Platforms vs. Pipelines: The Future of Logistics

Transcription

1 Platforms vs. Pipelines: The Future of Logistics Presented by : Jonathan Adams

2 Contents 2 Traditional Value Chain Analysis - 3 Traditional Approach To Logistics - 4 Competitive Strategy In A Linear Model - 5 Platforms vs. Pipelines: The Future of Logistics Case Study - Blackberry/Research In Motion - 6 The Network Effect - 18 Value Grows Exponentially - 20 What Happens When A Pipeline Meets A Platform? - 23 August 30, 2016 Amazon s Threat to Retail and Logistics - 24 Conclusions - 32 Get In Touch - 33 Copyright 2016 Tompkins International. All Rights Reserved Session Survey - 34

3 Traditional Value Chain Analysis 3 Traditional value chain analysis is a linear model Inputs (labor, raw materials) are increased in value through a series of processes Outputs are finished goods or services that are sold to customers Selling prices are set as costs plus a profit margin Source: Harvard Business School Institute for Competitiveness and Strategy Traditional value chain analysis is a linear model driven by linear thinking

4 Traditional Approach To Logistics 4 Sourcing Processing Distribution Customer Supplier Customer Supplier Production Storage, Cross Docking Customs Linehaul Storage, Cross Docking Customs Warehouse/ Distribution centers Customer Supplier Customer S ource: Bain Consulting Traditional logistics strategies also focus on a linear model

5 Competitive Strategy In A Linear Model 5 Threat of New Entrants Typical strategies are usually Medium: Scale of capital needed for market entry is only meaningful barrier (some combination of) Differentiation building and promoting a brand C ost leadership through investments in scale and equipment Bargaining Power with Suppliers Low: Scale provides some (very limited) advantages Existing C ompetitive R ivalry Threat of Substitution Bargaining Power with Customers Medium/Low: Technology, brand and market share provide limited bargaining power Medium/Low: Growth of knowledge economy and 3D printing means more value travels electronically Linear strategy typically focuses on brand strength and market share

6 Case Study - Blackberry/Research In Motion 6

7 Case Study - Blackberry/Research In Motion 7 Mike Laziridis drops out of college Celebrates 20 th Anniversary and 1 million subscribers Launches first wireless pager Introduces wireless handheld with and calendar Announces 20 million subscribers. Stock hits $ Laziridis worth $3.8 Billion Connects an HP PDA with a portable Modem Adds voice capability Releases Blackberry Pearl with tracker ball World wide subscribers reach a peak of 85 million Research in Motion goes public

8 Did Linear Strategy Work For Blackberry? Revenue ($ Billion) Operating Income ($ Billion) From 2004 to 2010, Blackberry achieved revenue growth of 71% per year, while earnings grew at 112% per year

9 Did Linear Strategy Work For Blackberry? 9 Blackberry US Market Share 2009 Samsung 5% T-Mobile HTC 4% 4% Others 12% Apple 20% Blackberry 55% In 2009, Blackberry held over 50% of the US Smartphone Market

10 How Did The Stockholders Do? Stock Price Performance 2004 to A $10,000 investment in Research in Motion s IPO, would have been worth $1.2 million at the peak

11 What Happened Next? 11 60% % 40% 140 Market Share to 2013 Stock Price Performance 2008 to % 80 20% % 20 0% In just five years, RIM lost 96% of its market share and 95% of its stock market value

12 Why? G lobal SmartPhone Unit S ales (Millions ) In 2015, the Apple iphone generated $155 billion in revenue. More than Blackberry generated in its entire 18 year history as a public company

13 Why? 13 US SmartPhone Market 2009 US SmartPhone Market 2014 HTC 4% T-Mobile 4% Samsung 5% Apple 20% Others 12% Blackberry 55% Others Motorola 6% LG 4% 11% Samsung 26% Blackberry 3% Apple 50% By 2014, Apple and Samsung control 76% of the US SmartPhone market, while Blackberry is irrelevant

14 What Happened? 14 WHO USES A BLACKBERRY ANYMORE? What happened? HONESTLY

15 What Happened? iphone Sales 2007 to 2015 ($ Billions) From its launch in 2007, iphone sales grew to $155 billion and Apple became the most valuable company on the planet

16 How? 16 Apple doesn t see the iphone as a product, it views it as the platform for the IoS network or ecosystem

17 How? 17 Apple s collaborative network draws in an incredible range and depth of content

18 The Network Effect 18 What is the Network Effect? A network effect, or demand-side economy of scale, occurs when a product or service becomes more valuable to its users as more people use it. Why is it important? 1. Because networks can grow very fast. 2. Because the value of a network is equal to the square of the number of connected users (Metcalfe s Law). The Network Effect is the key to understanding the competitive power of platforms

19 How Fast Do Networks Scale? 1,800 1,600 Let s take an example from Facebook 19 1,400 Number of users (millions) 1,200 1, Facebook Users (Millions) The population of China in 1900 was 415 million and it took 115 years for it to reach 1.4 billion. Facebook grew from 400 million users to 1.4 billion in less than five

20 Value Grows Exponentially What does that mean? 10 Number of users (Billions) Facebook Users (Billions) The population of China in 1900 was 415 million and it took 115 years for it to reach 1.4 billion. Facebook went from 400 million users to 1.4 billion in less than five.

