Stephen Sacca, SF ’90
Director, MIT Sloan Fellows Program
According to a white paper by technologists at Cisco Internet Business Solutions Group, the “Internet of Things” will consist of nearly 50 billion electronic devices by 2020. But are those smart devices making us smarter? Are they advancing work and improving life?
When we sat down with several MIT Sloan Fellows faculty and alumni for this second of our two-part digital business issue, we asked them these questions. And if our unscientific survey of leaders from different industries in different parts of the world is any indication, the sophistication of digital tools is helping to make the world a more efficient, productive, and inclusive place to live and work.
One of the most important back-end phenomena of the digital age—the platform—appears to support the vision of technology as catalyzing, rather than supplanting, human economic activity. But what exactly is a platform? “Platforms are foundation technologies or services that bring multiple people together for some common purpose,” explains MIT Sloan Professor Michael Cusumano. “Platforms are where we find each other or where we transact business that would be difficult without that intermediary component.”
In western civilization, the notion of platforms goes back at least as far as the Roman Forum. “The difference today is that computers, the internet, and other digital technologies have enabled companies and governments to create truly global platforms,” Cusumano says. “They can perform an almost unlimited number of activities and grow at a pace never before seen in human history.”
The value and preeminence of platforms can be measured by the success of companies that employ them strategically. “Three of the most valuable companies on the planet—Apple, Microsoft, and Google—are platform companies,” notes Cusumano. “Not to mention the fact that most startups worth more than a billion dollars are digital platforms such as Uber and Airbnb.” As powerful as platforms can be, however, they can be tricky to get right.
“At the outset, every platform company faces the chicken and egg problem,” Cusumano says. “Airbnb guests, for example, won’t rent rooms unless a lot of people make their rooms available to rent. But people won’t offer rooms on a website unless it has a good reputation and a deep pool of desirable consumers. How is a brand new company supposed to establish the reputation it needs to draw both chickens and eggs?”
The key decision for Airbnb, in Cusumano’s view, was to figure out which part of the market it should corner. The company lined up a large number of people with rooms to rent, which began pulling in the other side of the equation—the guests. That pull created the momentum that lured still more rooms which, in turn, attracted even more guests. The result is an optimal environment for millions of people to make matches for themselves as buyers and sellers.
In the case of Apple, its platform thrives because the company has created the perfect playground for external developers to market their creative solutions to nearly 100 million iPhone users worldwide. At the same time, this steady stream of new apps adds value to the platform for iPhone consumers and provides them with the strong incentive to stay loyal to the Apple brand
“Having a good business plan that fits the platform model is no guarantee of success,” says Cusumano. “Most platform initiatives fail because they can’t attract a critical mass of participants and never gain any momentum.” To succeed, a platform company also must figure out which part of the market to charge. “In many cases, a platform succeeds because it has correctly subsidized one side of the equation in order to generate sufficient revenue from the other side. You also have to nail security. No one is going to use a platform that is perceived as insecure.”
Despite the challenges, Cusumano has no doubt that we are headed toward a platform-rich future. “Platform worlds are complicated—lots of different players and lots of different ways to make money—but I don’t anticipate that we’ll see radically different models from what we see today. Smart phones and cloud-based storage will be much more powerful, and digital access to everything will be much more common. The technologies of the sharing economy will accelerate the rate at which we are all becoming providers and consumers, and we’ll be living in an evermore connected world.”
Cusumano’s latest book, translated into 17 languages, is Strategy Rules: Five Timeless Lessons from Bill Gates, Andy Grove, and Steve Jobs (with coauthor David B. Yoffie).
What’s in that apple? Elif Buluç, SF ’08, can tell you. Buluç also can tell you where that apricot was grown and when that peach was picked. Consumers don’t think about digital tools bringing them closer to nature, but software innovations are making it possible for Buluç’s company Anadolu Etap to disclose the specific origins of every piece of produce it brings to market. “The only way to better know the provenance of a piece of fruit is to pick it yourself,” she says.
Buluç is CFO of Anadolu Etap, Turkey’s largest fruit producer and distributor, which processed 162,000 tons of fruit last year. The company purchases fruit from 150,000 farmers in 3,000 villages across Turkey and obtains half its revenues from global exports. It’s also the first agribusiness in the country executing its operations within the framework of sustainable agriculture principles.
