Sharing economy: 1,2,3...mine? Sharing is quite enough!
Learning from digital giants | Interview with Kay Dallmann on the Sharing Economy
Senior Vice President Accounting & Experte for Sharing Business Models
Many auto manufacturers are bracing themselves for disastrous annual earnings during the coronavirus crisis. By contrast, the situation for the electric vehicle manufacturer Tesla is looking positive. But why?
DALLMANN | Tesla is starting from a completely different foundation than the market leaders of the sector. The company is focusing on electromobility and does not need to worry about losing customers of conventional drive systems to the e-sector. What's more, the topic of electromobility is receiving more and more attention as part of the environmental conversation. Tesla has played it smart: The company has thought from the customer perspective and also provided the infrastructure, i.e. charging stations, in the USA and Europe – thereby removing a major barrier to entry for customers. Tesla also offers a strong community, digital networking and innovation, which Elon Musk authentically embodies. It's compelling.
Tesla also intends to benefit from car sharing in the future. What role will sharing models play in future?
DALLMANN | As an alternative to ownership, sharing is a mega trend that will continue to gain momentum. This is also a sign that, as a society, we are more saturated. Owning things is therefore becoming less important. Naturally, this is a phenomenon of societies that can afford or need sharing – coupled with the environmental awareness that we should protect the earth. After all, it is quite unique. For sharing models to take off, however, it is necessary to answer a number of questions. How can a provider profit? Does the business model only revolve around mobility? Or can the provider also collect its consumers' movement data in order to meet the needs of customers more and more effectively? How can certain guarantees be provided without resulting in a massive transfer of risk? What about the insurance processes in the event of a claim? How are costs shared when five friends want to share a car together? These are fascinating issues that need to be looked at carefully.
How well is the sharing economy positioned in terms of digitalization?
DALLMANN | Sharing approaches are at the very forefront when it comes to digital transformation. Indeed, they represent a fundamental shift from conventional linear to digital processes. What sets the digital giants apart from the rest: To develop new customer experiences, they not only discuss with marketing and product development, they also get people with financial process perspectives on board, as well as other experts, in small teams from the outset. That's because the digital elites have understood how important it is to integrate topics like cash flow and billing into the overall customer experience. They realize that the focus lies on the customer and their experience. And the more intuitive and simpler consumption and use are, the greater the acceptance as well as the more data there is for constant optimizations. When related to a supposedly easy process of invoicing and collection: the model of customer interaction differs substantially when there are three invoices per month compared to when 1,000 invoices are issued, each with a value of 1.50 euros. They are worlds apart.
Cities and municipalities are also increasingly utilizing platform solutions that allow customers to create their own mobility mix with the help of an app. Will these solutions challenge classic sharing providers?
DALLMANN | I don't see any danger. The individual mobility components still need individual billing and data collection. Instead, the question is whether and how the movement and billing data will be collected, apportioned and shared. For example, a commuter purchases a monthly ticket in Hamburg for 20 euros. How does the transport association apportion these 20 euros to the chain of suppliers, i.e. to trams, cars or scooters? Various options and models exist here. For instance, every time the commuter uses a form of transport, their digital identity is activated and recorded. Based on this data, the 20 euros from the monthly ticket is then shared proportionally depending on the kilometers traveled, to stick with our example.
Is a subscription model worthwhile for providers in order to cushion falling sales figures?
DALLMANN | We believe so. After all, for auto manufacturers a subscription model is a complement to lifecycle management, which enables interaction with the customer and hence the brand experience. The business of an auto manufacturer is highly complex – and this is now made even harder by countless changes that are already individually a challenge – such as digitalization, autonomous driving and electrification. There is not just the linear sale in trade, there are also various concepts of financing in the background as well as approaches for simplifying consumption. Here, Germany stands out since we have an extremely varied fleet market, with company cars for example. Sharing and subscription models offer auto manufacturers as well as dealers many new ways to manage lifecycles differently from the product perspective and to share the car experience. Even if this reduces the sale of vehicle units, a different form of value is created for the brand and brand message.
To what extent?
DALLMANN | The classic approach is that a manufacturer brings a car to market and sells it. Alternatively, the car is leased and later returned. The car could then cover additional kilometers as part of a subscription model before entering the used car market. If manufacturers also offer car sharing, they have to expect classic car sales to fall in saturated markets. Nonetheless, a subscription model or sharing is extremely important for the car industry because the markets have varying degrees of maturity and require different business models. In other countries, where ownership is still a sign of social status, this will probably be different. But particularly in current times, a subscription model could provide a family or group of friends with extra flexibility and security in mobility, while also incurring calculable costs for the service.
In other words, subscription models like Care by Volvo and Mercedes me are likely to catch on in Germany?
DALLMANN | If companies manage to keep processes as cheap as possible and involve trade, so that there is also enough reach and support. This means they need to get to grips with collateral issues like billing, insurance, burdens of proof, maintenance and guarantees with a high degree of automation and structure. This is precisely where Arvato comes in with its Mobility Clearing Services. As a backend provider, we want to support sharing companies in the background with billing and cash platforms.
What could platform solutions for sharing providers look like?
DALLMANN | I believe it is absolutely essential to think of processes from the perspective of the end customer. Processes running in the background can be set up centrally, allowing them to be provided to many users. For instance, the areas of billing, settlement and accounts receivable management. Specialists can be used to great effect here. The content management system, which providers use to promote their customer experience, naturally needs to be highly customized – in terms of communication channel, pricing and the value proposition. But as soon as consumption data is processed, invoices are created or receivables collected, a platform approach needs to be the tool of choice, in order to keep costs under control and leverage scaling effects.
The sharing economy is therefore not possible without digital payment systems. What are the advantages?
DALLMANN | Digital payment systems offer shared mobility providers the possibility to track all processes. And they help to reduce payment costs as well as default rates. These can vary considerably – from values below one percent up to three percent of actual transactions. Particularly when it comes to smaller amounts common in the shared economy, the better the sharing providers manage this process, the more effective they will be and the better the user experience. This includes defining the payment method based on a risk assessment, or setting limits for the payment method, as well as splitting payments or even transferring the entire payment risk. Here, for instance, we help to manage, combine and allocate payment methods based on the customer. This is exactly the business model which we know from the digital world and practice millions of times over every month. This process experience now needs to go into the shared economy, enabling sharing to be processed as cost-effectively as possible.
What future trends do you envisage in the subscription management sector?
DALLMANN | Subscription models will expand to a wide number of sectors, where ownership is of secondary importance. For example, in Industry 4.0: manufacturers can increase machine capacity utilization by providing their plants to other companies via subscription models. I believe that companies will increasingly employ a range of different business models simultaneously. In terms of the automotive industry, this means for example: How can manufacturers enable a combination of direct sales, leasing and subscription models, while also inspiring customers and the market? This is where Arvato intends to support shared mobility providers. After all, we have precisely these insights on different business models.