Are you ready for superfluid markets?
Implications of marketplaces without friction
A couple of weeks ago in Alameda, CA, on a ferry point near an old naval base that operated during World War II, EY convened executives from leading global companies together with a handful disruptive start-ups for its third-ever Innovation Realized retreat.
The purpose of the event was to drive radical growth in a digital world.
As part of Innovation Realized, I had the privilege of leading an onstage conversation about “superfluid markets” with acclaimed author of The Industries of the Future Alec Ross, former Googler and Peer Street co-founder Brett Crosby, Visa innovation executive Shiv Singh, and the North America President of Alipay Souheil Badran. The conversation yielded great insights about the future of how marketplaces will evolve.
What are superfluid markets?
First things first: what is a superfluid market? Superfluid is a term appropriated intentionally from physics. A superfluid displays little to no viscosity, allowing it to move faster and take new shapes. It’s the difference between how honey and water move. And reducing viscosity seems an appropriate metaphor for how everything is now flowing more easily through marketplaces. As disruptive technologies continue to proliferate, supply and demand connect in new forms at faster speeds, and we increasingly achieve superfluid markets.
We all witnessed the beginning of this acceleration as different digital technologies reduced friction in markets: Amazon in retail, Uber in transportation and AirBnB in accommodation, to name a few. The early characteristics included things like:
- Aggregating supply or providers
- Aggregating demand or customers
- Facilitating transactions across geographies
- Making payments more seamless
- Using data to facilitate connections between supply and demand
And yet, we are only at the beginning. Marketplaces continue to accelerate as they become more global, more mobile, more data-driven, less opaque, and more on-demand. Not all industries are in a superfluid state today, but as technologies like internet of things (IoT), blockchain and artificial intelligence continue to scale, there’s no question that market friction will be reduced.
Companies must be prepared to thrive in this new context.
We can learn some easy lessons from the most superfluid of marketplaces. Certainly, stock exchanges were the first evidence of what happens when technology enables a market to reduce viscosity. The contrasting images of the NYSE from the first half of the 20th century versus today’s stock exchange floor provides an apt visual. Digital media followed a similar path, allowing buyers and sellers to move past hand-to-hand combat to a multitude of automated and programmatic transactions, including private and open marketplaces, real-time bidding and auctions, and a range of technology-driven exchanges.
Key takeaways on superfluid markets
So, as we embark on a journey toward superfluidity at varying speeds across industries, what are the lessons we can learn from our conversation at Innovation Realized? Here are a few of the highlights:
- Ecosystems are the answer. While companies could previously afford to focus on their current competitive set and optimize internal dynamics to thrive in that landscape, the new marketplace dynamics require openness — from new partners, to embracing startups, to open APIs, for example. Companies have a new imperative to connect themselves to their surrounding ecosystems and build fundamentally for openness, particularly as industries continue to shift and converge. Building bridges, not moats, will have to be the new normal.
- Data is power. Given the immense volume of data being created today and the exponential growth in its creation, companies will thrive if they harness the power of their data. Getting the right inputs, analyzing them for insights and connecting outputs to action are critical elements of success. Robotics and artificial intelligence become vital tools for mining the volume of data for meaningful insights, particularly when in perfect balance with human creativity and leadership.
- Trust is paramount. As marketplaces accelerate and buyers connect with customers they don’t know, security is the new imperative. Whether it’s the distributed ledger of blockchain technology to verify marketplace transactions or a heightened focus on cybersecurity to protect data, we must build trust at the core of new strategies and operations.
- People and culture are as important as technology. To thrive in a fast-accelerating world, market-leading technologies are not the most challenging part of driving change. The most critical opportunity is that of transformation of leadership, purpose and people to align to new models. Transformation of who we hire, what skills we need and how we collaborate across teams are key drivers of who will be well prepared for the new game.
- Storytelling is key. As tempting as it may be to tell a story of disruption taking value out of markets, the key is to find the upside of disruption and tell a powerful story of value creation. Increasingly, companies who articulate and realize a purpose-led strategy will thrive as disruption continues to create opportunities.
- Customer-centricity becomes even more important. In a marketplace where the value chain is challenged at every stage, it becomes even more vital to understand the ultimate needs of end customers. Companies that focus on design and execution of market-leading customer experiences are likely to thrive as markets become more fluid. From product mix, to physical and digital commerce, to CRM, customer focus sits at the heart of the new strategy even more than before.
- Core business functions must be challenged to reinvent. If more transactions can be facilitated through data, artificial intelligence and bots, then core functions of companies like sales and customer service cannot continue under the current construct. The question is not one of humans vs. automation but one of humans in balance with automation. The operating model is likely to look dramatically different than today.
- Business models will change. New business models challenge how we position value as markets move past friction to models that are more over-the-top (such as media) and, in some cases, fully disintermediated models or direct-to-consumer. A willingness to explore new business models becomes fundamental as markets continue to evolve.
Key questions to ask
Given the dynamics of superfluid markets, we must ask better questions:
- How superfluid is the market for the industries in which I operate?
- How can I prepare for superfluidity?
- Am I building an innovation model which can be realized at scale?
- Should I focus on competing or collaborating to grow?
- How can I balance the strategic needs of the current marketplace with the need to prepare for the marketplace dynamics of the future?
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.