The most successful companies in the world have a digital platform at their core. Facebook, Alibaba, Google, Amazon – they all have one, and so should you.
Platforms are, at their most basic level, a conduit to connect buyers and sellers with one another. The economy value, however, comes to those who own the platform and facilitate exchange of resources that would not otherwise occur. The more transactions you expedite, the more money you generate. Being the platform provider also minimises your exposure to risk, which is dispersed among all the platform’s contributors and users.
But the main benefit of enabling all these interactions between buyers and sellers is data. Data drives informed decision making, providing the platform owner with insights into future trends, opportunities, and of course new cash streams.
Apple is a prime example of a digital platform business. Its platform is iOS, which allows third-party companies to connect to customers by building and selling apps on the iPhone and iPad. The apps increase the overall value of these mobile devices, without Apple having to invest additional resources. And for each app sale, Apple claims 30 cents per dollar.
So, by providing a platform, Apple is able to ensure new value is continuously being created for the user in the form of iPhone and iPad apps, while profiting from all sales and completely avoiding the development risk. In other words, free cash flow. So, what does it take to become a platform company?
The companies identified earlier were born digital. They started out as a platform company, or at least set the foundations from the very beginning to become a platform company. For a pre-digital incumbent, this is certainly not the case. Most pre-digital incumbents are pipeline businesses, where value is created as resources flow down the supply chain, from producer to consumer. To build a platform business requires a whole new strategy and culture.
If you’re going to introduce a platform strategy into your business, you must be willing to open up to the world, and this includes competitors. Transparency, openness, sharing and community are key factors that drive successful platform companies. The goal is to create more than you capture. And the first step is to figure out how you can create new relationships and interactions that unlock new forms of value.
If you’re going to build a platform out of a pipeline business, then you have to start with a good product – one that relates to your core strategy and customer engagement. As a pre-digital incumbent, you have been leveraging supply-side economies of scale to distribute your IP to your customers at a low price point. This approach doesn’t suddenly become obsolete in the digital age. You can leverage the relationships you have with your customers, as well as your domain expertise, to create new and novel interactions, which you can then build your platform around.
This is where your Engine B plays an important role. Consolidate your core activities and build out digital channels to reach your current clients, as well as future clients. These digital endeavours need to be centralised, ensuring that the data is also centralised and accessible. Your employees need to be working side by side rather than focusing on disparate digital initiatives. From here, it’s about creating an ecosystem and opening up your pipeline to new players.
Anthony Stevens, CEO, Digital Asset Ventures