Digital transformation is the process by which companies deploy technology to fundamentally change the way they do business. Companies across every industry have been involved in a multiyear process of digital transformation and modernization. Often, this involves licensing software from third parties in order to replace back-end systems and improve how the company can deliver its products and services to customers.
While such efforts show no signs of slowing, we are also increasingly seeing companies look to third parties to serve a more front-end function, providing the customer-facing platform through which the company’s products and services can be delivered. Such collaborations often bring together services from various companies under one digital roof, providing a streamlined experience for customers and new opportunities for businesses.
While these arrangements promise significant advantages, they also present unique challenges that differ from a traditional third-party outsourcing relationship. This article will explore key issues for companies to consider when engaging with customer-facing platform providers and recommend approaches to take in order to achieve a successful collaboration.
What is a Customer-Facing Platform?
A customer-facing platform, in the context of this article, is a digital intermediary that facilitates the delivery of services from multiple companies to their end customers. This type of platform, managed typically by an entity that is not directly involved in creating the end product or service, specializes in integrating these diverse offerings into a unified, user-friendly interface. The platform allows businesses to efficiently deliver their services to customers, while offering customers the convenience of accessing a variety of services through a single app or portal.
For example, imagine a platform in the transportation industry targeting commercial fleet owners as customers. This platform could integrate services from various original equipment manufacturers, telematics service providers, fleet management software developers, and insurance providers. The fleet owner could use the platform to manage its entire fleet operation, accessing data from, receiving predictive maintenance alerts about, and performing software and firmware updates for, all the varying vehicle components in its fleet. The fleet owner could also use the platform to track vehicles, manage fuel consumption, handle insurance claims, and even manage driver scheduling and payroll.
This entire suite of services, which would typically necessitate working through multiple apps or interfaces offered by various service providers, can be presented in a single, user-friendly platform. By doing so, the platform helps the fleet owner manage its operations more effectively and significantly reduces the time and effort the fleet owner would have to invest in dealing with various service providers separately.
What are the Benefits for Companies Partnering with Customer-Facing Platforms?
The first key benefit is cost-effectiveness. These platforms allow companies to leverage the benefits of a digital transformation without the need for massive up-front investments. Building a robust, user-friendly digital interface can be a complex, time-consuming, and costly process. By leveraging an existing platform, companies can bypass many of these challenges and still gain access to a state-of-the-art digital interface that meets their customers’ needs. This is particularly beneficial for companies in traditionally non-digital industries that may not have the resources or expertise to build such platforms in-house.
Second, these platforms can provide companies with increased market reach and visibility because they often have an existing customer base. By integrating their services into the platform, companies can tap into this established network, gaining access to potential customers that they might not have reached through traditional marketing channels. This is especially beneficial for companies seeking to scale their digital operations or break into new markets.
Third, the use of these platforms can unlock new possibilities for data analytics. The platform typically gathers vast amounts of user data, which can provide valuable insights into customer behavior and preferences. Companies can utilize this data to tailor their services, inform strategic decisions, and improve customer engagement.
Finally, partnering with these platforms can also enhance the company’s brand image. Today customers expect seamless online experiences. By delivering their services through a robust, user-friendly platform, companies can meet these expectations, improving their reputation and customer satisfaction in the process.
Key Considerations in Customer-Facing Platform Agreements
Unlike standard customer-supplier arrangements, customer-facing platform integrations often involve a complex web of relationships and dependencies between multiple stakeholders, including the platform provider, the service-providing companies, the customer, and the individual end users. Additionally, because the platforms are customer-facing, these agreements require careful negotiation and strategic foresight to effectively manage the additional complexities involved. Consider the following nine key issues:
Control over the Platform. Given that platform development is primarily in the hands of the provider, companies typically have little control over the development and evolution of the platform. While the platform provider has an independent interest in ensuring that the platform remains technologically relevant (with regular updates and enhancements), companies should nevertheless have visibility into upcoming changes, particularly with respect to changes that may disrupt or otherwise affect the integration, and in some cases may require the right to request, recommend, or even direct certain business-critical changes.
Customer Experience Control. As the platform becomes the primary online customer touchpoint, the company may lose direct control over the customer experience, which may necessitate additional contractual protections from both a reputational and regulatory perspective. Companies must ensure that the platform can deliver a user experience that aligns with their brand values, such as by having obligations in the agreement for complaint-handling that are consistent with the company’s policies and any applicable laws and regulations. In addition, given that services provided through the platform are often co-branded, companies should maintain control and approval rights over the platform provider’s use of the company's trademarks and branding, while giving the provider enough flexibility to modify certain aspects of the look and feel of its platform.
