“We’re moving from obvious to more complex ecosystems, where multiple platforms merge into one. It’s exciting, but you must know how to lean into platforms to create new value to old products and services.”
Peter Evans, Manager Partner at the Platform Strategy Institute; 2020 MIT Platform Strategy Summit Report
In a recent post, we explored how the 3DEXPERIENCE platform allows businesses to go beyond operational excellence by creating the conditions to transform relationships and roles across their business network. Here, I would like to look deeper into the concept of platform as a business model and expand on how most organizations, even ones with a traditional, linear business model, can benefit from adopting a platform as a business model.
Driving profound changes
Platforms are not a new phenomenon. Marketplaces in the antiquity period were platforms. Usually located in the town’s center, they attracted a multi-sided audience, had some basic services (stalls) and facilitated transactions for food, livestock and other goods. Of course, platforms have now migrated to the digital world, evolving with technology trends such as mobile devices, big data and artificial intelligence. So pervasive they have become in the past twenty years that Accenture claims they “are driving the most profound global macroeconomic change since the industrial revolution.”
In their digital platforms CXO survey, Accenture found that in nine out ten companies, platforms are either core to their business strategy or enabling it. Specifically, 48% of executives interviewed stated that platforms are core to their organization’s business strategy, and an additional 40%said platforms are enabling their business strategy. Not surprisingly, platforms are more pervasive in industries such as banking and high tech, but a large majority of companies in retail, consumer goods and services, industrial equipment and insurance report making a platform central to their business strategy.
Harnessing platform powers
To recognize the role of platforms in shaping our current and future economy, it’s key to frame them beyond just another technology stack or a suite of software applications sharing common services and a unified user interface. In the 2019 book Business of Platforms, the authors assert “platforms bring together individuals and organizations so they can innovate or interact in ways not otherwise possible, with the potential for nonlinear increases in utility and value.”
How does a platform business model differs from a linear business model? In the platform business model, the focus is on facilitating the exchange of value among participants. For example, an author incurs an initial cost when creating a digital book, but once completed, the marginal cost for selling his book on a digital platform to others is near zero.
To enable individuals and organizations to innovate or interact in ways not possible before, platforms bring together four fundamental elements:
- Audience. A platform attracts and retains a multi-sided audience. At its simplest form, it has two sides: the producers of goods, services and experiences and the consumers. But it can have more: Consider DoorDash’s platform which includes three: hungry guests, restaurants and delivery drivers.
- Tools and Services. A platform includes a set of capabilities in the form of tools and services that facilitate interactions and transactions between the different sides.
- Governance. A platform has rules and standards governing interactions and exchanges. These may include incentives to encourage audience participation and penalties to stop unwanted behaviors.
- Matchmaking. A platform provides the ability to match the different parties in order to facilitate interactions and exchanges, often through sophisticated algorithms.
Platforms are ideal for digital goods and services. However, millions of companies operate within the constraints of a traditional linear model where value is created from taking raw materials and components, transforming them into products and ultimately selling them downstream to buyers through indirect or direct channels.
A platform still offer tremendous opportunities to these organizations. Let us explore four of them:
- Enable new ways of engaging with customers. By matching different sides (the right consumers with your enterprise), a platform provides direct access to customers, something not necessarily available in a traditional linear business model. In Accenture’s survey, 53% of executive identified a benefit of platforms as enabling new ways of engaging with customers. For industrial equipment manufacturers, it is even higher, at 71%.
- Optimize design and lower production costs. A marketplace (a platform’s service to facilitate transactions) opens up a tremendous opportunity to streamline your designs and lower your production costs by offering standardized parts and components ready to be integrated into your designs and your design environment. 3DEXPERIENCE Marketplace Part Supply is one example of a service that allows designers to find the right parts from an artificial intelligence-driven online repository of tens of millions of mechanical, electrical and electronic components offered by more than 1,100 qualifier suppliers.
- Co-create with partners to offer complementary products and services. A platform allows you to tap into a pool of industrial manufacturers with domain expertise and know-how . Platforms with intermediation services such as the 3DEXPERIENCE Marketplace | Engineering connect professionals like product managers, program managers and designers with engineering firms in specialized domains and industries. You identify and select the best partner for your project based on your specific criteria.
- Re-imagine your business by moving from a product-centric offer to an experience-centric offer. We are in an experience economy where experiences engage people at an individual level and are more vital than a product itself. Experiences are becoming the predominant economic offering because the value derived by customers goes beyond product ownership or services delivered. The value is in the total experience! Sophisticated platforms such as the 3DEXPERIENCE platform unify the virtual and real worlds. These virtual twin experiences add an experience component to a product or service, helping to reimagine buyers’ experience of your goods and services. They are also instrumental to imagine, design and test the radical new products, materials and manufacturing processes needed to compete in an economy that is increasingly focused on being more sustainable.
Platforms have and will continue to redefine entire industries. Companies who remain entrenched in a linear business model will face tough times, but there is a silver lining: they can combine their traditional business model with a platform business model. Platforms bring together individuals and organizations to facilitate collaborative innovation and new ways of interacting to change the way you conduct business with your network. By making the first steps of integrating a platform into your business strategy, you can join the platform economy right away!