As the Western world closes the second quarter of 2018, looking east should be both inspiration and warning to CEOs. There is massive industry disruption on the horizon from Chinese tech companies, and most western companies have yet to wake up to the threat.
The past century of economic expansion has been dominated by a single model – the vertical business – but this is changing rapidly. A revolution that started in Asia will soon impact western economies; forcing service companies out of their vertical orientation and into horizontal, experience-oriented business models.
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Nimble and adaptable Chinese behemoths like Tencent and Alibaba are leading this change. These firms, instead of bundling products and capabilities within one industry, think much bigger. Instead, they string together a series of products from a range of adjacent industries with one ultimate aim – securing the ability to own and monetise all facets of a consumer’s life.
And when they say all, they mean all: from the moment a consumer wakes up in the morning until they go to bed at night, Tencent and Alibaba want their customer’s every touchpoint with the world to go through one of their products.
If You Build It, Millennials Won’t Come
Whether bank, insurer, retailer, telecommunications provider, or media company, past wisdom has meant grouping together your services and presenting them across individual industries. Where Alibaba and Tencent think differently, is rather than creating offerings and expecting consumers to come to them, they instead create solutions that slip effortlessly into the lives of tech-savvy millennials. Think of it as ‘lifestyle enablement’. By meeting millennials where they ‘live’ and providing services of ultimate convenience at the point of need, regardless of industry, every interaction offers potential revenue opportunities.
This has led to Alibaba and Tencent dominating platforms as diverse as banking, gaming, retail, or social media.
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Now, as the potential for growth slows in China, these firms have begun to turn their gaze to the west. This shift towards lifestyle enablement and the death of the vertical will become the dominant global business model.
2018 has already claimed many high-profile casualties of firms unable to adapt to new technologies and channels (Toys ‘R’ Us, Maplin, etc.). Western firms and incumbent market leaders that don’t want to be the next victim must re-evaluate their businesses strategy now.
Chinese Tech Companies: No Such Thing as a Specialist
What Chinese tech companies like Alibaba and Tencent have done successfully, is recognise the complete shift in the way that millennials think about services and products, compared to other generations. They simply don’t care who the service comes from, but how and when the service is being offered. Millennials don’t mind if a messaging platform is providing them with payment capabilities, as long as it’s easy, intuitive, and accessible. In upending the traditional way of thinking, millennials have taken away one very key component of a typical businesses strategy – the specialist businesses brand advantage.
In identifying this, Alibaba and Tencent have changed the traditional Asian approach to the horizontal business model by altering the way they select which adjacent industries to enter. They are not focused on how industries complement each other (like the Japanese Keiretsu model of affiliated enterprises), but rather, how they can help their customers meet a need – even a need they didn’t know they had. Additionally, Alibaba and Tencent have accelerated the speed at which they can enter new markets. Unlike their forbears, like Samsung, for example, that took decades to develop their portfolios.
Adapt or Die
The worry for western economies is Alibaba and Tencent, and firms adopting a similar model, like Reliance and PayTM in India, are moving at such pace that they have very little time to react. These firms are already building large customer bases in different geographies with the intent of providing multiple adjacent services. For example, in the US, Alibaba has already acquired or invested in multiple US entities, including Snapchat, Lyft, Jet.com, and Verifone – spanning everything from services and social media, to payments and ecommerce.
In Europe, Facebook, Google, Amazon etc. are moving at a much slower pace. However, these firms have the ability and scale to move rapidly – so are well positioned to remain on top by copying the Chinese at their own game.
For the significant majority of businesses though, they have nowhere near the scale and scope of Facebook et al., so they must act now to work out where exactly in this new ecosystem they are going to fit and build a strategy to achieve it. They must be prepared to face-down threats to the business by war-gaming potential scenarios, and most firms will also require acquisitions and partnerships to build and deploy innovative services.
Finally, they must build digital personas that understand every facet of their customers, to fit with the new experience-led customer engagement model.
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