Platforms are dominating the business world, what’s your play?
As the global business world becomes more and more interconnected, platform business models will mediate trade across borders, and only the companies who can orchestrate a digital marketplace will remain in a position of power.
When people think of platform businesses the behemoths Amazon, eBay, and Facebook spring to mind. But, across the industrial heartlands of Europe, there is a growing number of established companies who have spotted the potential in a business model that can reduce marginal costs to near zero, and elevate a company to conductor status, in a symphony of buyers and sellers.
30 percent of global economic activity ($60 trillion) will be mediated by platforms within new digital ecosystems in 10 years time.
—McKinsey Global Institute, 2018.
So, what does that mean for businesses? Despite the less than two percent of businesses currently deploying a platform strategy effectively, the opportunities are vast, both in terms of revenue and growth.
What is a digital platform?
Imagine a platform business as an orchestra. Once carefully directed, the strings, brass, and percussion play in perfect harmony. It’s as if without thinking they know who does what and when. Take the conductor out of the equation and the music would deteriorate into Mozart’s earliest work when he played the pots and pans as a toddler.
A digital platform works by seamlessly bringing together different participants, so that they interact, buy and sell, find out information, and provide services, within one (virtual) space. In essence, they facilitate interactions between multiple stakeholders and they benefit by reducing friction in the market and from the new economic paradigm of ‘network effects’, whereby the platform becomes more valuable the more people who use it.
In essence, a platform will bring together suppliers on one side like products on Amazon, services like Upwork, content like YouTube, or apps in the App Store. And, once the supplier side is active, customers from individuals to small and big organisations are matched up. The platform conducts proceedings through its plug and play infrastructure.
AI and data intelligence enhance the matchmaking process. For instance, the technology that Uber uses can, within meters, identify the location of the nearest taxi to the customer. It is this data intelligence that creates a competitive advantage for Uber and creates its powerful unit of value. Governance is also a key component of any platform, defining the rules of engagement and quality standards for users.
Three of the main benefits of an efficient platform include:
- Facilitating interactions. Customers can find suppliers with ease and vice versa.
- Network effects. Once a platform is in operation, the platform owner reaps the benefits of all future interactions. Take Uber as an example. The more drivers that join the network and tell their friends, the more rides are available for customers. This reduces waiting time for passengers, and downtime for drivers.
- Control unique value units. At the heart of the platform’s ability to dominate is commanding the use of unique value units. On Airbnb, it is the property listings, which allows people to search for dozens of places to stay short-term. By controlling the entire listing, they dictate how business is performed and they take a share of the profits. The asset-light nature of a platform means that it can scale fast. The tweet above from Brian Chesky sums it up nicely by showing how much quicker Airbnb can add properties compared to how fast the Marriott can add rooms.
The essence of an effective platform is to create profound value for the customer; ideally by combining 3 elements: marketplace functionality (matching buyers with suppliers, value-added services and workflow tools (like product configuration, financing, logistics), and community (enabling participants to interact with each other and share experiences.) By unlocking data at the intersection between the marketplace, software and value-added services, and the community, new insights are generated which help to optimise the whole system. A lock-in effect is created as more participants realise the repeated value that the platform offers.
10 types of platform strategy
There are 10 types of platform strategies. Few incumbent organisations today successfully achieve more than one these.
Why some platforms succeed and others don’t
When deciding whether a platform investment makes sense, incumbent organisations should evaluate the basic properties of the ecosystems in which they operate, re-conceive their roles, and consider ways to strengthen network effects. It’s also critical to assess the feasibility of minimising the threat from multi-homing (users on multiple platforms at the same time), working with 3rd party suppliers to satisfy market demand better to create a superior customer experience. That exercise will illuminate the key challenges of growing and sustaining the platform and help businesses develop more realistic assessments of the platform’s potential to capture value.
10 Critical Success Factors
Best Conditions for a platform
- Fragmented market
- Poor customer experience (quality, time, prices)
- Manual processes/ high transaction costs
- Inefficient asset utilisation (by suppliers)
How to Activate
5. Start with demand, not supply (unless supply is scarce)
6. Create superior customer experience to create demand
7. Qualify/score suppliers
Often ignored
8. Enable suppliers to improve their asset utilisation
9. Enable suppliers to satisfy market demand better
10. Create new supply
Case Study: Ping An
Today’s most striking example of the power of combining corporate resources with entrepreneurial flair to create a successful platform-based business empire is a Chinese company called Ping An. What has happened at Ping An in the last five or six years is remarkable. It is now the most valuable insurance company in the world, by becoming less of an insurance company.
What completely transformed the company was the development of a sweeping new platform-based business model, which has positioned Ping An at the heart of a number of important industry sectors stretching far beyond the realms of insurance and financial services, where they made their name.
Ping An has carefully nurtured five open services ecosystems — financial services, healthcare, auto services, real estate and smart cities — that bring together buyers and sellers, individuals and companies, service providers and service users, including many smaller companies that might historically have been seen as its competitors.
Ping An’s OneConnect financial services platform, for example, provides more than 50 products, including AI-based claims management for 40 different insurers and instantaneous, self-verifying blockchain settlement services and credit scoring for hundreds of banks. Everyone benefits. Via OneConnect, Ping An is able to make the modular technology-powered solutions it has developed in-house available as enterprise services to other financial institutions. At the same time, it is able to adopt capabilities from outside sources and put them on the platform to enrich the range of choices available.
It’s a counterintuitive idea. But the reality is that they constantly building the next layer of these technologies. If someone else wants to use the technology that they were using two years ago, they’re happy to give them access to it.
Ping An calls this approach the ‘finance + ecosystem’ strategy and it has made the Chinese company the global poster boy for platform-based business transformation.
It takes a very special set of skills to create a new business, and very few companies have that. I think the starting point is the willingness to reflect that challenge and then to say well, what type of talent do I need to be able to achieve that outcome and minimise the risk of failure?
— Jonathan Larsen, Chief Innovation Officer, Ping An
Fast-track the future
By setting up a separate business unit that reports directly to C-level and by creating a portfolio of platform ventures led by proven entrepreneurs, a corporate has a proven approach to fast-tracking its future. It can then operate with the agility and speed that is necessary to initiate a paradigm shift. A new form of governance — what we call an ‘Entrepreneurial Growth Board’ — helps connect the learnings from the fast-track unit to the core business, and the strategic requirements of the latter to the former. The company CEO must be on this board to give it the prestige needed to enable it to drive company-wide business model transformation
In many ways, if a digital platform business model is executed in-house, the employees involved will be less inclined to take bold leaps, fearing their jobs or reputation. A standalone business unit can operate with different KPIs, where failure is accepted as part of the path to innovation. Radical new business models can’t be shaped overnight, and there will be highs and lows, but if the need for a digital chance.
FoundersLane has worked with dozens of incumbent corporates on their digital and platform strategy, and it is clear that the DNA of their core business will stifle the type of entrepreneurial approach that’s needed to create a successful platform business. Our research and hands-on experience have demonstrated the radical ‘next practices’ that are needed to effectively execute platform business models and fundamentally improve your ability to compete in the future. We share these next practices in our new book, called FightBack available here on Amazon.
The book forms part of a fast-growing movement of CEOs and entrepreneurs who co-create alliance-based digital ventures to ensure sustainable growth and prosperity for Europe and the world.
