Current obsession: industry disruption. What do I love so much about it? It’s omnipresent. Every industry, every company, and every professional has an opportunity for growth at their doorstep, whether they realize it or not. When I stumbled across Sunil Gupta’s “Driving Digital Strategy” I immediately recognized not only an inspiring array of current case studies on disrupters but also a tangible framework for rethinking your business in a digital era.
Perhaps the most significant paradigm shift in business today is the impact of the platform. The platform-based business is changing our entire economy industry-by-industry and building high-value companies that require virtually no equity capital to run. Platforms are exceedingly disrupting product-focused companies and industries by dominating the supply chain without owning it — in the book, Gupta summarizes the contrast in these business models:
“The goal of a product-focused company is to develop the best product and maximize its sales and profits while ensuring competitive advantage through tight control of proprietary knowledge. In contrast, a platform business creates value not simply by selling products or services but by enabling transactions and by creating an entire ecosystem.”
If you are a business leader today in a more traditional proprietary product model, there is little doubt that platform disruption will impact your value at some point. The question is: will it be because you introduce it or because someone else does?
The Platform Revolution: The Time is Now
The facts are clear: platform-based businesses perform better financially in both short and long term scenarios. They also deliver faster growth, better return on capital, and larger profit margins [source]. Oh, and if you happen to be a start-up, expect a higher valuation if you are platform-based. A few companies doing pretty well in the platform biz include Airbnb, Amazon, Apple — and we’re still the beginning of the alphabet (pun intended). Not to mention 81% of executives say platform-based business models will be core to their growth strategy within three years [source].
One unique quality of the digital disruption paradigm is that we can more clearly predict it before it happens. Accenture’s digital disruption team reports it best:
“Previous technology disruptions were often unpredictable. But now, enterprises have a line of sight to track growing ecosystems and anticipate their impacts. Forward-thinking leaders can get ahead of the game, develop their ecosystem strategies, and ride the results into new markets.” [source]
I often call Gupta’s framework in “Driving Digital Strategy” practical; however, leaders must start now with a willingness to be a little impractical. Especially those more established companies who rely on proprietary products for revenue. If you’re ready to approach an impractical idea with some practicality — here is a brief summary of the components of an effective platform strategy (some of these are outlined in the book and others come from researching digital disruption experts):
- Know your audience
- Provide core service and tools
- Set rules and standards
- Generate demand
Know Your Audience — The Network
What problem are you trying to solve for? If you’re an established company, looking within your current market and industries is a great place to start because you already have insight and expertise, and can focus on looking for ways to facilitate transactions that add value to consumers (buyers) and producers (sellers) along the way.
That can be by reducing expenses, creating opportunities, or simply connecting the producer with the consumer in a digital way. If you’re in an industry that hasn’t seen significant change in value in a decade or two, disruption is imminent and you are in the best position to create it. By knowing your audience and industry (producer and consumer side) and understanding where they gain the most value, you can start to develop platform concepts.
Provide Core Service and Tools — The Value
Once you have clarity on the value your platform can create, it’s time to shift to your focus on how to enable transactions. In “Driving Digital Strategy” Gupta reminds us of the fundamentals of facilitation:
“The primary function of a platform is to enable and facilitate transactions. Recall that a platform business works by aggregating demand from a fragmented market and by reducing transaction costs. Therefore, a platform owners needs to build tools and services to provide easy access to third party players on its platform, use algorithms to match players on multiple sides of the platform, and offer additional services that make it easy for them to do business.”
As you are planning the tools and services you expect to facilitate, you should make sure you have answers to these questions:
- What third parties do I want in my ecosystem that can develop complementary services?
- What API’s and tools should we be developing to facilitate transactions?
- Is our platform going to be open or closed? (e.g. Android or Apple)
- How will we manage partners with conflicting interests?
Set Rules & Standards — Governance
Just because you don’t own the supply chain doesn’t mean you can’t govern it. When planning your platform-based strategy a key component of the plan should involve a governance protocol, including a set of guidelines that determines who can participate, how they might interact, and a dispute resolution process.
The recent Facebook/Cambridge Analytica scandal is a great example of the importance of governing your platform as Cambridge was using Facebook’s open data to target political ads to influence the 2016 election, which created a huge backlash from users and forced Facebook to clean up their protocols. Another popular example is Amazon’s role to determine when to delist sellers with bad customer service while still increasing the number of sellers overall.
Governance should be determined with “insights from diverse corners”, shares Gupta. Whether that is cross-functional expertise or deep knowledge of your industries’ regulatory considerations, governance before the problems arise can prevent market failures.
Generate Demand — Marketing
There are several marketing strategies to jump start growth of a platform business. First, you need to identify which side of your platform will generate the most activity on the opposite side. Will your consumers come if the producers are there? Or will producers come if the consumers are there? Once you understand the relationship and value these are the effective marketing strategies:
- Subsidize the platform (either for buyers or sellers)
- Develop an app or service yourself on the platform
- Build a freemium model
Work with a marketing strategist or firm that understands your platform supply chain can help you build out an approach that creates immediate value and for the producers and consumers on your platform.
Disrupt or be Disrupted
Jumping headfirst into a platform-based business model can be tricky, especially for product-focused companies. Even with the overwhelming task of redefining your business model, platform-based can often be a game-changer for your growth. And, if you’re shying away from investing in this direction know that there is likely another company ready to take it on in your industry. With the appropriate understanding of the supply and demand in your market, a clear concept, and a plan — you, too, can join the revolution.