Scenario: Sustainability in the Digital Marketplace

Dominik Pataky, Christina B. Class

Noah is co-founder and CTO of a small, but ambitious Startup, SmartEcoTours. The company offers environmentally sustainable vacation and excursion packages on its internet platform. Trips are curated from carefully selected partners and can be booked by clients through the platform. All packages use mostly sustainability-certified businesses and partners. The SmartEcoTours platform is financed by brokerage fees from online bookings.

Over the course of the startup’s six-year history, Noah has been responsible for various reconfigurations and expansions of the platform, working to guarantee the sustainability of online offerings on the one hand, and keeping up with the steady increase in consumer demand and attendant offers on the other. In recent years, increased interest in sustainable travel has led to a substantial boost in visitors and bookings on the platform. While this has brought with it tremendous sales growth, it’s also meant that Noah and his colleagues have had to provide timely technical support. The stability of the platform is essential to retaining clientele. Even though they aren’t exactly swimming in capital surplus, Noah is satisfied with the current situation and confident that the company will continue to hold its own in this highly competitive market.

One reason for the company’s success is that the platform has added more functionalities and new technologies to the platform over the years. The initial prototype consisted of a website with underlying scripts and a databank. It has developed into a complex software landscape uniquely tailored to the platform’s applications. Noah now coordinates multiple departments: for example, one that specializes in data interfaces, one that manages the distributed server cluster, and a machine learning team that uses artificial intelligence to increase offers on the platform. Unfortunately, because there has never been enough time to properly migrate all components, various legacy issues from the original version of the platform remain and must be tended to.

SmartEcoTours not only offers sustainable excursions and trips, it has set many sustainability goals for long-term positive environmental and social outcomes. Every year in January, Noah and his colleague Freya, also a co-founder and CEO of SmartEcoTours, revisit and reformulate the company’s guidelines for Corporate Social Responsibility (CSR Guidelines) which are audited for compliance by a third party at the end of each year. This guarantees that SmartEcoTours practices what it promises. It is also a member of a social entrepreneurship network that allows them to exchange ideas with like-minded organizations and lends credence to their own convictions.

One of Noah’s responsibilities in the context of climate goals is to monitor the energy sources of their data centers. He conducts site visits at each operator’s facilities and obtains certification that all of the data center’s electricity is supplied by renewable energy sources. The company’s own hardware is also kept in use for as long as possible and then disposed of in an environmentally friendly manner. The auditors consistently attest to SmartEcoTours‘ excellent results in this area.

However, reports from the last two years have mentioned that employees are under a great degree of pressure, particularly in the technical teams. Concern that the competition could challenge SmartEcoTours‘ market position has repeatedly led to stressful periods with little sleep and a lot of frustration for the whole team. Noah knows there’s room for improvement in this regard, but there has never been enough revenue to fund another staff position. They still haven’t been quite able to achieve their goal of creating employee-oriented working conditions and reducing overtime. This is one of the top priorities for next year.

Above and beyond these existing challenges, the two founders now face a decision that will have long-term consequences:

At this year’s trade fair, SmartEcoTours established contact with another firm, AdventureLive. AdventureLive has expressed interest in acquiring shares of SmartEcoTours. After preliminary talks with AdventureLive, Freya calls a meeting with Noah. Noah is taken aback. While he knows that they don’t have an overabundance of reserves, he’s not enthusiastic about having shareholders. Freya, on the other hand, explains that they need to develop new ideas and products if they hope to maintain their market position and, as it stands, existing funds are insufficient for making investments. If they don’t act now, they could run into problems retaining customers in the medium term. It’s not necessarily urgent, and she didn’t want to worry Noah, but this surely looks like a prime opportunity: AdventureLive only wants to acquire 15% of the company, and with its expertise in live video streaming, it could be a promising partner.

What had emerged from the talks between Freya and Adventure Live was that together, they could develop a new and highly attractive product that combined platform uses with video. Freya presented the idea to Noah: With live streaming services on the SmartEcoTours platform, clients could broadcast their adventures live on the platform. They could rent a camera to mount on their backpack or gear and use it to record and stream in real-time. They could make the recordings visible to the public or only to a limited audience of friends and family. They could also connect their own cameras or cellphones to the service. Integrating streaming services could generate revenue from equipment rental fees and open a whole new marketing channel by bringing in viewers as potential clients for the platform.

But what Noah sees in the proposal is a huge wave of technical challenges crashing over his team: What about scalability? Will we need to hire new staff to connect the platforms? What are we going to do about incompatible software, and how long should the merger take? How will the video data be delivered, and is the infrastructure needed even verifiably sustainable? Who’s going to take on the maintenance and disposal of equipment? Where are we going to get the cameras and how do we get them to the consumers? Are SmartEcoTours’s CSR guidelines still feasible with this larger group of decision-makers?

Freya and Noah don’t really agree on how to assess the offer, but they must nevertheless decide within a few days whether to enter negotiations. On one hand, the financial involvement of a high-volume partner is a good way to secure the future by making crucial expansions to their product offerings and platform, maintaining their standards for quality, and continuing to live up to their ideals. On the other hand, they might lose their reputation in the partnership, should they be forced to deviate from their own corporate philosophy. And that would threaten their market position and competitive advantage in ecotourism.

Questions:

1. Should they just go ahead with the merger?
2. Sustainability also requires that people travel less in the interest of protecting the environment. The question is, which comes first: demand or supply? Couldn’t you contend that the availability of products on SmartEcoTours in itself increases demand? How does this question relate to the potential new options for video streaming? Is there a risk that video streaming—itself a resource-intensive offering—will eventually do more damage than anticipated?
3. SmartEcoTours has externally audited CSR guidelines. How can customers determine the degree to which these guidelines are adhered to? How are customers to know whether these guidelines aren’t simply a marketing gimmick? How can Freya and Noah inform the public about their CSR guidelines without being suspected of formulating them solely for marketing purposes?
4. All the trips and excursions offered by SmartEcoTours are stamped with environmentally responsible certificates. But it’s often hard for non-initiates to determine the value of such environmental certificates. They’re often just marketing gimmicks, or ploys to evade legal regulations. Certification usually costs money. What criteria should any firm use to decide what certificates to apply for? How can the consumer even check to see what any given certificate is worth? What happens if an environmental certificate loses its value over time, due to forgeries or fraud, for example? How does this reflect on companies and services that have already been certified? Is it best to have multiple certificates if possible?
5. Are any other models for “certification” feasible, based on reviews by many different users, for example? What form of quality control is possible here?
6. What should Noah do about the CSR audits criticizing the working conditions in his team?
7. In addition to monitoring the energy sources, should Noah also consider the impact of running inefficient legacy components and the overhead costs of distributed systems on energy consumption? Could increased reliance on more sophisticated, optimization-free software—much of which has been developed as open-source source software jointly by competitors and users—make a difference in this regard?
8. Machine learning algorithms could become available to support the sorting and filtering of new offers. How can sustainability be guaranteed when using automated processes such as these, where there is no human being to monitor in a timely fashion whether the platform’s offerings are still the most sustainable?
9. Is it even possible to monitor the sustainability of infrastructure beyond renting cabinets in data centers? What options does Noah have, for example, to check for environmental standards on the content delivery network required for video streaming?

Published in Informatik Spektrum 43(4), 2020, S. 302–304.

—Translated from German by Lillian M. Banks