Old Businesses Must Learn New Platform Tricks to Survive
Despite the disruption, joining platform ecosystems is imperative for incumbent businesses
What’s it like to be a thriving, long-standing business threatened by tenacious upstarts from within and outside of your industry? How can incumbents level the playing field and get into the platform marketplace game?
At the July 2019 MIT Platform Strategy Summit, business leaders candidly discussed these and other tough questions that they face on a daily basis. Many speakers made it clear that incumbent organizations must undertake massive change if they want to compete with new digital marketplaces and platform delivery service models.
Participants in the Platformization of Incumbents panel included: Peter C. Evans, Summit Co-Chair, Moderator; Adrien Nussenbaum, CEO and Co-Founder, Mirakl Inc.; Jon Fahrner, Head of Marketplace, Albertsons Companies; Siamak Baharloo, CEO and Co-Founder, Labviva. Excerpts from the discussion follow. (Read the full recap of the event in this newly released Report). Read more about the event and how Barclay’s Bank is approaching platforms, here.)
Five of the largest market cap companies in the world are platforms — a group that MIT IDE Director Erik Brynjolfsson referred to as MAAF: Microsoft, Apple, Alphabet, and Facebook. Nearly all are digital natives that developed platforms as part of their business plan or acquired other firms. It’s a trend that worries incumbents, yet many see incumbents as growth engines for platforms in the future.
Peter C. Evans: A lot of people think you must hire a bunch of coders to build a platform infrastructure. Yet, third parties like Mirakl can offer that service to customers, much like AWS jump-started cloud services. Help us explain platforms as a service.
Adrien Nussenbaum: We help them recognize that digital completely disrupts the value chain and breaks down the boundaries of your business. In order to win in the platform world, you need to go beyond your existing businesses. You need to be willing to disrupt yourself.
Starting a digital-first business from scratch is easy. Our clients have more difficult challenges. In a platform world, you’re serving two customers: the traditional buyer and the partners you bring into your ecosystem.
Evans: Albertsons still maintains its traditional model of an established brick-and-mortar retailer as it moves into an online market. Tell us more about its size and scale.
Jon Fahrner: Albertsons Companies consisted of 21 grocery banners across the country, with 2,500 stores serving groceries to local communities for generations. It includes the Albertsons, Safeway, Jewel-Osco, and Vons brands, as well as Plated, the meal kit company.
The marketplace was originally devised to develop the “endless aisle,” building a platform that would offer more than what any store could stock in its inventory. Organizationally, we operate very much like a startup within a huge company with small teams that can move fast.
Siamak Baharloo: In a complex business such as biopharmaceutical research, results and products are developed jointly by government, universities, and often incumbents themselves. Each is hesitant to partner with other incumbents due to political, financial, and territorial issues. The only way to overcome and break these barriers was to create a new, multi-sided marketplace that expands across all of these incumbents and integrates their products.
There are huge opportunities — biopharmaceutical research is potentially an $80 billion (USD) market, and it’s growing. There are a lot of adjacent markets, such as bio-manufacturing, diagnostics, and food safety we may explore, but right now our focus is exclusively in the life sciences sector.
Evans: So you are organizing a market in an area that’s highly fragmented, but there is also a lot of unrealized transaction value.
Baharloo: I was fortunate to start this after 20 years in the industry. Our revenue model is based on charging suppliers a small fee on transactions. There’s no charge to our customers, whether they’re online or part of the e-procurement integration at large key accounts. Thousands of smaller manufacturers gain access to the largest pharmaceutical companies in the world through Labviva. Before, they had to go through a distributor o get that access — and had to give up significant margins.
Nussenbaum: There’s really a new economy emerging. We tell incumbent companies every day, “Don’t look at yourself from this little field that you’ve protected; look at everything that’s around. Look at how you can be disrupted.”
When Amazon, Alibaba, and others were startups, they had two benefits. First, they could disrupt themselves because they were new. Second, they were digital first, so they understood from day one that digital was about the endless aisle. The biggest struggle our clients and prospects face is realizing those opportunities and acting on them. Once they understand, we focus their efforts on execution.
Evans: What is Albertsons able to provide through these marketplace offerings?
Fahrner: Fifty million households shop with Albertsons every year. In any given location, there might be 10 customers looking for a special dietary need, or something that’s trending, so it wouldn’t make sense to stock that item for a small market.
With the marketplace platform, perhaps 10,000 people of those 50 million have the same dietary need — and we’re allowing them to shop digitally for that item. We’re vetting this network of third-party sellers for our customers, and they can get it within the Albertsons ecosystem.
From the time that a seller contacts us, we can onboard quickly, which is critical since food trends evolve fast. We can normally add a new product on the marketplace within two weeks.
Evans: Where do you see the biggest opportunity for incumbents to adopt marketplaces?
Nussenbaum: When I look at our 190-plus clients every day, they’re all selling items that they never carried before, that their buyers would not source because it didn’t fit the traditional model. They’re learning more about what their brand stands for and what it can do.
In 20 years, no business will survive without building an ecosystem, whether it’s mass market or high-end luxury. Even Hermès, the great French brand, is implementing an ecosystem with interior designers to offer related services to their clients. We’re living in a world of ecosystems.
Fahrner: Sometimes, you have to sacrifice margins early on to attract new customers. Forget about the economics of this for a second: What’s the perfect customer experience? When I was at Zappos, we were one of the first to offer free shipping and free returns. Our investors were getting sick over that. But everybody started talking about us and reoccurring orders jumped to 80% almost overnight. Without the customer experience, a platform alone is not going to do much.
Baharloo: Marketplaces increasingly will become that single UI that everybody goes to, not just to purchase, but to research, to investigate, to connect, and socialize. It becomes a user community.
Fahrner: I’ve worked with eBay over the years, and was fascinated by their origin. eBay started with collectibles, like beanie babies. They owned that niche, then went to the next niche, and the next. Every marketplace has to find out what their beanie baby is. You can’t be everything to everyone, especially not at first. Just be sure the customer comes back.