The contribution of new integration and interoperability technologies, starting with APIs, seems able to support the transformation of traditional businesses but also to allow surprising disruptive developments. Some companies have already planned – or even concretely committed themselves – to the next stage, by initiating a transformation from “platform companies” to DSM or Digital Services Marketplace.
This new acronym, if it is not (yet) used by analyst firms, nevertheless speaks to customers and prospects who are wondering about the ROI of their platform. Behind the DSM therefore hides a new concept on which it is interesting to look more closely.
What is behind the concept of DSM?
Insofar as the concept we are proposing is new, I think it is appropriate first to define what we designate by DSM or “digital service marketplace”. Contrary to what its name might suggest, the DSM has only a distant relationship with “product marketplaces” (which, like Amazon, offer the exposure of many distributors in a single showcase and -largely busy trade). Indeed, the marketplaces of traditional products are the support of B2C exchanges, which also bring their share of innovations and requirements, of which we will find a large part in the DSM.
But a DSM does not expose services directly usable by an end customer, which is, in my opinion, the main difference. DSMs offer technical bricks in the form of digital products consumed by developers to manufacture a new product (application) for the end customer. We are thus moving from B2C to B2B2C. And above all, we are integrating a new key player in the ecosystem into the value chain: the external developer.
A way to make your investments profitable
As indicated in the preamble, let’s leave traditional product marketplaces aside to stay focused on DSMs. They were mainly born from the desire of companies to make their investments profitable and their openings in the form of APIs. It is estimated, for example, that for the major French banking establishments, these investments could be around 30 to 30 million euros.
These amounts, significant for a company, were motivated by different objectives:
- The need to respond to regulations imposing the opening of data (DSP2 for banks, regulation in transport, etc.)
- The need to engage an ecosystem to foster innovation, by opening its services to innovative startups in order to bring new value to the company’s historical customers.
- The need to achieve operational optimization of its IS, whether to accelerate the integration of new partners (in this case it may be a simple technical development of EDI exchanges in API), or to intelligently articulate different bricks of the IS.
The realization of such investments is accompanied, relentlessly, by the question of ROI. How to make profitable what has just been implemented? And this reflection often results in the launch of a DSM.
By proposing to build a new digital space where different digital service providers can exhibit and sell their assets to many partners developing innovative solutions, the company is giving itself the means to quickly make the investments made in the APIsation of its IS profitable. The platform operator monetizes its own services and collects commissions on the monetization of those in its ecosystem.
The conditions for success of this new venture are often the same as for product marketplaces like Amazon, namely:
- To create a universe of digital trust (security, customer service, impeccable logistics).
- To offer its partners a large base of directly addressable customers.
- Like Amazon, Alphabet and Apple (even Meta), to rely on a strong and verified digital identity.
- Engage and lead an ecosystem of supplier and developer partners.
- To have the know-how to offer a simple compensation/invoicing/payment model.
Examples of use cases
To illustrate my point, let’s analyze two examples of customer cases that seem relevant to me.
A major European bank has invested several million euros to expose its services in order to meet PSD2 regulations. This bank claims millions of customers (25 million) and an ability to invoice. It also has a very good digital identity and enjoys a reputation for the security of its information system. It implemented a DSM in order to expose and market its own banking services to Fintechs who need, for example, access to accounts or a factoring service. To go further, it has opened its DSM to other service providers who do not originally benefit from the same level of trust as the big bank and who will present on the same platform a marketing of complementary bricks to serve this ecosystem of fintech. This win-win model will allow the creation of innovative applications to meet the needs of individual, professional and business customers.
The transport regulator of a major European metropolis has APIsed its information system to meet the demands of an ecosystem of startups operating in urban transport (Citymaper, Moovit, etc.). Beyond the monetization of information to the associated application ecosystem (external and independent developers), the regulator plans to use its assets (5 million customers, an identity via passes, etc.) to market on this DSM the complementary and/or alternative services of many mobility players (Lime, Uber, etc.)
These two examples perfectly illustrate how the transition from a platform company to a DSM constitutes a unique opportunity to profoundly transform its business model in order to take advantage of all the levers offered by digital laws (in particular Moore’s laws and of Metcalfe).
If this change is not particularly costly for platform companies which already have, in general, many essential bricks in production, it is however advisable not to minimize the organizational effort induced by the transition from a simple digital asset (API) to a real digital product. In the end, there is a significant difference between a technical API and a digital product that requires its own marketing, just as there is a difference between peas harvested in a field and sold as is, and a tin can, with a label, specific packaging, a price and an exhibition at the top of the gondola.
So, ready to consider a new business model for your APIs?