Phil Phelan is the Chief Strategy and Innovation Officer at Publicis Sapient Australia and sits down to talk about the role of creating ecosystems and marketplaces not just for start ups but for existing legacy businesses wanting to innovate and grow in their category. He shares the differences between product and services and the blend of the two including Financial Services, Utilities and Automobiles and the opportunities these strategies provided both customers and the organisation.
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Transcription:
Darren:
Welcome to Managing Marketing and today I’m sitting down and having a chat with Phil Phelan who is the chief strategy and innovations officer at Publicis Sapient Australia. Welcome Phil.
Phil:
Thanks, Darren; it’s good to be here.
Darren:
Phil, one of the areas I think you’ve been focusing on and certainly an area of interest I guess for a lot of businesses is this idea of being able to create ecosystems in the market place. So let’s starts with, is there a difference between an ecosystem and a market place?
Phil:
There is; they are often confused or they are often intertwined concepts. More often than not when a business takes a market place model out into the world it does it on top of an ecosystem and there is a reason for that.
A market place is what you know it is. It’s a place where it brings buyers and sellers together. So the bulk of the household tech thing as you know, are market places. So eBay or Amazon creates a consumer goods market place, AirB&B creates a hospitality market place, Uber a transport market place, Kick-starter a crowd funding place and in their digital incarnation they’re really products of the internet.
So most of them emerged in the 90’s and they emerged out of essentially the collapse of the classifieds but they also emerge out of businesses like the Yellow Pages and census so you get things like Craig’s List or those kind of pure listing sites starting first.
A market place itself is a type of ecommerce site that brings buyers and sellers together. It brings them in ways that market places in the real world haven’t been able to do before.
So they take things that were local and make them global. They take things that were temporal and they make them on demand and now they are not just selling products but services.
So over their kind of life, they’ve gone from listings into things that are more vertical, so market places for jobs, market places for dating. Those are really just kinds of listing sites with better user experience and more photos.
Darren:
The big thing is the technology enabled this didn’t it?
Phil:
Yeah.
Darren:
Being able to build a technology platform that people could access readily through the internet really is what enabled it. The application though is quite interesting because it’s such a diverse range of things and I guess from my perspective you usually think of market places as selling products.
Like Amazon, we think of it as starting off with books and they’ve just expanded that which was why people called it ecommerce. But there’s a part to it which goes beyond just the transaction isn’t there because you are creating an ecosystem of a market place where people can share and provide feedback on their experience within that.
It feels more accountable than perhaps the real world market place or the real world business ecosystem. Is that part of it?
Phil:
Yes it is.
Darren:
Is it just convenience?
Phil:
No, no, it’s much more than convenience because they do a couple of things. Market places fundamentally change how people shop and online market places do a couple of things. They solve a problem of discoverability because they allow you to do more than just read. You don’t have to read all 15 pages of the job guide, you’ve got the jobs you want.
Darren:
You can search and set up searches.
Phil:
Filtering.
Darren:
So the user experience is easier or more convenient.
Phil:
It’s more informed, it’s more personalised. They solve a problem to some extent of quality control or standards. If you think about dating sites, it’s as much about, in their initial phase, maybe less though now where’s it’s on demand but their initial phase.
Darren:
Swipe left, swipe right.
Phil:
A lot of the work that dating sites did was not only doing matching but also doing ratings, in the same way that Uber does now so they’ve solved that other problem of market places which is, is this a good seller.
Then I think the third thing is and this is more for sellers rather than buyers and I guess it’s the same concept as social media, is it connects up communities around the world or essentially without geography that are communities of interest.
So if you are a passionate camera nerd or passionate mid-century furniture enthusiast, you don’t just have to rely on two shops; you can rely on the world community so it’s able to connect those up.
Each of these waves is about some kind of new technology being cracked that allows a new problem for the customer to be cracked and that goes into a new phase.
Darren:
Ultimately from a technology point of view there are so many things you could build but the most successful ones actually overcome some sort of customer problem or road block or creates a new customer experience that they may never have even thought they could have.
Phil:
That’s true and Uber is a great double sided example of that.
Darren:
For all their bad publicity it is actually quite a good model because of that two way feedback.
