End Of Competition, The: The Impact Of The Network Economy. C N A Molenaar

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      By using networks, platforms, a totally different model arises: the supply chain ecosystem. Here, all parties work together in a network that forms dynamically. Each collaboration is different, but in all cases the information is shared. This is typical for a platform where a match develops between providers and consumers. There is a much greater understanding of the buying motives and customer preferences. Certain links in the chain even become redundant as the function is taken over by other parties. Are shops still needed if manufacturers and wholesalers can supply customers directly? Platforms and networks lead to a disintermediation, or implosion, of a supply chain. Each party has to determine its added value in the ecosystem all over again. Information leads to transparency, so there is a better response to the demand. As a result of this transparency, as well as the direct relationship, customers are better able to gear the demand to the supply. In addition, the costs associated with an ecosystem, the network, will be lower than in a linear supply chain. There are, after all, fewer parties involved, and therefore fewer costs and lucrative links. The final price will consequently be lower or better attuned to the dynamics in the market. Dynamic pricing is an example of this: a price that depends on customer demand.

      Should You be Afraid of Newcomers?

      If the basic principles of rivalry change then the fear for newcomers will also change. The true competitive strength lies in the power of one’s own network: the providers, the customers and knowledge of the search and buying processes. In addition, a high degree of engagement also leads to a decreasing switch behaviour. Newcomers should be assessed on the basis of added value. Collaboration could lead to a reinforcement of the network and the pushing back of boundaries both physical and in terms of the supply and other forms of collaboration. In this way, the threat is turned into an opportunity for collaboration and cross-industrial partnerships, with a view to creating an ecosystem (network) and an accurate picture of the appeal and possibilities of new market conditions. We see this in, for example, the automobile industry, where sometimes more than 20 manufacturers collaborate in the production of a single car. This collaboration can also be seen in the platform economy where various parties work together towards the final product or for the end consumer; also in logistics, production, as well as distributors and possibly other suppliers offering add-on products. Competition no longer takes place on the basis of product features, but on customer bonding, the community. New entrants therefore have to win over customers from a traditional community to their own community. The greater the bonding with customers and the stronger the relationship with them, the harder it is for newcomers to prise customers away from the current providers. The competitive strength is therefore determined by the strength of the network.

      Can Existing Products be Threatened by Replacement Products or Services?

      Increasingly, more providers changed their products on the basis of the wishes of the user, thereby creating new products and services that competed with the old products and services. Examples include Nokia, which allowed its mobile phone to remain solely a telephone, while Apple turned its phone into a computer with Internet access. Restaurants offered meals in the restaurant itself or as a takeaway option, while Thuisbezorgd offered to bring meals to the home. Webshops enabled customers to order online and try out the product at home, while the shops on the high street clung onto their physical locations and limited opening hours. E-Bikes changed the options people had regarding bicycles, thereby offering possibilities to new entrants such as Stella. Traditional providers remained sluggish and were slow to make changes to their distribution model (via dealers), while customers started to buy more online (fietsenwinkel.nl), or the shop actually came to the customers (as with Stella). In many cases, traditional providers were too late in identifying the threat posed by substitute products and services. In the old sales model too little account is taken of the buying elements of the product (sales arguments must change to purchase arguments).

      These buying arguments comprise the physical product, the services and perception. This used to be regarded as a single entity, whereby one party (the manufacturer) supplied the product and usually ensured there was a positive perception with a product guarantee and advertising for the product (brands). The shop/dealer took care of the delivery, along with some extra services. This is the strength of a dealer/shop in the linear supply chain. Due to the role of the Internet in the buying process (both with webshops and platforms as well as through searches) these days it provides the information that allows customers to become more assertive, while webshops offer services that regular shops cannot provide. As a result, a shop has become merely a distribution point for products. The costs of the physical location, however, are too high. This creates unequal competition with on the one hand manufacturers, who started to supply directly (via a platform, an aggregator, such as Bol.com or Aamazon.com or a Multisided platform, an MSP platform), and with webshops on the other hand, which due to the possibility of direct communication have more information on the customers and their buying motives. The physical sales outlets have to figure out their role anew or will disappear.¹

      How will the negotiating power of suppliers change?

      In the traditional approach (of Porter) this form of competition was based on established markets and fixed market relationships. Technology led to efficiency; but robotisation also led to equivalent products — the same appearance and same quality. The negotiations were based on prices and margins. Due to the new entrants, with their different focus, keen prices and considerable service, the competitive relationships have changed. The first response involved trying to keep costs down by employing cheaper personnel, increasing efficiency and outsourcing to low-wage countries. These actions did not always lead to success. As the product supply became transparent, the power of the purchaser increased. The number of providers also increased, thanks to the possibilities offered by networks and the Internet.

      This collaboration in markets and on platforms is determined by the customer or by providers. The idea behind the MSPs is an integral market approach by various providers (which is why it is described as multisided). A supplier works within the platform together with other, often complementary, parties in order to gain negotiating power and market reach. This is convenient for buyers, as they only have to negotiate with one party. This far-reaching form of collaboration between parties, which characterises the network economy, has a strong influence on the market relationships. Platforms as they are now are the first signs of this. The platform and network become the market; due to the transparency and the analyses, this concept forms a strong competitor for the traditional market relationships and market parties. This changes the chain, but also a supplier’s negotiating power (making it stronger and more diverse).

      The suppliers’ new negotiation position serves as a way of looking at the competition. Traditionally, suppliers look at the competition, how many are there and what is their market share; this gives them an indication of the competitive position in the market. It is only possible to observe the competition in the traditional market by looking at what customers are doing (network effects). This is a change that is perfectly in line with the customer-oriented approach of platforms and networks. Buyers and behaviour are central. In this way, it is easy to predict what users will do, as described earlier. The dominant player has an approximately 70% market share, with strong network effects. This reinforces the position of the market leaders and makes people less inclined to switch to a smaller provider. Users trust the platform as well as the providers on the platform. We see this with, for example, Aliexpress.com where customers buy from unknown, usually Chinese, suppliers. Aliexpress.com is the partner that is trusted here.

      How will the negotiating power of buyers change?

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