Digital business model analysis. Business transformation and practical example


Academic Paper, 2021

17 Pages, Grade: 2


Excerpt

Contents

List of Abbreviations

List of Figures

List of Tables
1. Introduction
2. Business Model Transformation
3. Palantir Technologies
4. Conclusions

Bibliography

List of Abbreviations

Initial Public Offering Price to Earnings ratio Public Limited Companies United States

List of Figures

Figure 1: Digital Transformation of Business

List of Tables

Table 1: Highest Valued Start-Up Companies 2020

1. Introduction

This research paper is concerned with business transformation to e-commerce and represented by Andreessen's (2011) pronouncement that software companies now dominate the market rather than traditional businesses. Therefore, this short study will critically appraise this statement by evaluating the contribution made by a high- tech start-up software company in the transformation of business to the e-commerce model. The company Palantir, which initiated its IPO in October 2020, is the subject of this study (Metz & Griffith, 2020). In order to accomplish this objective, the trans­ition from traditional business models to the digital or e-commerce model is outlined, and the suggested software domination of e-business and its context appraised. The e-commerce focus of the company Palantir is then presented and its relative success compared with other software companies and traditional businesses is analyzed; fin­ancial success is particularly relevant to responding to claims made by Andreessen (2011). Hence, the effectiveness of Palantir Technologies' e-platform in delivering value for its users is determined as a major example of business transformation from physical to digital. In order to accomplish this outcome, a mixed methods approach is taken to the research, which gathers objective facts and subjective opinion to as­sess the performance of Palantir Technologies as a contributor to e-business per­formance. Secondary data will be collected from a range of reliable resources, for in­stance journal articles, industry magazines, financial websites associated with the US stock market, and reliable websites and newspapers (Saunders, Lewis & Thornhill, 2019). The research is reported in four parts: the introduction which provides the re­search problem and methodology; major theories underpinning the research; critical appraisal of Palantir Technologies in comparison with similar companies; conclusion and recommendations.

2. Business Model Transformation

The internet accessibility globally has transformed business from its bricks and mor­tar origins into a digitally driven activity referred to as e-business or e-commerce (Basu & Mullye, 2007). In e-business, transactions occur by means of the internet and are enabled by a group of technologies, software applications and business pro­cesses, which connect companies, customers and communities (Milovanovic, 2015). A company's strategic objectives are implemented by means of the business model it adopts (Casadesus-Masanell & Ricart, 2010). In the e-business context, many com­panies are characterised by digital business models and business model innovation (Chesbrough 2006; Schallmo, Williams & Boardman, 2017); particularly digitally en­abled platforms or interactive eco-systems, which create and share consumer value (Parker, Van Alstyne & Choudary, 2016). E-business relies on services and organiza­tional capabilities in a similar way to conventional business, for instance communica­tion services, security and reliability. It can also gather information regarding the products and services by integrating web-enabled sensors into the products as they are used by the consumers, which facilitates the company to monitor product effect­iveness and usage levels, and/or stock levels in wholesalers; in other words to identi­fy new business opportunities including new product development ideas (Basu & Mullye, 2007).

Digital Transformation of businesses is graphically represented by KPMG (2014), figure 1, which emphasizes internal and external changes.

Figure 1: Digital Transformation of Business

Abbildung in dieser Leseprobe nicht enthalten

Source: KPMG (2014, p. The external environmental factors are the technology innovations and developments such as analytics and social listening, social media and the digital customer experi­ence. These have generated a business environment referred to as Volatile, Uncer­tain, Complex and Ambiguous (VUCA) by Bennett and Lemoine (2014), where the Volatility infers that the business environment is totally unpredictable, and that intelli­gence must be constantly gathered to limit organizational instabilty. Therefore, the firm must constantly adapt to new conditions to survive and prosper, in other words an agile culture should operate throughout the firm (Walter, 2020). Consequently, the external environmental changes in turn force internal changes, driven by the fluctua­ting preferences of customers exposed to the technological advances, who expect enhanced service and real-time communication, whilst the company benefits from the data it gathers about them to support marketing initiatives including new product and service innovations (KPMG, 2014).

