Remora, and building the flexibility to exit. Some platforms may need to attach themselves right at the beginning of their inception to larger platforms to even get started; but some others can afford to wait for the first users to start engaging with the platform before integrating. What processes to integrate with the larger platform is another critical choice – much like an outsourcing decision, core and critical processes need to be owned by the start-up, while non-core non-critical processes may surely be kept out of the platform. In all of these decisions, platform start-ups need to consciously decide the tenure and extent of integration with the larger platform, and therefore make appropriate asset-specific investments.
Maintain social distance, leverage technology, and stay healthy!
Quote of the times
(C) 2020. Srinivasan R
This is a follow-up post on my post last week on Moravec’s Paradox in AI. In that post, I enumerated five major challenges for AI and robotics: 1) training machines to interpret languages, 2) perfecting machine to man communication, 3) designing social robots, 4) developing multi-functional robots, and 5) helping robots make judgments. All of this was focused on what the programmers need to do. In this short post, I draw implications on what organisations and leaders need to do to integrate AI (and for that matter, any hype-tech) into their work and lives.
Most of the hype around technologies is built around a series of gulfs, gulfs of motivation, cognition, and communication. They are surely related to each other. Let me explain these in the reverse order.
The first gulf is the communication gap between developers and managers. Developers know how to talk to machines. They actively codify processes and provide step-by-step instructions to machines to help them perform their tasks. Managers, especially the ones facing consumers, speak stories and anecdotes, whereas developers need precise instructions that could be translated into pseudo-code. For instance, a customer journey to be digitalised need to go through a variety of steps. Let me give you an example of a firm that I worked with. A multi-brand retail outlet wanted to digitalise customer walk-ins and help guide customers to the right floor/ aisle. Sounds simple, right? The brief to the developers was, to build a robot that would “replace the greeter”. The development team went around building a voice activated humanoid robot that would greet a customer as she walked in, asked her a set of standard questions (like ‘what are you looking for today’?) and respond with answers (like, ‘we have a lot of new arrivals in the third floor’). The tests were very good, except that the developers did not understand that only a small proportion of their customers were arriving alone! When customers came as couples, families, or groups, the robot treated them like different customers, and tried responding to each other separately. What made things worse, was that the robot could not distinguish children’s voices from female voices and greeted even young boys as girls/ women. The expensive project remains a toy today in a corner of the reception, only to witness the resurgence of plastic-smiling greeters. The entire problem could have been solved by a set of interactive tablets … Just because the managers asked the developers to “replace the greeter”, they went about creating an over-engineered but inadequate humanoid. The reverse could also happen, where the developers only focus on the minimum features that would make the entire exercise useless. For us to bridge this gulf, we either train the managers to write pseudo-code, or get the developers visualise customer journeys.
The second gulf is that of algorithmic and creative thinking. Business development executives and strategy officers think in terms of stretch goals and focus on what is expected in the near and farther future. On the other hand, developers are forced to work with technologies in the realm of current possibilities. They refer to all these fuzzy language, aspirational goals and corporatese as “gas” (to borrow a phrase from Indian business school students). The entire science and technology education at the primary and secondary school is about learning algorithmic thinking. However, as managers gain experience and learn about the context, they are trained to think beyond algorithms in the name of creativity and innovation. While both creative thinking as well as algorithmic thinking are important, the difference accentuates the communication gap discussed above.
| Algorithmic thinking is a way of getting to a solution through the clear definition of the steps needed – nothing happens by magic. Rather than coming up with a single answer to a problem, like 42, pupils develop algorithms. They are instructions or rules that if followed precisely (whether by a person or a computer) leads to answers to both the original and similar problems[1]. | Creative thinking means looking at something in a new way. It is the very definition of “thinking outside the box.” Often, creativity in this sense involves what is called lateral thinking, or the ability to perceive patterns that are not obvious. Creative people have the ability to devise new ways to carry out tasks, solve problems, and meet challenges[2]. |
The third gulf is that of reinforcement. Human resource professionals and machine learning experts use the same word, with exactly similar meaning. Positive reinforcement rewards desired behaviour, whereas negative reinforcement punishes undesirable behaviour. Positive and negative reinforcements are integral part of human learning from childhood; whereas machines have to be especially programmed to do so. Managers are used to employ reinforcements in various forms to get their work done. However, artificially intelligent systems do not respond to such reinforcements (yet). Remember the greeter-robot that we discussed earlier. Imagine what does the robot do when people get surprised and shocked, or even startled as it starts speaking? Can we programme the robot to recognise such reactions and respond appropriately? Most developers would use algorithmic thinking to programme the robot to understand and respond to rational actions from people; not emotions, sarcasms, and figures of speech. Natural language processing (NLP) can take us some distance but to help the machine learn continuously and accumulatively requires a lot of work.
There are three kinds of people in the world – those who make things happen, those who watch things happen, and those who wonder what happened! Not sure, if this is a specific quote from a person, but when I was learning change management as an eager management student, I heard my Professor repeat it in every session. Similarly, there are some managers (and their organizations) wonder what happened when their AI projects do not yield required results.
Unless these three gulfs are bridged, organizations cannot reap adequate returns on their AI investments. Organizations need to build appropriate cultures and processes that bridge these gulfs. It is imperative that leaders invest in understanding the potential and limitations of AI, whereas developers should appreciate business realities. Not sure how this would happen, when these gulfs could be bridged, if at all.
Comments and experiences welcome.
Cheers.
© 2019. R
Srinivasan, IIM Bangalore.
[1] https://teachinglondoncomputing.org/resources/developing-computational-thinking/algorithmic-thinking/
[2] https://www.thebalancecareers.com/creative-thinking-definition-with-examples-2063744
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