The AI & Machine Learning Imperative
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In the face of a global health and economic crisis, many traditional companies have suffered tremendous losses, and some have shuttered their doors. Those that heavily rely on physical capital (for example, stores, goods) and human capital (for example, services) were already vulnerable in economic downturns. The pandemic has exacerbated the lack of resilience in these business models, which have struggled to compete against digitally centric companies that can leverage data and machine learning to create valuable insights, intelligence, and capabilities across the organization.
For instance, compare companies whose products are like air (customers rely on them all day long for business, personal, or financial use) with those that are like haircuts (customers use them sporadically; they are nice to have but are not critical to their needs). Those in the former category that are being used constantly with little effort have proved to be resilient even in times of crisis. We typically know these as software-as-a-service (SaaS) products, such as Salesforce for business or Amazon Prime for consumers. In addition, those companies that combine SaaS with multisided platforms (like marketplaces) to fulfill their customers’ needs through a network of partners (such as Apple’s developer network) have an added advantage. These new, three-pronged models go far beyond SaaS and include the following:
- A community of active B2B and B2C users that creates a network effect due to their interactions.
- A marketplace that delivers offers from sellers and suppliers to meet customers’ needs.
- A secured data lake powered by AI that enables customized offers and insights.
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We call this new winning combination a modern business model (MBM). In fact, MBMs occupy four of the top 10 spots of the S&P 500’s most valuable companies: Apple, Amazon, Alphabet (Google), and Microsoft. And they are not alone — Shopify, Spotify, and others have adopted this new AI-powered, subscription-based model with marketplaces.
Based on our own machine learning analysis of the Russell 3000 Index (see “Comparing the Resilience of Modern vs. Legacy Business Models”), we found that SaaS, marketplace, and modern business models have proved to be more resilient than their legacy business model counterparts in times of disruption.