Anadolu Etap worked with a digital development firm to create a revolutionary new enterprise resource planning (ERP) software system that gives the company the ability to monitor every aspect of the growing and processing of fruit. That traceability means that the company—and its consumers—are able to learn where and how the fruit or fruit product was produced. “Knowing the origins of what they’re eating is important to today’s consumers,” Buluç says. “They worry about safety—especially the safety of the fruit, juice, and baby food they feed their children. Every step of our growing process is digitally recorded, so we can vouch for the full lifecycle of every single piece of fruit. That makes full disclosure possible and gives our customers a sense of comfort.”
The ERP system integrates information from the three business units: operating plantations for the growth of fruit (more than 100 varieties), producing processed fruit for the makers of fruit juice and baby food, and selling fresh fruit for consumption. The analysis it generates informs management about the production of every piece of fruit at every plot at every Anadolu Etap plantation as well as the costs and outcomes of production, how much labor was used to produce each crop, climate conditions, and other essential metrics. “We can compare and contrast the success of various methods of planting and processing and quickly course-correct when necessary,” Buluç says. “We learn something every day that allows us to maximize our harvests, boost our productivity, and design new plantations with those lessons in mind.”
Buluç says that she has new reasons to be excited every day about the advances Anadolu Etap is able to achieve because of the continual flow of digital knowledge. “When people think digital, they think it’s a substitute for the human factor. But our digital tools have everything to do with the human factor. They connect the entire Anadolu Etap family, from climate scientists and agronomists to workers in the fields and processing plants. Everyone is part of this network—including the consumer. It’s now possible for us to draw a direct line from the farmer to the consumer. When someone eats a pomegranate that we grow, they know exactly which little rural farm brought it to life.”
We often associate virtual environments with gaming, but a Munich-based company is creating virtual power plants that are producing very serious monetary benefits for organizations and consumers around the world. “We think we can change the energy industry,” says Entelios founder and managing director Oliver Stahl, SF ’09, and given the company’s track record, it looks like Stahl and his team are making significant inroads on that goal.
Entelios (now an EnerNOC company) has developed cloud-based energy intelligence software (EIS) that allows business customers to manage their energy consumption by managing and optimizing how they operate energy assets (loads, storage, and onsite generators), often improving productivity at the same time. This is accomplished through a small box installed at customers’ sites that measures usage and monitors usage patterns, making it possible for Stahl’s team to generate powerful analytics, decision-making tools, reports, and dashboards to manage a company’s energy use, cutting costs and minimizing its environmental footprint.
“The dramatic fluctuation in energy costs because of an unpredictable fuel marketplace and climate phenomena can make the difference between a company having a good or a bad year,” Stahl says. “Organizations are under increasing pressure to scrutinize their energy bills, but few have the time or capabilities to conduct a strategic analysis of their energy use. Even fewer understand the financial benefit of providing flexibility to the energy system, because it’s of tremendous value to grid operators.”
Entelios’ data analytics might show that a business experiences a peak energy demand from 10 AM to 11 AM and that satisfying that demand will cost the company $1,200 more than it would during non-peak hours. Armed with this information, the company might decide to shift its peak production to a time when energy costs are lower. That choreography couldn’t happen without Entelios’ “Demand Response Solution.” The DRS aggregates all the different sources of flexibility—loads, storage, back-up generators—then aggregates all its customers’ needs to balance supply and demand on both an individual and a collective scale. The company has the equivalent of eight nuclear power plants under management.
“We read thousands of data points, recognize patterns, and know what flexibility our customers have, then we work with grid operators to tailor a demand-response solution for each customer. Because of sophisticated analytics, we can cool down a building when the wind farm is at full tilt at 4 AM, rather than when the wind isn’t blowing at 3 AM.”
In return, grid operators pay incentives to those users for their flexibility. Stahl says that EnerNOC has paid more than one billion dollars in incentives to its customers all over the world. In the US alone, more than 14,000 industrial sites are participating.
Stahl learned about demand-response aggregators during his time as an MIT Sloan Fellow. When he returned to Germany, he undertook an intensive round of interviews with companies and power operators. He then cofounded an industrial Smart Energy Demand Coalition (SEDC) in Europe and lobbied European countries to change their energy model. “Our virtual power plants make companies, consumers, and whole economies much less dependent on coal, gas, and oil. Most European countries have to import those fossil fuels, so they develop a dependency on production happening outside their areas of control. One of my goals was to make European companies more independent with wind, biomass, and water sources. Using this model Switzerland, which has no fossil fuel resources of its own, is aiming to use 100% renewable energy by 2050.”
