On the surface, the reason digital-first companies such as Netflix, Amazon Web Services and Expedia are disruptive is clear: They deliver highly-innovative customer experiences and business models. But if we want to truly understand their success, we need to dig a little deeper: What is it about such companies that enables them to deliver these services? Their capacity for innovation is, of course, crucial; as is their ability to leverage technology in the service of customers. But there’s another more fundamental reason: They’re all "Open Businesses."
Defining Open Business
"Open Businesses" is a new phenomenon that has arisen in response to the possibilities of digital technology. What sets Open Businesses apart from traditional companies is that they embrace a wide variety of partners to expand their core businesses and develop ecosystems that enable relevant, interconnected and intelligent customer experiences.
A traditional enterprise keeps everything in-house and uses functions such as HR, Marketing, IT and Finance to support the core business. As a result, innovation and customer reach is limited. An Open Business, meanwhile, externalises its services; opening its operational functions and customer development capabilities to third parties. The result is a much greater scope for innovation and a broader customer reach.
Open APIs: Unlocking Innovation
From a technical perspective, the key enablers for Open Business are open Application Programming Interfaces (APIs). APIs are like universal adaptors for business applications: They ensure that applications developed by third parties work seamlessly with the overall enterprise system. APIs unlock the enterprise to the innovation capabilities of a huge pool of external developers and help create a thriving digital ecosystem.
Where an Open Business built on APIs comes up against an incumbent, the Open Business tends to win. For example, Netflix’s API means it can rapidly churn out new apps to expand to platforms like smartphones, X-box and smart TVs. This pace of innovation ensured companies like Blockbuster never stood a chance. Similarly, travel websites like Expedia are a collection of APIs that access data from hotels, airlines, cruise liners, update in real time and provide an easy-to-use interface for booking and ticketing purposes. With such a user-friendly online service the traditional travel agent is redundant.
Wherever one looks, it seems clear that transforming into an Open Business is the strategic decision businesses need to take to generate greater value.
Delivering on customer demand
Consumers today demand personalised, hyper-connected "smart" services delivered over intuitive and compelling digital interfaces. Digital provides the perfect opportunity for businesses to deliver against these expectations, but success is by no means guaranteed. Businesses have a choice between continuing with the internal, closed-shop practices of the past, or opening their innovation capability to an entire ecosystem of innovative partners. Companies that choose the latter will thrive.
For the next blog in this series, I’ll look at how open APIs are redefining banking services; increasing revenue for banks that embrace their use by up to 20 percent. As we’ll see: Banks have a choice between being a mere utility provider or evolving into a central service for their customers’ everyday lives.