Phil:
It’s the two way feedback but it also solves some basic problems that people have often had in taxis, like will it turn up and when will it turn up and some level of transparency, so it just solves that tick.
On the flip side the same technology they’ve used to do that, and this is their real power, is that it enables them to organise casual labour.
Fundamentally, no one has been able to do that at scale before Uber because it’s very hard to do that and the taxi market place is casual labour and Uber’s been able to kind of organise casual labour in a way that cuts out union interference and you can have your point of view on that. So that’s fundamentally a technology that’s been able to solve that double sided problem.
Darren:
Which is why you get consumer uptake because it’s solving a particular problem for them.
Phil:
Whether it’s solving it profitably or ethically, that’s to be decided.
Darren:
Uber is a good example of a service but some of the biggest market places are primarily product driven. Like in China, Ali Baba and the T Mall, this is an online retail experience, it just happens to allow a whole lot of companies to come in and join their shopping mall in a way.
Phil:
Correct, Venture capital firms are a really interesting way to track the progress of market places and the Venture capital firms have funded this big wave of consumer goods market places. You are not going to say selling a product is easy but it is probably easier than selling a market place for services.
What we can see now is these Venture capital firms are looking to, where are the next market places coming from because there are not so many products left to market place and those are off scaling.
We can start to see money going into services market places and also really interestingly regulated markets. So aged care, health care, community services; legal, clerical and lots of new models appearing across things that you might basically associate as human services.
So education, trades, health, aged care, clerical, or sales work and the reason they haven’t gone into this before is that it is really hard. The reason they are going into it now is they are all highly fragmented, they are mostly inefficient and they are really difficult for consumers to discover what they need and navigate and be assured of quality.
So we’ll start to see this mixture of either start-ups or bigger organisations that we work with inserting themselves into that value chain and then introducing new standards.
Darren:
A good example of that would be education wouldn’t it, especially tertiary education because we’ve had quite a traditional recruitment model?
Phil:
Enormously.
Darren:
There are the under graduates that are just pouring out of secondary schools around the world. There has been this pressure on universities to think more globally or regionally. Then you’ve got the post grads that are in the market place; the later education. It’s been a very old school model.
Phil:
Old school is the word for it. You think about most universities are using models that are 1000 years old; University of Paris models for facilities and things like that. In some ways there is a good level of anti-fragility in that if it’s lasted 1000 years maybe it’s good.
Darren:
Or it’s not broken so why fix it.
Phil:
But it is broken and we can see that it is broken in a number of ways.
One is, we do a lot of work in the higher education sector and we track this and we can see consistently over time the perceived value that students see themselves getting from a degree and the time and costs they put into that are stretching apart more widely than ever.
We can also see that there’s kind of a gap between what employers and students want in terms of skills, speed and relevance and what’s being delivered which is this quite traditional set.
The third thing is trying to work out how to break the link between education and certification because that’s the kind of nexus that keeps it traditional.
Once people just start to want the skills and the knowledge and they don’t necessarily need it to be certified or once it doesn’t need to be three years to be certified for the same set of models then that market place can be a lot more modular.
When it gets more modular then people will be able to pick and choose the way through.
Darren:
We are starting to see that. There are examples of universities starting to offer subjects that can be pick and mix and choose that will go towards ultimately qualifying for a degree or a post graduate degree. You don’t necessarily have to engage on the basis of doing a degree; it’s purely for training or up skilling.
Phil:
So in education what does the market place look like? In the market place you will probably see it happening more on the skills end where people may want a piece of paper to show they have the skill, they don’t necessarily need a B.A.
And if it’s happening on the skill end then it’s happening at the nexus between employers and skill basis and students that almost want some sort of training or up skilling or real timing.
Darren:
Especially because all the people that they are focusing on and they call it the future of work, are actually working now, are saying that we’ll have to stop this model of training before we enter the workforce and largely then get on with the job. It’s going to be a process of constantly up skilling as we go through our careers so that needs a totally different model, a more flexible model.
Phil:
It’s a flexible model, we’ll come to cars in a minute but it’s more like this almost lifetime subscription model. And what we would see is that you may have a subscription to a university and that allows you to dip in and out over a lifetime of your working career, or your practise.
