Five key ideas to convert to a platform company.
In today’s turbulent business environment, CEOs and executives seek innovative ways to increase their growth and maintain competitive advantages. Many are finding that the solution can be discovered by studying the success of technology giants.
Platform business is a business model that focuses on creating and encouraging ecosystems in which multiple parties can swap value to provide substantial growth opportunities and competitive advantages.
In the case of a traditional linear (traditional) business, it is common to create value within the company using assets. Platform businesses operate primarily as a broker for deals. However, they can also function as channels for their products or solutions. They tend to be low in assets and produce value through connections instead of production. In addition, most traditional linear businesses possess the characteristics required to turn into a platform company.
Platform companies dominate the leaderboards, outperform competitors, and even alter markets. Over two decades, platforms have been dominant in the marketplace and make up some of the most valuable businesses today. The seven platforms listed below have a market capitalization that has grown from $5.9 trillion before the outbreak (March 2020) to $10.5 trillion by December 31st of 2023. They were also 10 out of the top 15 equity gainers with the highest value during the same time. Together, they contributed 4 trillion dollars in equity value.
Though tech giants have mostly been trailblazers, business leaders in all industries can draw lessons from their experience as they think about a change from a linear model to a platform model of business:
1. Imagine how you can add value to your customers.
Many businesses excel in engaging with customers, recognizing their preferences and needs, and discovering new ways to use their resources and capabilities. Linear companies seek to meet these needs within their organization. Platform companies expand the scope for identifying efficient ways to use resources outside of the company to satisfy these or other conditions that are not being met. They offer an ecosystem where participants from outside can communicate and exchange value, all while receiving a reward for the created value. In some instances, they have almost no cost. This means that each purchase made on the platform could increase revenue for the company without increasing costs.
A few companies that are not part of the big tech have benefited from this leap. In the past few years, industrial equipment manufacturers created a cross-industry software marketplace. It developed an ecosystem through which customers could gain access to products and solutions beyond those offered by the company’s portfolio.
2. Create a community around your strengths and the areas you are granted brand-name permission.
Companies looking to make this transition must be able to capitalize on their strengths. One of the top manufacturing conglomerates developed an IoT platform that is device-enabled. The entire experience was designed to meet the demands of industrial manufacturers or plant owners — a kind of client that the company knew well and had been serving for decades. The platform was a natural but ingenious extension of their existing business, increasing customer loyalty and creating alternative revenue streams.
3. Think about your contribution to your role in the value chain.
As the owner of a platform, one of the company’s principal responsibilities is to help facilitate seamless interactions among the participants on the forum, whether it’s an exchange of product content, services, or knowledge. A well-functioning platform will create the conditions needed for the entire ecosystem to flourish by decreasing or eliminating friction and decreasing the cost of transacting on the forum. This role can help those involved benefit from each other and thus increase your value on the platform in general.
4. Choose whether to build or purchase.
While the idea of launching a platform-based business is possible for the majority of linear companies, that isn’t a guarantee that it will be simple. Some businesses may already have the infrastructure required to expand and build. For those businesses, their focus will be on the commercial and strategic aspects of building out – creating a compelling ecosystem value proposition, aligning investments in technology, and establishing governance frameworks, training, and onboarding partners.
For other companies, purchasing the technology assets or an entire platform company might be more beneficial. Examples of deals that have occurred that are not tech-related include a significant retailer who purchased an e-commerce platform to allow third-party sellers to join and a significant fitness clothing firm that purchased several fitness-related platforms on social media simultaneously, resulting in an effective and profitable digital fitness industry.
5. Concentrate on earning and building trust within the ecosystem. This is more important than ever before.
Based on the PwC’s Trust in U.S. Business Survey, 62% of respondents have identified cybersecurity and protecting data as the most fundamental aspects that build trust.” Not surprisingly, people are not happy when their personal information isn’t secured or even shared with third individuals for purposes that are not intended. The cultivation of trust is especially crucial to platforms since it is affected not just by the conduct of the forum owner but also by the activities of the other ecosystem players.
Although these five concepts are the most important, there are many more aspects to consider. But, they could be an essential point of reference for companies when they look at the three elements of an adequate foundation to grow: determining where and how to deliver more excellent value to customers, setting up the proper infrastructure, and then continuing to establish trust and loyalty among the various players in the ecosystem.
Even if some businesses do not have a technological basis or an established experience, they can use technology to help them rethink their growth plans and, in turn, lead leaderboards and discover possibilities.