In 2017, the top five companies by market cap were all platforms. Successfully bringing suppliers of goods and services together with the people looking for them has become the most effective value multiplier of our time. Almost all of these businesses are in the B2C space. We have not yet seen the B2B Uber, but lots of traditional industrial players are reaching for the prize. What is the magic of the platform model, and how will the first great B2B platform winner come to be?
Platforms have become a thing
Platforms are creating a lot of excitement as the highest evolutionary state of business. Studies from the likes of KPMG give them aa value multiple that is 3-4 times higher than typical businesses, so where is the magic?
The B2C space has given us a whole range of highly valued platform businesses from Uber to eBay. Each is characterized by a model that facilitates the meeting of suppliers of goods and services with people looking for those goods and services. This is the heart of s a strong platform play – a facilitated high value connection between suppliers and customers where the platform drives increased value as more people join. The high valuations are linked to low asset needs and the impact of network effects. But the B2B space has been slow to pick up (with the exception of pure play market places like Alibaba). The magic sits in the ability to drive massive network growth impacts with a low asset base and provide increasingly good experiences both sides of the model. How that magic works is hard to decipher as many companies have tried, but few succeed. But when they do succeed they succeed big.
Making it big in platforms
From the customer perspective a platform style business can be a huge boon. The promise to the customer is a mix of convenience and value. Convenience is driven by the breadth of the offer so you can find what you want, ease of hook up and good fit with the supplier and confidence in the outcome. rom the developer or supplier side it is about enhanced market access, better insight and building a reputation.
Like any business model it needs to create distinctive and durable value. In a platform case this is provided to the customer by the competition on the platform that tends to create a fair price, the ability to interact with other customers and the enhanced fit and match that comes from the network effect.
This hangs together because the platform is neutral to the suppliers. In many cases it curates to ensure quality (e.g. Uber) so the experience is ensured. In softer examples a platform will drive the cream to the top by using peer to peer reviews and this helps drive fit. The instincts of a platform business are therefore about
Some of the product to platform challenges
This highlights some of the biggest challenges of linear product companies getting involved in platforms:
- The instincts of a platform business push against the natural instincts of a product company that has are to monitor and manage its limited assets effectively. This will be about managing the overall resources under your control, be it people, IP, channels and the like. A company looks at ownership and orchestration of the things that deliver its value. The core skill of a platform is managing the whole network so the network benefits. This is an outward looking and influence approach.
- A product/ service business is in the game of optimizing its resource base so everything runs efficiently. Deep down in its DNA is the desire and need to keep on top of the drivers of cost and value. This focuses the business on its existing business model approach. A platform can scarcely care less about asset optimization. Typically, the asset base is so small that it creates little impact. Instead the primary lever of impact is constant and deeper engagement in the network and driving its overall growth. Stronger networks drive growth and growth, in a network, drives more growth.
- A typical business looks to drive value to the end customer, provide them with better services and experiences and optimizing their value. For a platform the goal is to drive value to the network. This may mean making choices that exclude parts of the existing network but to the benefit of the whole network.
So what for B2B?
The space for platforms is really exciting for the B2B space, and for existing product and service providers it creates some really interesting opportunities. Firstly, it repositions companies to a much more central position in the customer relationship. You might not be offering product but you are the conduit to what the customer is after and in that journey you are ideally both facilitating and creating a stream of value.
Secondly it gives you rich insight into the customer. It lets you know who is looking where for what, and what is striking a chord. This is a classic data play where you can use the data to better work out what sorts of needs are emerging and how to shift the focus. This could include strategic investments in 3rd party offers that are showing early signs of taking off.
Thirdly it creates a fulcrum role at the heart of the industrial ecosystem that drives new sources of revenues and opportunities. At a platform level the facilitation and enabling of connections will drive opportunities for revenues and beyond that create opportunities to further expand the network.
B2B is in a transitionary phase
Currently the most visible plays industrially are with companies like GE and Siemens. The answers here are softer platform models which look more like portfolio gap filling. These tend to offer a mix of own product and the possibility of third party developers offering solutions on top where the provider has no solution or competence. These feel like helpful evolutionary stepping stones as companies get their strategic heads around what pure play platform could look like.
These offers, whilst enhancing the customer value by creating an easier route to new services and creating more breadth of value, suffer from a number of flaws that will eventually be replaced by more evolved platforms.
- The platform is not neutral. There is always the lagging doubt in the mind of the customer that they are being sold the wrong thing or at least not the best answer that suits their needs. It is never clear if the business model is to get you (the customer) to buy more stuff.
- Route to market vs viable business. If it becomes a route to market (place to showcase your offer with 3rd party offers thrown in) it lacks the right reflexes to drive the network effect. The underlying business will look at it as a channel and will risk distorting the proposition as well as destabilizing the 3rd party supplier elements.
- 3rd party engagement. As new and better offers emerge from the developers/ suppliers that compete with the mother company’s propositions how do you react? Throttle the market access? Uncut the price? Create a differentiated access to customer data so you get the best? All risk upsetting the supply side of the platform and driving suppliers to more interesting platforms.
- The natural instincts of the business towards resource management and towards optimization will drive the wrong behaviors in how the platform evolves. The concern about initial rising costs to drive the platform would risk block the investments needed to grow the experience when early growth is what enhances the network effect.
- Business model tensions. The two sorts of models are at odds. At some point the platform will need to dominate or spin off to create its value and the product business will need to become part of the ecosystem of suppliers.
Turkeys voting for Christmas
The opportunity is sitting there for industrial organizations and exploring it is not a high-risk strategy. The blockers today are really about internal resistance where existing lines of business are unlikely to vote for a model that either opens them up to significant competition on the platform itself, or shifts the dependence on the business away from classic product lines.
Further down the road there are numerous challenges and adventures on exploring where to start, shifting the business weight to platforms, unbundling the skills and capabilities required to make this work. But at the start all that is needed is a little courage and a little exploration. Someone is going to figure this out and the only question really is whether it is you.