Value for consumers is created by three processes, trade, decision support and in­tegrated systems, where trade processes are associated with buying and selling on­line, decision support is concerned with intelligence gathering to enhance the quality of decision making and integrated systems support the automation of tasks. Integ- 3 rated systems not only refer to vertical integration of supply chain partners and their databases for information exchange but also of the companies‘ entire administrative and financial systems, and interactions between a range of stakeholders (Basu & Mullye, 2007). The exchange of data is further facilitated by cloud computing com­prising elements for storage, software, and data management, by means of shared physical and virtual resources (OECD, 2014). Therefore, e-business globally has be­come ever more reliant on software and software development (OECD, 2014). How­ever, whilst e-business provides many advantages to companies and consumers, such as lower cost, fast, convenient transactions and quick access to information, cyber security is the major challenge for the sector, illustrated by the theft of personal data and cash which are stolen on a daily basis. A 19% increase in fraud was recor­ded from 2018 to 2019 across e-commerce platforms, for instance account takeovers, identity theft and social engineering fraud comprising phishing emails and scam websites (Spagnuolo, 2020).

Increasingly, e-businesses have been created without any prior bricks and mortar origin (Basu & Muylle, 2007), this has been facilitated by high tech start-up compa­nies led by entrepreneurs that develop the software to facilitate the transformation of business to a predominantly e-economy (EC, 2020). Successful high-tech companies were created as a global business entity, differentiating themselves by developing technologies that are difficult to imitate, by being able to forecast future market needs more effectively than competitors, and by generating 100% of their revenues globally, although possessing few resources including initial finance. However, they are capa­ble of attracting high investment for technological development, which represents a barrier to new competition seizing the market that they have acquired (Kudina, Yip & Barkema, 2008; Tanev, 2012). The empirical research conducted by Tanev (2012), found that most successful high-tech start-ups: are knowledge intensive; have devel­oped a high value, technologically advanced product characterized by relatively low associated costs of production and distribution; possess high competitive advantage and first mover advantage or network effects; have major executives with expertise in global business; the product or service is also valuable to consumers in many countries. Therefore, the high-tech company targets multinational companies with foreign subsidiaries that can use the product/service in its global operations.

The most highly valued tech companies in 2020 are shown in table 1, however many of them continue to make no profit, for instance Palantir had $US 1.166 billion (SimplyWallSt, 2021).

Table 1: Highest Valued Start-Up Companies 2020

Abbildung in dieser Leseprobe nicht enthalten

Source: Business Insider (2021, p1) The companies represent the growing dominance and relevance of software firms in e-business and modern society, according to Andreessen (2011). The analysis of large global software companies conducted by Andreessen (2011) ten years ago, for instance Google, Facebook and Twitter, demonstrated how they had drastically altered people's lives. They had transformed communication, consumer media and information searches from an analogue to digital process. Despite the dot.com bubble in the 1990's, when high-tech firms were overvalued and many subsequently failed, by 2011 a growing trend could be detected in which a few high-tech firms such as Facebook had been attributed high values in the market. These companies had also successfully transformed into Public Limited Companies by means of the Initial Public Offering they initiated (Andreessen, 2011). Although Facebook's IPO in 2012 initially appeared to be highly successful, share prices fell immediately afterwards, but by 2015 the firm's value had doubled to $226 billion (Griffith, 2015). One of the reasons for the market reaction to Facebook after the IPO may have been a consequence of analysts‘ apparent dislike of high-tech companies, as sugges­ted by Andreessen (2011) citing the low Price to Earnings (PE) ratios it awards them compared with firms in other sectors. The PE ratio reflects the market analysts‘ opinion of the future dividend growth of the company's share, with a low PE ratio often indicating expected poor performance (Pilbeam,2005), al­though contrary to Andreessen's (2011) perspective, investors may take the view that some firms with low PE ratios have the potential for abnormally high returns. However, Andreessen (2011) stresses that Apple had a PE ratio of 15.2 in 2011, which was on a par with the average company's share although it had one of the highest company valuations on the entire stock exchange.

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Details

Title
Digital business model analysis. Business transformation and practical example
College
University of Frankfurt (Main)
Grade
2
Author
Year
2021
Pages
17
Catalog Number
V1030180
ISBN (eBook)
9783346443748
ISBN (Book)
9783346443755
Language
English
Notes
This research paper is concerned with business transformation to e-commerce and represented by Andreessen’s (2011) pronouncement that software companies now dominate the market rather than traditional businesses. Therefore, this short study will critically appraise this statement by evaluating the contribution made by a high- tech start-up software company in the transformation of business to the e-commerce model. The company Palantir, which initiated its IPO in October 2020, is the subject of this study (Metz & Griffith, 2020).
Keywords
Business Model Transformation, Agility, high- tech start-up, software company, digital transformation, VUCA, e-economy, Big Data Analytics, Palantir Technologies, IPO, Alexander Karp, Google Analytics, Transformation, Silicon Valley
Quote paper
Vjollca Berisha (Author), 2021, Digital business model analysis. Business transformation and practical example, Munich, GRIN Verlag, https://www.grin.com/document/1030180

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