At crossroads: Taking a platform approach to business

February 28, 2020

It’s the poster child of the fourth industrial revolution and the force that underpins the feat of world’s first trillion-dollar businesses. From the big five with a market cap of over $4.4 trillion – Apple, Microsoft, Amazon, Alphabet (Google’s parent company), and Facebook – to the most valuable start-ups (Airbnb, Uber, Flipkart, Didi Kuaidi, and Spotify), the list of globally fastest-growing brands is dominated by platform businesses. The stunning success of the platform model in B2B and B2C marketplaces has led businesses to christen it as the holy grail of growth.

Business strategists have been enkindled to ruthlessly revisit their traditional, linear value-chain models, and investigate how newcomer upstarts are able to disrupt age-old business segments, possessed with nothing classically requisite for business growth. (Quick outline: Platform businesses create an ecosystem for different users to come together to exchange goods, services or ideas.)

Platform business models are very different, they operate under a different set of economic rules and use counterintuitive strategies – like paying customers to participate, which rarely holds up par handed-down economics.

Built to scale

Traditional linear businesses are typically built on ‘supply side economies of scale’ – scaling by increasing production efficiency. Platform models, on the other hand, teeth on ‘demand side economies of scale’ – augmenting demand networks for users on the platform and making money by taking a cut for the exchanges.

Grounded in the old, pipeline business model, for hotel behemoths like Hilton and Marriott, growth demands adding more rooms to sell more through existing brands. That, in turn, means scouting for real estate and spending tons of money to maintain, upgrade, expand and improve. Airbnb, a newcomer in 2008, with its platform model, disrupted the industry without buying a single piece of real estate. It assisted individuals in providing rooms to consumers, receiving a commission in return for every booking arranged through its platform.

Scaling, therefore, is not a resultant but a survival need for platform models.

Platform model in action

Being a platform is more of a range than a summit point you need to ascend. Hanging up on the definitions may not serve you well. Platform model has existed since yesteryears: Chinese meirens matching life partners, lending exchanges in Athens, Craiglist. Except that technology has turbocharged it.

Apple is an exemplar of traditional companies scrambling their pipeline businesses into platforms. These basic principles must be kept in mind when chartering a platform strategy for your business.

• A platform business must enable interactions between participants. It warrants unriddling the value exchanges that matter for your target users.

• Once you are clear on the value exchanges your platform will encourage, discover how you will get things moving. Two functions are fundamental to heavy volumes of valuable interactions: haul and hook. Hauling is about solving the chicken-and-egg problem to jumpstart networks (drivers won’t come to Uber unless it encourages customers to join, and customers won’t use Uber unless it signs up enough drivers for service availability). Subsidy strategy and other parallel nudges can be capitalized upon. Hooking is about carefully guarding your territory and keeping users attached. Roll out new features to streamline interactions (Instagram introduced image editing).

We track five modern digital platforms, the first two of which foretaste remodeling traditional businesses into platforms.

The Regisseur Platforms

These platforms stage an ecosystem around their core offerings. Besides digital players, they can be a turnaround for manufacturing businesses. Say you are a producer. Like most businesses, you offer some digital extensions of your product (sensors, digital newsletters, feedback loops, a mobile app). Regisseur platforms bundle the information generated from these digital extensions to match their users’ demands with other producers (sometimes even from their segment). For a majority of traditional businesses, this would entail looking at competitors differently: as a part of the ecosystem. As the stakeholders grow, the platform will create an ecosystem that may very well be a microcosm of the industry value chain.

GE’s Predix is an edge-to-cloud industrial internet platform that connects machines, people and data of associated companies to a single cloud platform. Through shared capabilities, it monitors operations and extends digital industrial solutions (predictive maintenance, for instance).

The power of the GE Predix platform lies in its network of customers and voluminous data generated from across sectors – oil and gas, power, manufacturing. The data can be leveraged to devise solutions by the company itself or even fellow manufacturers. Other popular examples of such powerful platforms are Facebook, LinkedIn, Google’s search platform.

Banking on a niche

These platforms draw customers and producers around a niche. Think Lyst in Fashion, UberEats in Restaurant and Delivery, and others. This route can benefit intermediary organizations operating with traditional business models in their niche looking to reposition as a platform. This would require solidifying your market and knowing your customers first, and then inverting the firm.

Say HotelSup is a fictitious supplier to standalone unbranded hotels and guest houses in the hospitality industry. To transform into a platform business in this fragmented market, HotelSup can begin by offering inventory management support to the customers. This additional service will build a marketplace at one end and collect customer data on the other to further the understanding of customer needs. Once the core interactions are established, and demands are assessed, HotelSup can invert its core business to diversify and scale into a platform as an answer to all needs of small hotels and guest houses.

Neo-Digi bazaars

They are ideal orchestrators. These platforms create an ecosystem to bring an array of users together, and can be called supermarkets of the digital world. Primarily they are transaction platforms, but customer satisfaction forms a huge slice of the pie as well. Amazon and eBay are some popular examples of such transaction aka broker platforms.

Creating such platforms requires identifying the common interest between users and then garnering engagement to foster value exchanges.

Access over ownership

They are the most pervasive form of platform businesses, popularized with Airbnb and Uber. They consummate matches between people’s underutilized assets (room, car) with those who can benefit from these spare capacities. At their pith, they are clearing houses of sorts, also called peer-to-peer platforms connecting individual participants to deal with other people with similar interests.

Mechanics of Knowledge

These platforms pull together mission-critical resources for a business while reducing frictions caused by disparate and distanced knowledge providers.

Heavy industry, for instance, requires various equipment to design a large industrial asset such as a ship, train, power plant, and the likes. Businesses of all sizes are involved in this process encompassing inviting tenders, long intermediation periods, response cycles and numerous other iterations. Platforms, preferably led by industry experts, can change the dynamics of these relationships with fast-tracked approaches. Some very modest examples of such platforms are TaskRabbit and Freelancer.

The convenience offered by platform businesses is sweeping. From hailing rides, and finding a dating partner, to renting out spare rooms, and ordering food. They are upending the global supply chains - all by constructing a means of connection. That said, creating a platform, especially transcending into one is no walk in the park. As traditional organizations increasingly seek to realize the power of platform model, Business Strategists can be their anchor in this transformation; masterminding a strategy rooted in deep trust-based relationships, airtight action plan, and a robust technological framework, all that lies at the core of platform ecosystem.