App-in-app?

I recently got an email from my airline app that I could book my car ride within the same app. It was a way of providing end-to-end services. Much like the home pickup and drop service provided for business class customers by the Emirates. What are the implications of these for the customer, the airline, and the cab-hailing firm? Let’s explore.

It is an app-redirect

First, read the terms of how it works in the case of Jet Airways and Uber here. The substantive part of the T&C is hidden in the paragraphs quoted below:

“PLEASE NOTE, YOU ARE MAKING THE PAYMENT TO UBER DIRECTLY. JET AIRWAYS IS NOT RESPONSIBLE / INVOLVED IN THIS FULFILMENT PROCESS. JET AIRWAYS WILL NOT BE LIABLE AND/OR RESPONSIBLE FOR REFUNDS, DELAYS, REJECTIONS, PAYMENT AND FULFILLMENT OR OTHERWISE OF THE SERVICES OR IN RESPECT OF ANY DISPUTES IN RELATION THERETO, IN ANY MANNER WHATSOEVER.” (emphasis original)

Then, what is the value of this app-in-app integration?

Customer perspective

For the customer, it has the potential to work as a seamless end-to-end service. I imagine a future, where you would find a partner using Tinder or TrulyMadly, plan your evening to a game/ movie using BookMyShow, find a restaurant & book your table using Zomato, and take Uber whenever you are ready to move on, or better still, have an Ola Rentals car waiting for you through the evening. All in one app. Wouldn’t you love it, if all of it were integrated in one App? Just imagine the convenience if your restaurant-finder knew that you are in a particular concert at a specific place and you are likely to head out for dinner at a particular time. This specific knowledge could immensely help your restaurant-finder app to customize the experience for you – for instance, it could not only provide you those restaurant options that are open late in the evening after the concert was over, in a location that is close to the venue; it could possibly alert the restaurant that you were arriving in 15 minutes, based on your Uber location. And through the evening, post your pictures on Instagram and SnapChat, check-in to all those locations in Facebook, and Tweet the experience live.

Yes, you would leave a perfect trail for the entire evening in a single place, and if you were to be involved in an investigation, it would be so easy for the officer to trace you! No need for Sherlock Holmes and Watson here – the integrator app would take care of all the snooping for you!

Convenience or scary? What are the safeguards related to such data sharing across different entities? How will the data be regulated?

The Integrator perspective

Why would a Jet Airways provide an Uber link inside its App? Surely cab-hailing and air travel are complementary services. Plus, Jet Airways believes that its customers would find it convenient to book an Uber ride from within the Jet Airways app, as they trust the app to provide Uber with all the relevant details – like the estimated landing/ boarding time of the flight, drop/ pickup addresses, etc. Jet Airways also needs to believe that its customers would rather choose an Uber cab, rather than its competitor OLA Cabs, or any other airport taxi service. The brands should have compatible positioning. Given that Jet Airways is a full service carrier, and differentiates based on its service quality, Uber might be a good fit. But the same might not hold good for a low-cost/ regional carrier like TruJet connecting cities like Tirupati, where Uber does not operate.

Does integrating complementary services affect customer satisfaction, brand loyalty, customer switching costs, and/or multi-homing costs? In contexts where these services and brands are compatible, and there is a convenience involved in sharing of data between these services, there is likely to be some value added. Like airlines and hotels (hotels would like to know your travel schedule); currency exchanges and international travel (the currency exchange would love to know which countries you are visiting); or international mobile services. If there was no data to be shared between the complementary services, the user would rather have them unbundled. Think travel and stock brokerage.