21 Value Grows Exponentially 21 Number of users (Billions) The value of a network is equal to the square of the number of connected users (Metcalfe s Law) Facebook Users (Billions) Revenues Predicted by Metcalfe's Law Network users grow fast. Network value grows exponentially.

22 Value Grows Exponentially Facebook Users (Billions) Revenues Predicted by Metcalfe's Law Actual Revenues Number of users (Billions) The value of a network is equal to the square of the number of connected users (Metcalfe s Law) Network users grow fast. Network value grows exponentially.

23 What Happens When A Pipeline Meets A Platform? 23 The Platform Wins!

24 Amazon Is THE Network Threatening The Logistics Industry 24 Amazon s investment in fulfillment infrastructure, already over $15 billion, is accelerating

25 Amazon s Threat To Traditional Retail 25 Rank Metropolitan Statistical Area ("MSA") Population (Millions) Nearest Amazon Fulfillment Center Distance (Miles) Free Prime Same Day Shipping Available 1 New York-Newark-Jersey City, NY-NJ-PA 20.2 Robinsville, NJ 64 Yes 2 Los Angeles-Long Beach-Anaheim, CA 13.3 San Bernadino, CA 60 Yes 3 Chicago-Naperville-Elgin, IL-IN-WI 9.6 Joliet, IL 45 Yes 4 Dallas-Fort Worth-Arlington, TX 7.1 Haslet, TX 40 Yes 5 Houston-The Woodlands-Sugar Land, TX 6.7 Houston, TX 5 6 Washington-Arlington-Alexandria, DC-VA-MD-WV 6.1 Baltimore, MD 38 Yes 7 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 6.1 Carlisle, PA 116 Yes 8 Miami-Fort Lauderdale-West Palm Beach, FL 6.0 Opa Locka, FL 13 9 Atlanta-Sandy Springs-Roswell, GA 5.7 Braselton, GA 53 Yes 10 Boston-Cambridge-Newton, MA-NH 4.8 Fall River, MA 52 Yes 11 San Francisco Oakland Hayward, CA 4.7 Tracy, CA 62 Yes 12 Phoenix-Mesa-Scottsdale, AZ 4.6 Pheonix, AZ 5 Yes 13 Riverside-San Bernardino-Ontario, CA 4.5 San Bernadino, CA 5 Yes 14 Detroit-Warren-Dearborn, MI 4.3 Whitestown, IN Seattle-Tacoma-Bellevue, WA 3.7 Dupint, WA Minneapolis-St. Paul-Bloomington, MN-WI 3.5 Kenosha, WI 372 Yes 17 San Diego-Carlsbad, CA 3.3 San Bernadino, CA 107 Yes 18 Tampa-St. Petersburg-Clearwater, FL 3.0 Lakeland, FL Denver-Aurora-Lakewood, CO 2.8 Aurora, CO St. Louis, MO-IL 2.8 Edwardsville, IL Average Distance (top 20) Locations Next 20 MSA's 41.6 Average Distance (next 20) Locations Total Top 40 MSA's Average Distance (top 40) 57.3 Amazon s investments put it within same day shipping range of 164 million of America s highest spending consumers

26 Amazon s Threat To Traditional Retail m Amazon s forward deployment of inventory is a major threat to traditional US retailers

27 Amazon s Threat To Traditional Logistics 27 Amazon s network of retail fulfillment centers isn t a threat to traditional logistics companies. It s what comes next that is the threat to traditional logistics companies.

28 Amazon s Threat To Traditional Logistics 28 Amazon s G lobal Logis tic s Initiative Source :The Future of Amazon Logistics, Deutsche Bank, June 2016 Your margin is my opportunity - Jeff Bezos Amazon intends to use its global purchasing power to reduce inbound logistics costs by 50% and retail distribution costs by over 80%

29 What Is Amazon s Secret? 29 Amazon Forecast Gross Merchandize Value rd Party Sales ($bn) Sales of Amazon Products/Services ($bn) A 2016F 2017F 2018F 2019F 2020F Sales of Amazon Products/Services ($bn) rd Party Sales ($bn) Gross Merchandize Value ($bn) Source: Morgan Stanley, Deutsche Bank and Tompkins International estimates Collaboration!

30 Collaborative Networks Are The Future of Logistics Alibaba s business model doesn t look like this: 30 Sourcing Processing Distribution Customer Supplier Customer Supplier Production Storage, Cross Docking Customs Linehaul Storage, Cross Docking Customs Warehouse/ Distribution centers Customer Supplier Customer S ource: Bain Consulting Collaborative Networks are set to revolutionize the logistics industry

31 Collaborative Networks Are The Future of Logistics It looks like this: 31 Ecosystem.and it has GMV of $398 billion and is growing by over 17% p.a!

32 Conclusions 32 A good, well-executed linear strategy can allow a company to outperform other linear competitors But even the best linear strategy will not allow a company to compete effectively against a platform-based competitor Platforms that use collaboration and the network effect to scale rapidly are going to significantly disrupt the traditional retail and logistics industries If you want to grow incrementally, be competitive If you want to grow exponentially, be collaborative. In the future world of networked logistics, incremental isn t going to cut it

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