Competitive Dynamics. A company’s competitors may also be present on the same platform. Companies must consider how to differentiate their offerings and ensure their competitive advantage is maintained. It may be important to document any expectations the company may have regarding how prominently its offerings are displayed on the platform or at least establish principles regarding neutrality. In addition, the parties must be careful to avoid any hint of collusion around pricing, services, and other terms offered to customers. Non-compete and exclusivity provisions included in the agreement should undergo the same scrutiny to ensure they do not breach antitrust or competition laws.
Data Usage. Understanding who can use the data provided to the platform or generated through the platform is vital. In some cases, companies will look to stipulate that they retain ownership of data they provide and that the platform can only use this data under specific circumstances (e.g., solely to perform the services). As for data generated by the platform or provided to the platform by customers, both parties may reasonably feel they should have rights to use this data, so it is essential to craft clear agreements regarding rights, responsibilities and restrictions regarding the use of this data. In addition, if the company is comfortable granting broader access and use rights to its own data, there may be opportunities to opt into data-sharing agreements with other companies offering services through the platform.
Data Security and Privacy. One of the most critical considerations is data security and privacy. As these platforms manage large amounts of customer data (including, in some cases, sensitive customer data), breaches can lead to financial losses, reputational damage, and legal liability. Companies need to ensure that the platform has robust security measures in place and that these measures align with the company’s own data security standards. The contract should clearly delineate the responsibilities of both parties regarding data protection and privacy and may include, depending on the nature of the data involved, periodic audits and security certifications to validate the platform’s security measures.
Platform Lock-in. Companies may become dependent on the platform, making it hard to switch providers or revert to in-house operations. Although overlooked at times, planning for an exit strategy is crucial. The agreement should clearly specify the procedures and terms for ending the partnership, including the transition of services and data back to the company or to a new provider. This can mitigate risks and prevent potential disputes in the event of contract termination.
Regulatory Compliance. Companies often have a legal obligation to ensure the services and the platform comply with all laws and regulations applicable to the company when the platform provider acts for the company. This is particularly important for businesses operating in heavily regulated industries such as banking. In contract negotiations, companies will propose that the platform provider must comply not only with laws applicable to the provider in its operation of the platform but also with laws that apply to the company. Platform providers, on the other hand, will want to limit this obligation as much as possible to avoid taking on compliance obligations that would not otherwise apply to software companies. This will be a nuanced discussion depending on the nature of the platform and the services, but a potential compromise may involve the company accepting responsibility for monitoring and interpreting company-specific laws that the provider must comply with (instead of burdening the provider with that responsibility).
Service Quality. The reliability and performance of the platform can significantly impact customer satisfaction and brand reputation. It is important for companies to ensure the platform can deliver their services at a high standard and scale as required. Depending on whether the company is paying for the service, an SLA (Service Level Agreement) detailing performance metrics, downtime credits against fees, and other quality-related aspects can be a way for companies to accomplish this objective.
Potential Disruption of Platform Provider. Platform providers can be large organizations or they can be relatively smaller start-ups. If a company will be reliant on the platform for delivery of critical services or has an exclusive arrangement with the platform provider to be its sole delivery partner, it must evaluate the platform provider’s financial stability and consider including protections in the contract to address the possibility of business disruption due to poor financial performance. For example, a company may seek to include a termination right in case of a significant drop in the provider’s credit rating. If no credit rating is available, the company may seek rights to receive regular financial reports and terminate if a particular financial metric drops below predefined thresholds. In addition, the company may want to investigate the provider’s business continuity plans and ensure the provider demonstrates a sound strategy to ensure minimal disruption to the services in the event of a disaster.
Conclusion
As customers grow fatigued by the process of receiving services through a ballooning number of apps and interfaces and as companies seek different and new channels to reach new and existing customers, we expect to continue to see consolidation of these services into more comprehensive and convenient customer-facing platforms. These platforms bring substantial advantages but also raise unique considerations and challenges. As companies navigate these issues, they should strive for a balanced approach that addresses their strategic needs and mitigates their risk, while also acknowledging the platform provider’s interest in operating and improving its own platform. Ultimately, thorough planning, clear agreements, and proactive management of these relationships can allow companies to unlock their full potential.