Darren:
So you just said about cars, let’s get to cars now because it’s a fascinating area. I was talking to someone who said the number one issue that many carmakers have is that they are interested in payment gateways.
Then you say to yourself, why would automotive manufacturers be interested in payment gateways? It’s because if we have autonomous or shared vehicles then whose going to be paying for car parking and tolls and things like that. So they are wanting to find how the car that doesn’t have the driver or doesn’t have the one driver, is going to be able to automatically pay for all of these expenses.
It’s an interesting change in the way we’ve thought about cars.
Phil:
One thing I don’t think a lot of people know is that OEM’s or car manufacturers make 80% of the revenue off the sale of the car but right now they make something like 50% or 60% of their profit on what happens after they’ve sold the car. So service, financing blah blah blah, all those things over time.
Now if people are buying fewer cars as in those cars last longer, that affects it. Younger people are less likely to even buy a car full stop, maybe they are just renting and cars are safer so less trouble is occurring.
So what you end up with is a situation where the car manufacturers are probably looking at a scenario like the education thing where the relationship is much more like a relationship with a brand mark.
You may have a relationship with a Honda or Toyota or Nissan and maybe the hunk of metal gets replaced every three years and the software gets updated every week, but you are just paying for that over time.
Or maybe you are even just renting like the subscription model, but I do think fully autonomous vehicles are a way away. In the meantime though what it means is that the cars themselves are those working pieces of software that you should expect to do a bunch of things for you in the same way your phone does.
So if you thought about where mobile phones were 10 -15 years ago and there were some basic functions and there were some apps on them. But you sort of had to go into a folder and then another folder and stand next to a WIFI or 3G for something really basic to work. That is kind of where in car personalisation is now.
If you posit it forward a few years to where apps were and where they are now, that whole wave is going to happen inside cars as well.
So cars collect a huge amount of data about themselves and their running and their geography and their patterns and energy and all those kind of things but also and particularly as they get more intelligent in the way they drive themselves for you, you have more attention, you have more time, you can do more things with them.
Darren:
Because it goes from selling a product to licensing an experience.
Phil:
Absolutely.
Darren:
I say licensing because you are not really selling it. The model seems to be heading towards people paying a subscription in the same way as they would to their streaming TV.
Phil:
And so you end up with this ecosystem where your heads up display on your Bentley, Darren, is the equivalent of your home screen on your phone.
So there are firms like ours and we are doing this right now in Australia for firms, designing, developing, prototyping and testing what are the features and the application and the experiences that will be going on the heads up display.
What do people want, what will they find value in. Are we going to do that or are we going to partner with a radio station or publisher or traffic company or something to deliver the content for that.
What’s the financial model for that and then just like every computer, inside a car is a computer with a content manager and system and working software to kind of program all that.
Darren:
To create that personalised, customised experience of you travelling in that vehicle.
Phil:
If you Google this in consulting world it’s probably called something like passenger economy or some such concept.
Darren:
So an area for me which is absolutely ready for disruption is energy utilities. First of all we’ve got ridiculous numbers of pricing models; we’ve got a system that largely locks people in, that switching feels like a pain. We’ve got companies out there that are profiting from ’phone us up and we’ll find you a better deal’ and you know that they are doing it on the basis of whatever commission they are going to earn from giving you a better deal.
So where do ecosystems or market places work in say power and when I say power I mean electricity and gas but also all utilities? I heard just recently that AGL was looking at buying a broadband supplier to actually bundle all this together. How does this work as an ecosystem or a market place? I imagine its more market place.
Phil:
Yes it is more market place but there are multiple threads to this. The longest-term one that nobody has resolved yet, is let’s say for twenty years people have been talking about the connected home; you know where we all have a Jetson home.
Darren:
My own Rosie.
Phil:
So the Telco’s think that they might be able to own that, the energy companies think they might be able to own that, the tech companies, your television thought they might have a go at it, even companies like Schneider electric that do your power points and wiring, they thought they might.
So everyone’s thinking ultimately that’s the iron throne, being able to win connected home. Nobody has really been able to crack it yet for an array of reasons.
So then you have this second force which is, we call it open futures and you can see it in open banking now and it’s this desire of governments wanting more transparency from corporations and more competition between corporations and more privacy for citizens.