That said, platforms find innovative complementarities. For instance, airlines (primarily the full-service carriers) have launched co-branded credit cards. In a recent visit to Chennai, there were more American Express staff at the Jet Airways lounge than the airline or lounge staff! And they were obviously signing up customers. What are the complementarities between credit cards and air travel, apart from paying from that card? A lot of business travellers have their business travel desks do the payments; consultants have their clients booking the tickets; and even for individuals and entrepreneurs, the credit card market is so fragmented that everyone holds multiple cards. And the payment gateways accept all possible payment options, including “paying cash at the airport counter”. They why co-brand credit cards – sharing of reward points/ airline miles. Either customers do not earn sufficient airline miles and using these co-branded credit cards help them earn more miles and retain/ upgrade their airline status (remember the 2009 movie, Up in the Air?); or they do not earn enough reward points in using their credit cards that they can redeem their airline miles as credit card reward points. Either ways, each one is covering up for the other.

In this covering up, or more diplomatically consolidation of rewards, the partners increase customer switching and multi-homing costs. Surely, redeemable airline miles might be more valuable to a frequent traveller than credit card reward points that have limited redemption/ cash back opportunities. But for loyalty to increase, it is imperative that both brands stand on their own – providing compatible services.

Mother of all apps

All this looks futuristic to you? A lot of you have been using an ubiquitous desktop app known as the browser for a long time, which has been doing exactly this! In a subtle form, though. However, there are firms that own multiple such apps, and they use a single sign-on – like all of Google services. Plus, even third-party sites like Quora allow for using your Google credentials to sign-in. The trade-offs are not always explicitly specified – it is always the case of caveat emptor – consumer beware.

Quora homepage

So, the next time you experience some cross-marketing across platforms/ apps, think what data might be shared across both the apps; and if you would really value the integration.

Cheers!

(c) 2017. R Srinivasan

 

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Building your brand

This is not a post about marketing, though it may sound so. This is a post about how entrepreneurs and leaders communicate. This is relevant for brands and firms as well. Read on.

I listened to a very insightful TEDx talk by Simon Sinek on inspirational leaders. Listen to it here. He talked about how inspirational leaders focus on the inner most ring of what he called the golden circle. In the inner circle is the why, followed by the how, and then the what. He cited examples of ineffective communication, when firms and brands and individuals focused on the what to drive the how and why, and how successful people and brands and firms focused on the why first, before highlighting the how, and what. If you have not listened to it yet, please do so, before you proceed.

19.1 Brand communication

As we see a tramline of enterprises biting the dust, liquidating/ selling off to powerful competitors/ selling off at a fraction of its past valuations to firms in complementary businesses, this message is becoming far more relevant. Couldn’t resist this contrast …

Yahoo is a guide focused on informing, connecting, and entertaining our users.

https://about.yahoo.com/ 

Google’s mission is to organize the world’s information and make it universally accessible and useful.

https://www.google.com/intl/en/about/company/

 

Just take a look at how these two pages are organised – Yahoo’s page flows like this – a statement of what they do – inform, connect, and entertain; how did they start, how is it to work for Yahoo, and what does it offer for developers, advertisers, partners, and research. Google’s page begins with the company overview (that includes their history), who they are (culture and locations), what they believe, and then what they do.

If your communication focuses on what problems you solve (why you exist), and then lead towards how you solve those problems, and therefore what products and services you offer; I am willing to listen to you. On the other hand, there are entrepreneurs and firms that begin with what they do. For instance, early this week, I heard someone talk about building the Uber of Indian tractors for farmers (if the one who talked about this is reading this, don’t take it personally). I had to probe deeper and deeper to understand what problem was being solved and why did Indian farmers needed a mechanisation solution in the lines of Uber.

Virgin’s Richard Branson also wrote today (11 August) about why successful entrepreneurs should seek problems, and create solutions (read it here). Begin with the problem and the opportunity; the business model and the solution will follow; and thence products and services.

So, whatever brand you are building – of yourself, your firm, your products/ services, please begin with the why, the how, and then get to what. Build a robust brand that stands for something, signifies why it exists, and speaks to the ecosystem on why it exists. Remember the arrow that connects A and z in the Amazon.com logo? Everything from A to Z.

