Interesting this year, I’ve heard 3 CEO’s of large asset managers state that to compete, they must become platforms. It makes sense but got me thinking of what that means and where could things end up if everyone is trying to go in the same direction.
Products
Products are everywhere. They could be technology products(Email, cool new video game, etc.), services(insurance, investment fund, etc.), physical products(iPhone, watch,etc.).
Most companies start with an excellent product(search for google, Apple 1 from Apple, luxury cars from Uber, fidelity fund from Fidelity investments, etc.). Still, eventually, they need to become distribution platforms for at minimum their services.
Platforms
Eventually, these product firms start to create more and more products. As the products expand, the company shifts from being the manufacturer of the product to become much more customer-centric and distribution oriented.
This is what leads apple to sell non-apple products in its stores or Uber to add new services such as food delivery services to their offerings.
The companies shift at this point by viewing the firm through the lens of the customer’s value journey and trying to provide a larger share of that value through your company. The company is no longer looking at their product in isolation.
The asset manager CEO’s are thinking like this, as well. They are thinking, “We have a few great products. To continue to satisfy more of the customer’s needs and preferences, the firms should offer a more comprehensive product catalog that we alone cannot create.”
Banks have been doing this for decades. You typically can go to a bank advisor and get a list of funds that their firm didn’t manufacture. Similar to the apple store having their apple accessories but also sell other bands there as well. Obviously, preference is given to their own items. Still, as long as the customer’s experience is positive, they seem delighted to operate this way.
This appears to be generally where we are today.
Protocols
Things get interesting at this point, and I think this is where the excitement in modern technology is at.
Platforms have strengths(customer experience, wider product distribution, capturing more of the customer’s value journey,etc.), but they have their flaws as well mainly:
- Platform owner decides policy(pricing, rules, etc.)
- Platform owner decides who is accepted on the platform
If you are a new company and not accepted to the platform, it can be hard if the customer’s attention is on that specific platform. For example, a restaurant not being listed on Zagat or local yellow pages a few decades ago would have made the discovery of its services more difficult.
Companies and people who want to be part of the platform but are not keen on the platform owners’ policies or struggle to get accepted will take another route — protocols.
Protocols do not have a single owner or policymaker. A group of people get together and create a protocol.
In an example of the internet, no one owns HTTP, and anyone is free to use it as long as they adhere to HTTP protocol. If they do, then other systems can engage(browsers, servers, etc.) if they do not, then there will have errors. A group of people with no or limited commercial interests assist in refining the protocol to adapt to a changing environment and customer/user experiences.
Here is an example, if you list your widget on Amazon or Walmart, you must adhere to their policies or risk getting shut out of their platform. If you decide to open a local store, you can accept payments from by any payment processor(which is adhering to a payment protocol). Your company is not limited to any bank or specific provider who can enforce policies on you for using their platform(within the scope of the policies implemented by the protocol).
The risk platforms organizations run is that their platform gets transformed into a protocol.
Examples
I’ve been thinking about examples are around finance(mainly because it’s what I’ve been doing for a long time).
I’ve been lucky enough to have hired and worked with a very diverse group of people from all over the world. A few people from Asia have complained that they felt financial services in North America was not as innovative in terms of products from their countries.
So they looked at the differences in offerings and tried to build a roadmap to create the product here(without going into specifics it was a real banking product). They quickly realized, To launch their product, that they needed a banking license. For the specific services, they wanted to create would require them to be scheduled one bank in Canada(there are 37 such banks currently). Interestingly you will notice some of the schedule one banks are Rogers, Canadian tire, Duo Bank of Canada(formerly Walmart bank), and others. These are companies we do not think of as banks but having to become banks to offer financial services.
Upon investigation, this policy is enforced is via access to the central bank’s ledger, meaning you cannot trade with other banks/participants if you are not on their platform. This is also typically how economic sanctions are enforced — If a member trades with an entity(company, individual, or country) under sanctions, then they run the risk of being disallowed from the platform.
Where it gets interesting for me is someone aspiring to offer financial services products have three choices at this point:
- Go through the process of joining the platform.
- They can partner with an existing member of the platform(bank, amazon reseller, stock exchange member, etc.).
- Create a protocol for others in their situation to interact with clients and each other without a central platform manager.
Right now, most firms are going with option one or if too resource-intensive then partnering. The partnering is creating an ecosystem for many smart firms who are members of platforms. Still, there is an emerging group that is looking to develop protocols as a way to bypass this.
This might sound far fetched. Still, there are people right now trying to build ledgers that would turn the existing financial platforms into protocols. There are people turning government health record platforms into open protocols to create a broader ecosystem of participants. I recently met a team proposing protocols for private firms to be part of an automated ETF for funding to enable greater access to the general public capital(think of an index fund for private firms).
This is slowly becoming more widespread.
Trust
Ultimately the question this raises for me when I consider using a major bank for my deposits or amazon for my purchases is the idea of trust. I believe the reason I engage with these organizations is there is a level of perceived trust with them. The protocols are trying to (it will depend on community participation with those protocols), is moving away from trust being linked to individual organizations and towards ways of operating/interacting.
What if we could go into a bakery and it was on a trusted protocol that confirmed the baker was indeed accredited, ingredients were fresh, cooked in the way they said it would be, and the customer reviews were for actually for this firm.
This kind of technology can be built today. As customers adopt this shift in mindset, it will enable high-quality products and services to flourish regardless of the size of the firm without having to move into becoming a platform to grow. It goes back to being all about the product, and gaps in customer value journey are up for grabs by the best product that can do so.
An open group debates policy and if agreed by participants is programmed into the protocol, and it’s users now have TAAS(“trust as a service”)
BlockChain
A few of you may quickly recognize that a lot of what I’m describing is part of the goals behind Blockchain. I was initially skeptical of the technology because I had only heard of it in the context of bitcoin.
I now realize that bitcoin is one of the first “apps” of Blockchain(mainly because it’s a standardized product and highly driven by trust). The ultimate premise of the technology to solve “trust” in the world by turning previously human-driven policies into protocols.
With that in mind, when I hear Blockchain for real estate, banking, coffee, job applications, etc. I realize now they are looking at the trust component.
I’m not still convinced that Blockchain is the only solution for trust. Still, BlockChain definitely a leading solution to the problem of trust. By solving trust, it has the power to disrupt many firms that may not be the most competitive but rely on trust(or distrust of competitors) to maintain their clients.
Thank you
This was a long article and one of my first I’m publishing. I appreciate you taking the time to read this. My goal is to use writing to help share and clarify ideas to myself. I hope you enjoy it, and I welcome any feedback.