So what that means in banking is the open banking legislation. February next year the banks will have to open up their customer data so that if you want to share your customer data to another supplier or competitive firm to you know, provide you with an exciting new service or competitive rate offer, you can do that.
So once you start to do that then there is a big ecosystem that will spring up off the top of your data. That legislation is going to roll though energy next and so when it does the energy retailer and the energy distributors will have to do exactly the same thing. They will have to open up, using API’s, all of your customer data so that any competitor if you want can come in.
Darren:
With my permission.
Phil:
With your permission, absolutely and so when that happens then you have this platform that is an ecosystem but in this case it’s been forced upon those companies to allow innovation and choice and competition to come in.
Now what we can see which is getting back to your point is that if you are a bank and you are thinking about open banking and how you can use it not just to defend but to attack and to advance yourself you might be thinking, well how can I move into energy and energy pricing and energy insurance.
Darren:
Knowing the bank strategies they will be thinking about entanglement: how can I get more fingers into my customers so they can’t move.
Phil:
After energy it goes into Telco and so all three of those sectors suddenly become a lot softer at the edges between them and they become a lot more open.
So what we can see is scenarios where that kind of means any one can play in that space. People can have a go at being retailers or bankers or Telco’s or Telco’s can be energy firms. So it allows the constraints of categories to go away and may make it much more feasible for somebody to actually do the connect at home.
One literal example if you think about the interaction there, is that many Australian households in the next couple of years will install solar, install batteries, install basic smart meters that essentially turn their homes into mini power plants that feed and receive power from the grid, and go back and forwards in a much more sustainable way.
When you do that you end up with whole neighbourhoods, be it residential or commercial that are essentially micro grids, it all sounds very good and very sustainable.
The hard part of that is batteries cost money, solar panels and solar installation costs money, smart meters cost money, running it all costs money, so a micro grid means some kind of micro finance. The one company that is most interested in the financial value of the asset called your home is the bank.
So there is this nexus point between energy services, telecommunication services, financial services and your home and most of that is probably going to be unlocked through this combination of data and technology and this opening legislation.
Darren:
So this is why we’ve heard for 2 or 3 years people going on and on about block chain will ultimately be the way that I’ll be able to control my personal data. It will be in a block chain that I can then release to certain people under certain conditions, yeah?
Phil:
Correct. It allows collaboration, it enables a much greater degree of security and collaboration as one of the biggest barriers to this kind of stuff is data privacy and permanency, so it allows that.
Darren:
And also data validation because you could have all sorts of, what do they call them, bad actors breaking into the system and creating all sorts of mischief.
Phil:
It’s interesting because block chain we can see starting to, it’s a fair way of normalising but if you think about s curves in technology which starts at the bleeding edge, gets to the cutting edge, scales to some level of maturity and then commodifies.
So we would say if 2 or 3 of our 10 clients are coming to talk to us about block chain and its application that probably means it is starting to hit the cutting edge. It has normalised enough to kind of do things with and it is basically anything that is contractual and functional/contractual and so the whole energy grid is just contracts.
Contracts between companies and the market place and contracts between each other and then contracts with you.
So that’s kind of a Monty for you the same way Telco’s are and in fact if you think about our own industry, media buying is essentially thousands of millions of contracts every day.
Darren:
Transactions.
Phil:
Some of them are more validated than others.
Darren:
Oh very nice.
Phil:
We can see many applications for blockchain, not necessarily in automation or efficiency but just in making markets work better.
Darren:
The core of the blockchain technology is about validating and securing information because the actual technology is to make it virtually impossible to replicate or duplicate information.
Phil:
Yes. I was thinking of a recent instance. A start up that allowed you to subscribe to multiple newspapers around the world. You didn’t have to subscribe to 15 you could just subscribe to this one and it was essentially a consortium, a joint venture.
They have been talking about it for years but they could never quite do it because opening up the paywalls through one outlet would mean their customer base would be open and transparent to each other which they were absolutely not going to do.
Once they’d worked out how they could use block chain and they could legitimately go into a consortium together knowing that it would increase their customer base of people paying to get behind the paywall but newspaper A in Boston was not going to be sharing its customer base with B also in Boston or New York.
So, it is again one of those technologies that’s going to boost this whole ecosystem business.
