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How business models are changing in response to digitalization

How is the world of business responding to the new opportunities and challenges of digitalization? Jaime Rodríguez de Santiago, General Manager Spain of FREE NOW, a mobility-as-a-service provider, spoke to our CEO Ivo Ivanov about the evolution of the mobility industry during our Interconnection Summit Madrid edition. Jaime talked about how traditionally competing companies – like the shareholders of FREE NOW, Daimler and BMW – are finding that collaborating with one another within digital ecosystems presents new opportunities to serve the changing needs of consumers. He also evaluates how industries are evolving to meet these needs, as well as at the importance of the underlying connectivity to grease the wheels of digital business models.

FREE NOW – an example of a pure digital business model

Founded in 2009 and previously known as Hailo and myTaxi “FREE NOW was born as a digital company with a pure digital business model,” Jaime explains. “We connect supply and demand. We connect passengers that need to take a trip with drivers, either taxi drivers or private vehicle drivers.” This means that the entire business model of FREE NOW is based on digitalization. “Of course,” he continues, “this is a very big transformation for traditional industries like the taxi industry and the automotive industry. So it has required a change of mindset in these two industries.” In particular, as a joint venture between Daimler and BMW, the company demonstrates that traditional competitors can create a win-win situation by working together in larger ecosystems with a sector-wide approach.

How are digital business models different?

Firstly, digitalization is changing how people are consuming things. Jaime illustrates the trend that methods of consumption are moving to a subscription basis: “We have gone from an ownership perspective to an access perspective. We no longer listen to music and CDs, we stream music; and most of us are moving away from the ownership of a car into having access to mobility in whatever shape or form or service that we need at a particular point in time.”

Secondly, business models are becoming focused on monetizing data to offer services. Digital business models take service provision to a new level. “FREE NOW is an asset light business, but a data heavy business. Our entire business is based on connecting people: using infrastructure to have access to data, and to quick and low-latency communications.” To be able to serve customers broadly and effectively, digital business models are dependent on the digital transformation of not only the many players within their sector, but also of their customer base. As a result, Jaime points out that “our business model evolution in the future will depend on the evolution of the entire infrastructure and the digitalization of everyone around us.”

How are companies reacting to the need to change?

Traditional economic sectors are finding new functions in the digital world. With business models tending towards service provision even in traditional manufacturing industries, companies are needing to reassess what roles they play in the digital economy. “I would suspect that the car manufacturing industry itself is going to move in two directions in future: one would be becoming more heavily invested in businesses like ours – mobility as a service – and on the other side they will probably need to evolve into a more of a fleet producer or manufacturer, so that they enable these businesses to happen on top of the cars as the infrastructure.”

Also, existing digital business models must continue to evolve to exploit new opportunities. Jaime envisages a very exciting period in the mobility industry over the next three to five years, as the industry starts to come of age. “There's going to be two big trends. One is consolidation, because there are still a lot of companies doing this around the world. The other one that is all of these companies will compete to become the aggregator – let's call it the “Google” of mobility – the one that brings all these services (not only ride hailing, but also scooters, public transport, etc.) into one single app that you can use any time,” he predicts. “Our ambition is to be that app.”

Digital business models are enabled by high-performance, resilient and secure interconnection

With their business based at the very simple level of GPS and telecommunications, “Digital infrastructure is essentially what enables us to exist,” Jaime emphasizes. So, what will he need in terms of digital infrastructure in order for his business model to develop further? “We will definitely need more evolution in terms of low-latency systems, probably 5G, more precise geo-localization, and the ability to connect services between them,” he makes clear. “We have the ambition to integrate all of these mobility services, which means essentially interconnecting networks.” As such, his business is going to become even more data heavy, even more real-time oriented. The result is that it will require much faster, more reliable and more capable infrastructure – throughout the interconnection value chain. “And that’s something that we will see very rapidly exploding in the next three to five years.”