And in today’s world, as firms simultaneously diversify and depend on a cluster of complementors to provide (each others’) customers with unique value, it might not be out of place to conceive of your brand as a platform. A simple platform (like how the automobile companies use the word) upon which your complementors and partners could build on, customise, co-develop, co-innovate, and co-create. Brian Monahan’s post titled “More than a promise: Brands are platforms” (read it here) develops this argument very well. Brian’s primary argument is that brands transcend the promise and should allow for other firms and its partners to shape the consumer experience. Imagine brand Android!

Borrowing the idea from Simon Sinek’s talk, leaders communicate why more than the what. How is your brand communication structured?

Would love to listen/ read/ hear about your brand stories.

 

 

Flipkart Ads – Is there a shift in online advertising economics?

Yesterday, I read an interview with Sanjay Ramakrishnan, Senior Director & Head – Business development & Marketing, Flipkart Ads in Advertising Age India (read it here). It set me thinking, why is Flipkart into advertisements? Is it competing with Amazon or with Google, Facebook, and Apple as well?

Though I am tempted to label this development as the advertising market becoming a contestable market, I will refrain from doing so. Let me first explain what is a contestable market (in simple terms, of course, let me try; and in the context of platform business models), and then proceed to analyze if the success of Flipkart Ads is a source of worry for other platforms whose principal business model is based on advertising revenue.

The theory of contestable markets originated from the works of Baumol as early as 1982 in this seminal paper (available through JSTOR here). He (and his co-authors in subsequent papers) defined a contestable market as one with absolutely free entry and costless exit. Which implies that such a market would be vulnerable for a hit-and-run entry, i.e., by any competitor with no need for any specific assets, process capabilities, or differentiation.

A key characteristic of these markets is that the new entrant takes the prices prevailing in the market (of the incumbents) as given, and enters with the same price. In a perfect competition, any new entrant will increase the supply in the market, and should lead to a reduction in prices. Even when the market shares of incumbents and new entrants change, the industry price levels should ideally fall with increase in supply. In contrast, in a contestable market, the new entrant could enter the market with the same price as the incumbents. The justification for this assertion could be based on two arguments, that the new entrant enters the market at such a small scale compared to the incumbents that there is no visible change in the total market supply to warrant a price correction. The second argument is founded on the thesis that the incumbents cannot retaliate with sufficient speed to counter the threat posed by the new entrant, due to their systems and processes that bind them to a particular cost structure and a positioning in the market. In such a case, the new entrant could enter the market with a prior contract, preferably a long-term contract, at least as long-term as it takes for the incumbent to respond. In perfect competition or monopolistic competition, incumbent firms will adopt limit pricing strategies (if profitable for them) to keep new entrants at bay, i.e., as the incumbents sense the threat of new entry, they would reduce the prices to a level where it would be profitable for the incumbents and not for the new entrant. Take for example, when cola firms entered the bottled water market in India, the incumbent, Bisleri International embarked on a strategy of keeping market prices so low that it took a long time for Coca Cola Company, and Pepsico to break even.

The second aspect of contestable markets is the absence of any sunk costs whatsoever for both the incumbent and the new entrant. If any upfront fixed costs were to be incurred by a competitor either prior to entry (including in studying the feasibility of making money in that market) or at entry (like setting up manufacturing and distribution capabilities), the costs of entry will prevent this market from becoming contestable. Let me provide an example. In today’s world, setting up an online store entails no sunk costs for any retailer. The domain registration and hosting, website design, payment gateways, and fulfillment are all functions that are unbundled and offered as independent services (as SaaS) by different vendors, which makes all of them variable costs, rather than fixed costs. Such costs are neither fixed nor specific – one could use the payment gateway for any other online transaction, should this venture fail. Such markets with no sunk costs result in no barriers to entry and exit and therefore, are contestable. Contrast this with our previous example of Coca Cola Company and Pepsico entering the Indian bottled water market – this is a market that requires significant bottling and distribution capabilities. Though the cola firms enter this market with significant synergies from their core business, there were certain unique capabilities that the bottled water market required – sourcing of good quality water and plastic bottles, bottling lines that were specific to water, unique branding, and wider distribution networks.

