Interview: Vanessa Fraiberger

 - Head of Transaction Banking 2.0. at BNP Paribas
 
 

Reinventing Business Models

Wednesday 07 December 2016

Interview of the founder and CEO of Ariadne Capital, a venture capital firm.


Looking at incumbents, how do you see them going about reinventing their business model today?

I am seeing three ways they go about that:

The first is the well-worn model of transforming through shedding businesses, investing and acquiring. I think the evidence shows that a lot of those M&A transactions don't actually lead to value, but that's still a clear path to transformation.

A second way is to invest from the income statement, create new products, change the sales teams etc. In this model, you can run into issues of cannibalization and incentive structures.

The third way that I feel works best could be described as "investing from the balance sheet into the income statement". It means allocating CAPEX to build new revenue streams. The way it works is to create 'co-managed accounts' from good size businesses that are still living in an analogue world, and build digital revenues on top of them. The objective is to move these assets from a world which is about shipping products (in whatever form), to building life-time value per user - and capital allocation is necessary to achieve that.

Concretly, how do leading players go about building digital revenue streams on top of analog ones?

Today's digital entrepreneurs are far ahead not because they are smarter but because they are wired in a different way and are able to see the future, while people running large companies are concerned about scaling and building in a stable way. Those are two crucial skills and it's very rare for people to do both. We see a future whereby large companies need to engage systematically and consistently with their high growth businesses built by the best digital enablers to transform themselves. 

We see lots of large businesses where the CFO is trying to lift his hands off the way the current business works (which is kind of fortified with SAP or another IT architecture), but there is still no clear sense yet of where a predictable revenue stream will emerge. We see all sorts of large businesses in different industries where that change is happening, and not many finished products yet - which we could refer to as "ecosystem economy firms". 

What is "ecosystem economics"?

Today everyone is talking about "ecosystems" and tech platform companies. For me, it is not about technology as this is a layer transforming all industries; the winners of the digital age are the companies who understand their role in the ecosystem and are organizing the economics for it. So it turns into controlling the rules, creating wealth for the various stakeholders and optimizing the 'system level win'.

The winners are not just looking internally at their business, they understand that consumers drive purchases, that the world is driven by networks, and this makes exponential growth the norm. They aim to engage with a community: they convey the message that they have the brand and desired APIs to be the platform of choice in the industry, which allows them to leverage digital enablers who in turn build onto their platform.

They also look to harness whatever "excess capacity" is available in their sector and to connect it onto the platform (in the same way AirBnB has enabled spare bedrooms to become a revenue stream). In doing so, they create a model which is no longer a traditional bank, insurance company, transportation company etc.: it is now a platform inside an ecosystem.
""Today's digital entrepreneurs are far ahead not because they are smarter but because they are wired in a different way and are able to see the future, while people running large companies are concerned about scaling and building in a stable way.""

What are the biggest challenges for large companies who aim at becoming digital platforms and ecosystem leaders?

I see several challenges. Existing architectures, such as SAP that unite finance and technology, are one of them. They hold the two sides of the structure and allow them to work together. They serve as a backbone to the organization today, but the architecture of a digital organization might be different. Understanding how to build a new architecture requires a clear understanding of the new revenue models, including the transformational effect of the organization's data.

Another major challenge is around valuation and KPIs. Ultimately, businesses are valued by the market. So, shareholders have to agree that digitally transformed companies will be valuable in a new way, using a concept of Network Asset Value for instance. This would translate into revenue streams over a user base or network of connected users. Today, some large organizations can boast hundreds of thousands of employees, clients or even end users - but who, apart from Facebook, can say these are connected in a network?

I believe that we have 10 years of change ahead of us, with two models running in parallel: I wouldn't be surprised if soon, CFOs start reporting in two different ways to the market: the usual one with quarterly earnings etc., and also with a new set of intangible KPIs based on the knowledge about and connection with end-customers - and the tangible monetization opportunities this will translate into. Digital P&L will, in time, be used to develop a new model of enterprise value. We are going through a whole period of change, where large companies can't simply go about saying "we have decided to value ourselves in a different way".

In all fairness, the market seems to have already accepted the idea of a new financial architectural structure and exponential growth based on datafueled monetization opportunities. This is reflected in the enormous market capitalizations of some of the unicorns and GAFAs of this world: if you look at the balance sheet of the Google or Facebook for example, they have an implicit goodwill factor directly driven by all the data they have and its huge monetization opportunities - nobody else is writing their annual report that way.
Ecosystem Economics® is a registrered trademark and the IP of Ariadne Capital.  

 
Julie Meyer
American by birth, Julie has lived in Europe for 28 years. Having attended INSEAD business school, she believes it was a major turning point: thinking conceptually and having a multidisciplinary outlook are prized. With family in Palo Alto, California, it has also given Julie a useful perspective on Silicon Valley.

After graduation in 1997, Julie worked on a lot of the early internet deals across Europe - in companies like lastminute.com, WGSN, Silicon.com and Arc Course. She also set up the network First Tuesday, connecting entrepreneurs and financiers across the continent.

In 2000, Julie launched Ariadne Capital, where she has been since. She has led over €500 million worth of transactions and investments, working with entrepreneurs across Europe, including some of the early European game changers such as Skype, Zopa (the first P2P business globally) and Monitise, an early example of Ecosystem Economics® in action for mobile banking.

Today the platform is in expansion mode, eyeing up investment opportunities across the continent, including a recent acquisition of an asset management firm in Malta, as well as other potential targets.
 
 
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Focus Magazine


Vanessa is in charge of Transaction Banking 2.0 at BNP Paribas. Her experience in the group spans 10 years of infrastructure and energy financing and cross-cultural negotiations. She is a lawyer and a financing specialist by training and has an MBA from INSEAD. Recently, her focus has evolved towards the strategic, cultural and organizational aspects of business transformation.
Vanessa Fraiberger – Head of Transaction Banking 2.0. at BNP Paribas
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