The Beauty of Platforms
When I think of pipes I immediately imagine Super Mario (anyone born in the 80’s should have the theme song now playing in their head), with Mario sliding down the pipe to get to the next level.
Games back then, as business models, were largely linear, except, rather than the hero moving from level 1 to finally defeating Bowser on the 32nd level, you have, in business, widgets being made by producers and purchased by consumers. This producer-to-consumer flow defined capital transactions since, at least, the industrial revolution.
Today, the economic landscape is defined by platform businesses. Think Amazon, Facebook, Uber, and the like. In the Darwinian fashion that it’s not the strongest that survive but rather the ones that best adapt, you have 60 year-old firms like Nike embracing the platform revolution (to borrow the title from one of the best books on platform businesses) in their Web3-enable .Swoosh platform.
Rather than moving value from producers to consumers, platform businesses facilitate interactions between both groups, activating various network effects to scale as more users join and interact. Platform businesses are not, in themselves, defensible. They need to be architected the right way (as Jonathan A. Knee reminds us), and the traditional discussions of competitive advantages, unit economics, customer captivity and strategic moats are still very much relevant. However, we see one industry after another turn to platform approaches to survive or thrive in their respective (or often expanding outside of) traditional markets.
In Platform Scale, Sangeet Paul Choudary notes that “we are in the midst of a transformative shift in business design as business models from pipes to platforms,” with ‘pipes’ representing linear flow of value (value produced upstream and consumed downstream) while platforms, instead “allow participants to co-create and exchange value with each other”.
So what does this mean for customer service?
Our Founding Observations
Several years ago I met my co-founder, Eben Hall, at a bar in Tampa. We were introduced by a consultant in the customer service industry, who thought the idea I had sketched out had enough legs to further validate. Easily by the second round, we began to agree on the founding observations for our company:
- Incentives between companies and customers are misaligned. While customers are applying their Amazon-level expectations for how they’d want to engage a company post-purchase (e.g., easy returns, direct ‘you-call-me’ capabilities, personalized customer service experiences, etc.), companies are focusing on managing costs (customer service, poorly done, can be very expensive!) or KPIs, such as the Net Promotor Score. This is a great (but sad) example of Prisoner’s Dilemma, where acting individually means worse outcomes for all.
- More positive interactions lead to greater customer loyalty, less customer attrition, lower costs of customer acquisition, and ultimately more revenue. Just starting with the latter, 93% of customers are likely to make repeat purchases with companies that offer excellent customer service. Sales 101 also tells us that it’s a lot more expensive to acquire a new customer than keep one, while social media tells us that one angry customer can quickly amplify to a damaged, sometimes sustained, reputation which can be expensive to win back.
- When it comes to post-sales activities (after that first dollar has been acquired) companies make interactions difficult—sometimes intentionally. We see how e-commerce has simplified the buy process—often relying on mental hacks to increase the likelihood to buy. But when something goes wrong with a product or customers want to engage with a company outside of buying a widget or service, they have to send an email or else take that dreaded call. This has, writ large, only worsened as chatbots have replaced phone numbers on an increasing amount of companies around the world.
- All else being equal, more interaction with customers will drive more insights into what customers are seeking. I’ve seen this in my own career in management consulting, where direct customer surveys and other primary research was the only way to unearth consumer insights that could meaningfully drive strategic decision making.
- If we lower these barriers to entry, then there will be more positive interactions between companies and their customers and more opportunities to translate this positive cascade of benefits into more revenue and less costs for the business. This works only if we can make the customer service experience less terrible (or rather, awesome).
Ok, so what?
Taken together, these observations make the argument that customer service must move from a pipe to a platform. With a pipe mentality, companies are forced to consider how post-sales activity will drive upwards to impact a company’s balance sheet (after all, the top-line dollars have already been collected). Each individual transaction is seen as a unit of cost with the inclusion of chatbots flattening costs to pennies per minute in AWS fees. Better to throw a technology up, or best manage cost-efficient solutions like outsourced customer service in the cubicle-filled cost centers of Manila, Bangalore or Johannesburg.
Companies must move individually, unable to coordinate customer service needs across their customers (allotting P&L budgets would be a nightmare otherwise!). Instead, a third-party is needed, much as AirBnB has become less a competitor and more a collaborator to efficiently match supply with demand within hospitality.
Groupon is a brilliant example of social commerce. As described in Play Bigger, Groupon was very much a Category King in its day. Its issues were more a matter of cost economics and mega competition, but its approach to aggregating demand among customers to give power to the masses continues to inspire.
Take an objective third-party platform to bring together consumers and producers (giving more leverage to the former) and everyone wins. Producers have more visibility into demand and assured purchases while consumers pay ultimately less per unit. We see the same models everywhere of course, but often in the B2B world like group purchasing organizations in everything from healthcare to municipal spending.
How We Imagine Platforms for Customer Service
Like finance, which has been transformed by the API evolution into “Open Banking”— financial service institutions share information with third-party players— at Teleperson we’re building an “Open Customer Service” infrastructure, which brings together multiple parties and transforms the very linear (and often terrible) post-sales customer service experience into a continuous and scalable platform that benefits all.
A high-level picture is below. In brief, this Open Customer Service concept brings together the relevant and best-of-breed solutions while Teleperson helps coordinate customer service demand and supply (i.e., customer service agents or technical solutions to address customer service needs).
Teleperson’s Open Customer Service Platform
Curious what your thoughts are on how best to replicate the platform business model for your own organization and where a kinder, truly customer-centric solution could help toward that end. Would love to discuss 🙂
Thanks for reading!
Jesse
