Jochen Wirtz is Vice Dean MBA Programmes and Professor of Marketing at the National University of Singapore. Further, he is an international fellow of the Service Research Center at Karlstad University, Sweden, an Academic Scholar at the Cornell Institute for Healthy Futures (CIHF) at Cornell University, US, and a Global Faculty of the Center for Services Leadership (CSL) at Arizona State University, USA. Dr. Wirtz is a leading authority on service management and has over 200 academic publications including six features in Harvard Business Review, and over 20 books which include Intelligent Automation – Learn How to Harness Artificial Intelligence to Boost Business & Make Our World More Human (2021), Services Marketing: People, Technology, Strategy (World Scientific, 9th edition, 2021), and Essentials of Services Marketing (Pearson Education, 4th edition, 2021).
In 2019 and 2020 you published two interesting articles “Platforms in the Sharing Economy” that have received a lot interest and a really fast uptake on citations. Can you tell us about these papers?
It has become fashionable to show tables of market valuations of supposed legacy companies such as Marriott and Hertz and compare them with new peer-to-peer (P2P) platform business models such as Airbnb and Uber. Indeed, these asset-light platform businesses often approach or even exceed the market capitalization of their ‘old economy’ counterparts. Over the past ten years, P2P platforms enjoyed explosive growth. Consumers globally have become familiar with access-based services and the sharing economy. Many consumers are happy to stay in peer-provided accommodation on Airbnb, to take rides on Uber, and share designer clothes via Tulerie. At the core of value co-creation for P2P ecosystems are (1) technology-enabled connectivity between peers, (2) platform orchestration and governance provided by a platform in combination with (3) sufficient liquidity (i.e., transaction volume or market thickness) that facilitates high quality matching of heterogeneous assets and services with equally heterogeneous customer needs. Early market entrants managed to effectively scale their platforms and have become key players in their respective industries.
The rapid scaling of P2P platforms has posed strategic threats to the traditional incumbents (which I refer to as pipeline businesses in this article). These pipeline businesses are at risk of being disrupted and are forced to rethink their business models. The general view is that platforms are somehow in the winner takes it all markets and therefore justify enormous valuations. However, are leading platforms truly protected from competition, do they have pricing power, and can they generate high contributions over long periods of time as is implied by their high valuations? These are some of the questions we explored in these articles.
Personally, I think that the big platform and pipeline players will over time be active (and mostly successful) in each other’s turfs. That is, the big P2P platforms are likely to control assets (whether through long term leases or outright ownership) and the legacy pipelines are likely to add inventory to their platforms that are not controlled by them, including peer-provided assets. As such, I personally do not think that most platforms, especially those without strong primary network effects (i.e., as is the case for the likes of Facebook and LinkedIn) are in the winner takes it all markets and therefore do not justify the enormous valuations they have been enjoying.
That is, their business models are not ‘naturally’ protected from competition as there is little that prevents new entrants or pipeline businesses to enter their turf. Also, they have less pricing power than generally assumed and I do not believe that they can generate high contributions over long periods of time. Rather, these platforms have to painstakingly develop their competitive advantage through carefully building their brand equity and stakeholder goodwill, offering enhanced stakeholder convenience and superior user journey designs, working with loyalty programs for key stakeholders (e.g., running effective loyalty programs for service providers and users), and building trust in the platform through superior platform governance and high standards of digital corporate responsibility.
Therefore, if I had to invest, I’d pick a pipeline provider with a less stretched valuation and bank on it adding a successful P2P platform rather than investing in P2P platforms with their lofty valuations. However, this is my personal even if perhaps ‘informed’ opinion and we certainly need further research to truly understand competitive strategy and service management and marketing in the P2P sharing economy.
The two papers and a video Master Class on platform business models are available here:
- ResearchGate: https://www.researchgate.net/publication/331907029_Platforms_in_the_Peer-to-Peer_Sharing_Economy
- ResearchGate: https://www.researchgate.net/publication/339927537_Two-Directional_Convergence_of_Platform_and_Pipeline_Business_Models
- YouTube: https://www.youtube.com/watch?v=A_G91QynhVk&t=2s
Jochen, please tell us more about your research?
Virtually all my research, teaching and consulting centers on topics related to service management and services marketing. Recently, I focus heavily on the digital service revolution. I firmly believe that the technological progress and its rapid implementation in service organizations leads to a digital service revolution similar to the industrial revolution in manufacturing that had started in the late 18th century. The service revolution has the potential to dramatically increase our standard of living by industrializing and automating services such as insurance, logistics, healthcare, and even education.
AI, digitization, and service robots are the drivers of this revolution. They have the power to bring unprecedented improvements simultaneously in customer experience, service quality, and productivity. These technologies are rapidly becoming smaller, lighter, smarter, more powerful, and cheaper and relate to everything from service robots, smart self-service technologies (SSTs), and their components (e.g., chips, processors, sensors, and cameras) and software (e.g., speech and image processing, biometrics, augmented and virtual reality, cloud and mobile technologies, geo-tagging, low-code platforms, robotic process automation (RPA), machine and deep learning, and more.
As I am super-excited about these developments, I focus my research now on service robots, AI, Intelligent Automation, digital platform business models, and my latest project on Corporate Digital Responsibility (CDR).
How do you see the future challenges of B2B marketing in services?
Services now form the backbone of the global economy. Statistics show that services contribute nearly 70 % of global GDP – and their share is rising. Even traditional industrial companies, such as car and machine manufacturers, are looking into services to differentiate, add value, and lock in customers. They do this, for example, by adding value-enhancing services to manufactured goods, which has the effect of blurring the line between services and manufacturing.
B2B companies, too, are increasingly moving into services. The growth of the service sector is, in fact, driven largely by the rise of business services, such as legal services, market research, IT, and payroll operations. Here too, it is new technologies that drive change. They range from digital platforms and IoT to 5G and AI.
From senior management, this requires a whole new attitude towards service marketing and management. The customer journey, customer service, and service management are often not seen as strategic enough, but if you look at creating and capturing value in the service economy, one of the critical aspects of differentiation these days is the value you deliver to your customers through integrated solutions which typically include products and bundles of services. A lot of this has to do with service management.
What are the main opportunities for services in business markets?
The opportunities are truly in technology as discussed above. Digital platforms, intelligent automation, IoT and more is what will drive innovation and create tomorrow’s markets. What is exciting to me is that much of what is coming is service related. The customer journey and experience will be key in tomorrow’s markets.
What message do you have for young researchers on marketing?
Focus on what’s new in the market and explore it and focus on topics with high potential impact. Especially, see how these new technologies challenge what we know about consumers, management, markets and society at large.