The third characteristic of contestable markets is that the products are absolutely non-differentiable. That means, the new entrants can enter the market and imitate the products/ services offered by the incumbents at the same costs or even lower, and therefore maintain the same price levels. It is also possible that the new entrants enter with lower prices, and offer the same ‘standard’ products or provide additional features at the same or lower prices. Such standardization is highly visible in the context of platform services, like a C2C marketplace. In the absence of any product differentiation between competitors (any new feature is imitable quickly and is almost costless to do so), Quickr.com and OLX.in entered the market and took market share from incumbents like Sulekha.com or asklaila.com.

In summary, a market can be (or become) contestable when either of these conditions are met – no changes in prices (no limit pricing by incumbents), no fixed sunk costs, and no differentiation in products and services offered.

Is digital advertising becoming a contestable market?

For digital advertising market to become (and be) a contestable market, it has to allow for costless entry and exit, no sunk costs, and no differentiation. In the case of Flipkart Ads, I would argue that it would have cost Flipkart next to nothing to build the platform. The ecommerce store was in any case dealing with sellers, and all that they had to do was to extend the relationship to brands. And remember, in the Indian market, a lot of the brands had their own ecommerce retail operations and some of them were already on Flipkart as sellers. For instance, when I searched for the Prestige brand of pressure cookers on Flipkart, I found about 40-odd sellers including TTK Prestige, the brand owner.

And when Flipkart entered the digital advertising space, did Google and Facebook respond with limit pricing? I am not sure they did. A Feb 2015 LiveMint article that announced Flipkart and SnapDeal’s entry into online advertising space gave Google ad revenues as US$55bn compared to Amazon’s US$1bn (read it here). Given these sizes, it is unlikely Google and Facebook would have felt the need to respond to their entry by lowering prices.

Developing the advertising platform would possibly not involve any sunk costs for Flipkart. There is sufficient traction in terms of relationships with sellers and brands, the technology platform costs next to nothing to build, transaction costs are variable (including cloud storage and payment gateways), and even brand building is costless (as they are extending the same brand – Flipkart Ads).

It is the third condition of contestable markets that protects the online advertising market from becoming a contestable market, i.e., lack of differentiation. In the case of online advertising market, differentiation is created and sustained by superior targeting of advertisements to the right users. Measuring and monitoring engagement of the audience is the key in data collection; deep understanding of the consumer behavior and decision-making process is critical in analyzing this large volume of data; and close relationships with a wide variety of advertisers is imperative to ensure narrowcasting of advertisements to specific audience profiles. Here is where the product differentiation kicks in – the kind of browsing habit data that Google has access to is very different from the ‘buying intent’ that Flipkart can derive out of its customers’ behaviors. And especially in the context of mobile apps, the Flipkart app has access to other information like the person’s location, WiFi/ data connection information, and even his contacts; all of which could be useful to provide targeted narrowcasting (or even unicasting) of advertisements. Such shrinking of segments and the ability to serve what the marketers call ‘the segment of one’ customer can differentiate the new entrant, Flipkart’s services from the incumbent ‘Google’ and ‘Facebook’.

So, what are the implications for entrepreneurs?

First, evaluate if your market is indeed contestable, or is likely to become contestable. If there is a likelihood of your primary market being or becoming contestable, consider one of the following options:

  1. Change your business/ business model (pivoting is a fancy word these days in the startup ecosystem)
  2. Erect barriers to entry and exit – use regulation if you must (see how Airport Taxis in Bangalore are competing with OLA and Uber)
  3. Differentiate – even if it is not the most significant of your product offerings, focus on those value creation opportunities that involve sunk costs
  4. Wait for a new entrant and bleed him to death with limit pricing (you better have easier access to capital than the new entrant)!
  5. Wind up, sell out, and take your family (if you have one) on a holiday to Seychelles! And don’t forget to thank me!