Two Char­ac­ter­is­tics of Dig­i­tal World Con­querors

Business a.m. - - EXECUTIVE KNOWLEDGE SERIES - “This ar­ti­cle is re­pub­lished cour­tesy of INSEAD Knowl­edge(http://knowl­ Copy­right INSEAD 2018 An­drew Ship­ilov

MANY DIGI TAL PROD UCTS seem des­tined to achieve global suc­cess. What­sApp was started in 2009 on the ba­sic premise that SMS could be sent through the in­ter­net rather than through tele­com op­er­a­tors. By the end of 2013, What­sApp claimed a global user base of 400 mil­lion. Face­book bought the com­pany for $19 bil­lion the next year. Like­wise, An­gry Birds was de­vel­oped by the Fin­nish com­pany Rovio in 2009. The game quickly reached two bil­lion down­loads, and Rovio’s 2017 rev­enues to­talled close to 300 mil­lion eu­ros.

Th­ese com­pa­nies grew in­ter­na­tion­ally with lit­tle ini­tial adap­ta­tion of their prod­ucts to the lo­cal geo­graph­i­cal mar­kets. For ex­am­ple, What­sApp had the same user ex­pe­ri­ence in the United States and in France. The ex­pe­ri­ence of an An­gry Birds player was also uni­form around the world. While strat­egy text­books say that in­ter­na­tion­al­i­sa­tion of­ten presents hur­dles, Rovio and What­sApp seem to pro­vide counter-ex­am­ples. So, does this mean that in the dig­i­tal era, the tra­di­tional bar­ri­ers to rapid in­ter­na­tional growth have been rad­i­cally low­ered?

To an­swer this ques­tion, let’s take a look at the ex­peri-

ences of three com­pa­nies: TomTom (a nav­i­ga­tion com­pany), BlaBlaCar (an on­line mar­ket­place for car­pool­ing) and Master­card (a pay­ment tech­nol­ogy com­pany). Ac­cord­ing to their se­nior lead­ers, Corinne Vi­greux, Ni­co­las Brus­son and Car­los Me­nen­dez, the story of in­ter­na­tion­al­is­ing dig­i­tal busi­ness mod­els is far from sim­ple.

Na­tional cul­ture still mat­ters…

Tak­ing maps global might sound straight­for­ward for TomTom. After all, aren’t ad­dresses writ­ten in the same way all around the world? No, as it turns out. In In­dia, for ex­am­ple, most streets don’t have names. In­stead, you nav­i­gate by points of in­ter­est. If you want to find a lo­ca­tion in the city, you need to know its block. TomTom’s ex­ec­u­tives were forced to adapt their maps and nav­i­ga­tion in­ter­faces to help cus­tomers ori­ent them­selves more eas­ily in In­dia.

BlaBlaCar’s plat­form solves a common pain point in many coun­tries – it con­nects pas­sen­gers look­ing for a ride to driv­ers with empty seats head­ing in the same di­rec­tion. To­gether, they split the costs of a long-dis­tance shared car ride. BlaBlaCar quickly dis­cov­ered that cul­tural dif­fer­ences be­tween coun­tries led to vary­ing rates of adop­tion. For ex­am­ple, since car­pool­ing was more common prac­tice in Rus­sia than in the United King­dom, Rus­sian trav­ellers took to BlaBlaCar ser­vices much more read­ily than Bri­tish ones. Con­se­quently, BlaBlaCar evolved the habit of en­ter­ing new coun­tries through “ac­qui-hires”: Where pos­si­ble, BlaBlaCar iden­ti­fied and ab­sorbed teams de­vel­op­ing a lo­cal car­pool­ing plat­form. Ac­qui-hir­ing en­ables the com­pany to grow into a new mar­ket with an ex­ist­ing team well aware of lo­cal cul­tural speci­fici­ties, which is key to in­duc­ing be­havioural change at scale. This is also why the com­pany typ­i­cally gives rel­a­tively high au­ton­omy to lo­cal teams when it comes to mar­ket­ing and com­mu­ni­ca­tion strat­egy.

BlaBlaCar now counts 65 mil­lion mem­bers in over 20 mar­kets.

…and so do part­ner­ships

Part­ner­ships are of the essence when en­ter­ing new mar­kets, even with dig­i­tal prod­ucts. For ex­am­ple, Master­card’s Smart Cities ini­tia­tive lever­ages con­tact­less pay­ment so­lu­tions for cus­tomers like Trans­port for Lon­don. Master­card pro­vides the in­fra­struc­ture, while its part­ners (like Cu­bic Trans­porta­tion Systems) sup­ply the lo­cal pay­ment hard­ware. By fo­cus­ing on the dig­i­tal back end and al­low­ing its part­ners to focus on the phys­i­cal front end, Master­card en­sures the global sta­bil­ity of the net­work while fa­cil­i­tat­ing lo­cal trans­ac­tions.