“Within the next generation, all our power will be fully automated,” Stahl predicts. “Our solutions will bring ‘smart’ to a new level, knowing when to increase or decrease energy consumption and provide flexibility to the grid, without the consumer ever having to give it a thought.”
Stahl says that what makes this whole enterprise succeed is big data analytics, actionable recommendations, and the continually evolving “Industrial Internet of Things.” None of which would have been possible 20 years ago. “Only in the last dozen years are our digital tools powerful enough, our devices sophisticated enough, and automation evolved enough to help us make our energy use smarter. And it’s getting smarter every day.”
In the early years of the 21st century, marketing professionals were beginning to recognize that consumer susceptibility had changed. Customers had grown immune to traditional promotion methods—direct mailings, television advertisements, cold calls—but nobody was quite sure what to do about it. For MIT Sloan Fellows classmates and HubSpot cofounders Brian Halligan, SF ’06, and Dharmesh Shah, SF ’06, that dilemma inspired an aha moment, and their vision for inbound marketing was born.
Instead of begging, pestering, and cajoling customers to listen to your pitch, the duo thought, what if the content you offered up was so compelling that people were clambering to get at it? If this sounds obvious today, it’s owing in part to HubSpot’s success. Since the company’s launch in 2006, it has developed a customer base of more than 19,000 in 90+ countries worldwide. “We’ve made a good start, but we feel that we’re still in early days,” Halligan says. “A big part of our mindset is to continue evolving and creating new tools as we learn more about how people respond to our approach.”
Halligan and Shah knew they were on to something, but they soon realized that what they were envisioning wasn’t possible with existing technologies. “Even as we were rethinking how to align marketing efforts with the way people buy, we realized that we would have to build new tools to match our new mindset,” says Halligan. “What we came up with is a back-end technology suite that supports our consulting activities.”
HubSpot’s platform is designed around creating and sharing customized content with an enterprise’s dream customers. “The future of SEO is moving away from lists of links to locating answers to browser’s questions,” Halligan explains. “If you are an authoritative source on topics related to your business, the search engines will find you.” The platform also features database development software, marketing analytics, and campaign management tools.
One of the more compelling aspects of HubSpot’s toolkit is that it scales down to the size of a sole proprietor just as easily as it scales up to the scope of a global operation. A case in point is Vanderbloemen Search Group—a team of experts in staffing church leadership positions. The founder, William Vanderbloemen, operated satisfactorily for years as a bespoke headhunter for pastors and church presidents. His marketing efforts were typical—and limited—purchasing lists of church administrators, sending emails, making cold calls, buying Google ads.
“Traditionally, a business like Vanderbloemen might purchase some air time on local TV or radio and buy a bit of search engine real estate,” recalls Halligan. “We took a different approach. We asked the question, ‘What knowledge do you possess that will pull in your potential customers?’ It turned out that Vanderbloemen was perfectly positioned to write the world’s leading pastor recruiting blog—best practices for running a church, picking a pastor or minister of music, and other topics specific to his industry. Our platform made it easy for him to start a blog and launch a podcast. Now people are tripping over him on Google, Twitter, and other social media as the world’s leading authority on church leadership and administration.” Today, Vanderbloemen Search Group comprises 24 full-time, in-house staff (plus a chief canine officer) with more than 190 years of combined ministry experience.
Founder and CEO Jennifer Fremont-Smith, SF ’10, calls it “speed-dating for job hunters.” The serial entrepreneur’s year-old job search site leverages digital matchmaking innovations to connect job hunters with employers. Aptly named Happie, the startup already dominates its niche. Even before reaching its one-year anniversary, Happie had increased the number of employers working with the site to 300—and pushed the number of Happie job seekers into the thousands.
Happie is built around the central idea that prospective employers and employees today feel very much at home in the digital environment. “It’s where they bank, communicate with friends and family, and access their entertainment,” Fremont-Smith notes. “They’re also used to posting selfies and videos, so creating an arena where job hunters and providers can meet and chat via video falls well within the contemporary comfort zone. And in the potentially stressful job search realm, those familiar tools make for a welcoming experience.”
Happie creates a comfortable human interface between candidate and company as well as a sense of optimism. That’s because its 30-point algorithm measures more than qualifications, it also matches cultural fit. By the time Happie has sorted through candidates and employers, it is able to come up with leads that both prospective employee and employer feel are promising. The site then initiates a 10-minute video chat as a preliminary meet-and-greet, and the participants take it from there.
“Video screening makes the whole process much less painful for both parties,” says Fremont-Smith. “We’ve infinitely improved upon the old ‘spray and pray’ method of sending out resumes with a system that really zeroes in on matching compatibilities.”