Darren:
It also creates the opportunity for organisations to get closer to the mythical single view of customer doesn’t it? I had an incident this morning, and it drives me crazy, utilities, financial services, all of them, they want to do business by email and phone because it’s easier but you have to validate who you are even though you’ve called them or they’ve called you and it just seems ridiculous that they don’t have a way of identifying you and that’s their choice of how they want to do business.
Phil:
It is also infinitely hard to do in practice in a company. Single view customer has been around for I’d say 15 years and will probably be around in another 15 years.
Darren:
As a concept, not a working model.
Phil:
As an aspiration. We do a lot of work with data strategy and helping organisations work with data and to some extent master data management and data ware houses and data lakes and things like that are the easy part. The hard part is still and always, how this data is collected, who collects it and it is people doing things in organisations.
Darren:
I know this is something you have identified, let’s talk about financial services. Not so much from the fact that fintech seems to be driven from the start ups but more about what’s required as far as a platform or market place for banks.
It seems to me that we see in financial services, marketing is out there telling us all through their marketing communications that all they care about is us as a customer. Then over in the IT department, the regulatory area, they are locking down all our data, collecting huge amounts of data and not really sharing it with anyone so that they can actually interact with me.
Phil:
Yes.
Darren:
As a human being and then there is a separate area as well that is then making plans for what products I may want when they don’t have access to the data of what I’ve been using in the past.
They are really developing it from the point of view of where are the opportunities for the bank to make the maximum margin out of selling me products that I may not necessarily need.
What’s the problem with big organisations when it comes to actually creating an ecosystem or market place? Is it purely the siloed approach that we have?
Phil:
That’s a big question. The siloed approach is part of it. Siloed is the wrong way to think about it because no one aspires to be a silo; no one says our org structure is going to be a silo, it’s what they organise themselves around. It’s what they choose to organise themselves around. They might organise themselves around segments, functions or tasks.
The thing that you are talking about is the tension between as a customer, unless the big or little organisation organise themselves around the customer then their experience is always going to be to some degree fragmented.
So one of the most famous case studies in this area is work we have done and still do with the bank in the U.K called Lloyds. If you look it up on Forester it’s the gold standard of customer journey or journey led transformation.
It is essentially taking the bank and organising the entirety of the bank and its operations around customer journeys. End to end, so the very front stage of, who you talk to and what’s on the screen, all the way through to the very back stage of policy, procedures, technology, infrastructure so all the way through one journey.
And all organised around let’s say one customer KPI so if it’s business lending it might be time to cash. When you do that, you are essentially redesigning an organisational structure to say, well yes, you sit in sales, yes, you sit in policy, yes, you sit in blah blah blah.
But the way we operate as a company, is we’ve designed this journey and this is how this team works through this end to end process. When you do that then you start to get a company that is organised around a customer and their outcome and then you get to that.
If you can’t do something of that scale to some degree, even if you do have the single view of customer technology, the experience might be fragmented. Or the product or the policies might be fragmented because you are not anchored or designed to be.
The legislation stuff makes it a bit trickier; legislation is a context, it’s always tricky and I would say anything now for banks.
Darren:
You mean in the post Royal Commission world.
Phil:
In the post Royal Commission world, what you have is APRA requiring of these banks, and if you look at what it’s requiring its main thrust is not liquidity or cash reserves. Its main thrust is how are you as a bank treating this customer and how can you prove you are doing the right thing by them.
Darren:
In their interests?
Phil:
In their interests.
Darren:
You would think any business that wants to be successful would put their customer’s interests first.
Phil:
You would but then if you work in a big company, very few people you ever come across want to do the wrong thing by a customer, like who meets those people.
What you can end up with are misaligned incentives or you can end up with data that is just inadvertently not shared or data that is over shared.
Darren:
So it’s the corporate ecosystem where the fault is.
Phil:
It’s where the fault is but it is where the work is.
Darren:
Phil it’s been terrific having a chat and thanks for coming by and sharing with us the insights and ideas around ecosystems and market places.
Just on that, most of these we access through apps, which market place is the number one app on your smartphone?
Ideal for marketers, advertisers, media and commercial communications professionals, Managing Marketing is a podcast hosted by Darren Woolley and special guests. Find all the episodes here