Like­wise, BlaBlaCar works with AXA, an in­sur­ance com­pany that pro­vides cov­er­age for driv­ers will­ing to ac­cept pas­sen­gers on ride-shar­ing trips.

This col­lab­o­ra­tion started in France and then ex­panded to in­ter­na­tional mar­kets. BlaBlaCar re­alised that in ad­di­tion to the afore­men­tioned cul­tural bar­ri­ers (rel­a­tive to the rest of Europe, or emerg­ing mar­kets like Rus­sia and Brazil), U.K. trav­ellers needed an ad­di­tional layer of trust in or­der to take the leap and try this new mode of trans­port.

Whereas French trav­ellers were will­ing to ex­per­i­ment with BlaBlaCar and rightly as­sumed that their auto in­sur­ance cov­ered shared trips, U.K. car­pool­ers be­lieved that their in­sur­ance com­pany would not. The AXA col­lab­o­ra­tion, which of­fers free ad­di­tional in­sur­ance cov­er­age for car­pool­ers, has been suc­cess­ful in over­com­ing Bri­tish trav­ellers’ scep­ti­cism.

Be­ware of lo­cal net­work ef­fects

Dig­i­tal busi­ness mod­els are of­ten based on a win­ner­take-all dy­namic: One or two in­cum­bents en­joy a dis­pro­por­tion­ately large cus­tomer base while all other play­ers com­pete for the small pool of re­main­ing users. Hence, to the ex­tent a for­eign coun­try al­ready has an es­tab­lished player ben­e­fit­ting from net­work ef­fects – the more peo­ple use a prod­uct in a coun­try, the more valu­able it is – it might be dif­fi­cult for a new dig­i­tal player to en­ter that mar­ket.

The sit­u­a­tion is more favourable for firms sell­ing phys­i­cal prod­ucts. A com­pany can achieve economies of scale in man­u­fac­tur­ing even when it starts from a small base. When TomTom (a Dutch com­pany) sold its nav­i­ga­tion de­vices to the U.S. mar­ket, it did not have to be the mar­ket leader in the U.S. to lower its costs with each ad­di­tional unit sold. More­over, the lack of a wide, pre-ex­ist­ing user base did not pre­vent new cus­tomers from pur­chas­ing a de­vice. Ul­ti­mately, the mak­ers of phys­i­cal prod­ucts can find prof­itable niches in new coun­tries, as their busi­nesses are nor­mally not af­fected by the win­ner-take-all dy­namic.

Two con­di­tions

What fac­tors ex­plain the rel­a­tively easy global spread of An­gry Birds or What­sApp? It seems that the bar­ri­ers to in­ter­na­tion­al­i­sa­tion will be low for a dig­i­tal prod­uct un­der two con­di­tions. First, the prod­uct needs to ad­dress a suf­fi­ciently common need that doesn’t vary across na­tional cul­tures (such as the need for free SMS in the case of What­sApp). Sec­ond, this prod­uct needs to ride on a part­ner’s plat­form. It is rel­a­tively rare that a new prod­uct will sat­isfy both cri­te­ria – which is why dig­i­tal world con­querors re­main the ex­cep­tion rather than the rule.

If you are think­ing about go­ing global dig­i­tally, don’t as­sume that in­ter­na­tion­al­i­sa­tion will be a smooth ride. Be­ware of cul­tural dif­fer­ences, look for lo­cal part­ners and fig­ure out how you will fight net­work ef­fects.

An­drew Ship­ilov is a Pro­fes­sor of Strat­egy and the John H. Loudon Chaired Pro­fes­sor of In­ter­na­tional Man­age­ment at INSEAD.

He is the co-au­thor of Net­work Ad­van­tage: How to Un­lock Value from Your Al­liances and Part­ner­ships as well as of sev­eral ar­ti­cles on cor­po­rate gov­er­nance, in­no­va­tion and strat­egy. He is also the pro­gramme direc­tor of the INSEAD Blue Ocean Strat­egy Ex­ec­u­tive Ed­u­ca­tion pro­gramme. You can fol­low him on Twit­ter @ship­ilov.

Ac­qui-hir­ing en­ables the com­pany to grow into a new mar­ket with an ex­ist­ing team well aware of lo­cal cul­tural speci­fici­ties, which is key to in­duc­ing be­havioural change at scale

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