She notes that employers and employees often know within the first five minutes of a job interview whether the fit is going to work. Happie saves both parties the time and trouble of a time-consuming but possibly fruitless in-person interview. There’s less at stake from a 10-minute video interview, so both sides are more willing to explore possibilities. And if they decide to take the interview process to the next step, they’ve already broken the ice when they do meet in person.
Happie also makes the job-hunting process more equitable. Candidates who might not be able to afford to take a day off from work to attend an interview or who might have transportation limitations can meet prospective employers via video chat during a lunch break. A Happie talent coach creates blog posts and video primers to help prepare candidates to learn how to interview effectively in this context.
Fremont-Smith is a mentor at TechStars Boston and TechStars Kaplan in New York. She also serves on the board of directors of the Fullbridge Opportunity Foundation, which provides grants for first-generation and underserved students to participate in career-accelerator programs. Her new venture is the perfect integration of her personal and professional goals. “Happie is a case of sophisticated technology humanizing a system,” says. “We make job hunting more personal, more accessible, and more fun.”
At present, Fremont-Smith says, Happie is focused on sales jobs only. Because they are the lifeblood of the economy, she considered them the best first step. Although that corner of the market has proven busy enough and lucrative enough to fuel the company, she says the plan is to expand the range of jobs and industries over time—making more and more job hunters happy.
“We see the impact of the first smartphone revolution very clearly now,” says Twnel cofounder Carlos Sierra, SF ’12. “Between 2007 and 2013, two billion people acquired mobile devices that connected them to the internet.” This dramatic expansion, Sierra notes, occurred mostly in developed countries, and advances in technology and software reflected that demographic.
“Most of the apps we saw during the first revolution reflected the business models and content of the top 200 websites,” Sierra says. “In the majority of cases, the focus has been on increasing the convenience of existing consumer behaviors—bringing incremental improvement to the way people were used to doing things on the web.” Starting in 2015, however, Sierra perceived a shift that he believes will launch a second smartphone revolution.
Sierra and other digital entrepreneurs focused on the developing world believe that the second revolution will be guided by new demographics. “Over the next seven to ten years, we’ll see approximately 2.5 billion new smartphone users join the ranks of the connected—with the vast majority coming from Latin America, Africa, and Southeast Asia. These are people who have never had a computer. They are jumping from mobile phones with texting capability directly to web-connected smartphones.”
In the first smartphone revolution, the keyword was “convenience.” For the second revolution, according to Sierra, the keyword will be “necessity.” New back-end capabilities will deliver services that have the potential to transform the circumstances of daily life for billions of people. Sierra launched his latest company, Twnel, in 2013 to harness that potential and empower independent business people in emerging markets who use smartphones as their primary device for work.
“For the last decade, mobile phone calls and SMS communications have been cost prohibitive in places like my home country of Colombia—as much as 50 times more expensive than in the U.S.,” explains Sierra. “As a result, people used mobile messaging on smartphones as a way to reduce air time, save money, and increase their connectivity. By merging the habits these consumers have built up around mobile messaging with advances in artificial intelligence, we can bring enormous efficiencies to both small and large enterprises.”
Sierra cites the case of Clarita, a mother of four in Medellín, Colombia to illustrate his point. “Clarita sells cosmetics to friends and neighbors. Her husband is a taxi driver. They are working hard to save for their children’s educations, so every expenditure counts. To operate her business, Clarita works with five direct-sales companies, including Avon. In order to turn a profit, she needs an efficient and inexpensive communications channel—which is where Twnel comes in. Using our messenger platform on a smart phone, Clarita only needs a few seconds of network time to complete an inquiry that might have taken half a day without a phone or maybe twenty minutes plus two dollars on a mobile phone call. This not only reduces her overhead, it frees her up to handle more customers and enables her to stay engaged with her family throughout the day.”
What makes Twnel’s technology particularly effective in emerging markets is that it doesn’t rely on individuals like Clarita for its revenue. Instead, Twnel sells its back-end platform to companies seeking greater connectivity with their customers—service providers in hospitality, transportation, and communications, for example. In Avon’s case, Twnel provides a hyper-intelligent interface with the company’s freelance sales force. “By automating the interactions between businesses and end users, we feed a virtuous cycle of learning how to make these connections more efficient and productive for everyone.”
We’re already at work on the next MIT Sloan Fellows Program Newsletter. Please drop us a line at email@example.com if you have ideas about themes and news items for future issues.
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