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Platform-based business models – face-to-face with disruption?

September 26, 2016

Julie Woods-Moss   

Blog Contributor

It’s time for CIOs to think differently

In recent years, the wind of change has switched direction. Instead of increased globalisation, digital disruption is the major talking point. According to IDC, we’ll see break-in competitors causing disruption in 50% of all industries by 2018.

However, disruption isn’t something we should talk about, then park and worry about at some point in the future. If you’re the CIO of one of the incumbents, it’s a clear and present danger. Right now, for instance, Accenture considers that 32% of bank revenues are at risk from disruption. The Payment Services Directive 2 (PSD2) has levelled the playing field; now the sector is rife with disruption as threats come from fintechs, tech companies and challenger banks.

What constitutes disruption?

A recent report by Harvard Business Review suggests that there are three distinct types of disruption: High-end disruption, low-end disruption and new-market disruption.

High-end disruption means that, like Stories from Instagram (and its eponymous rival from Snapchat), you’ve entered the market with a proposition superior to what incumbents offer.

Low-end disruption is typical of cheaper and simpler service businesses (think Jive and its social networking, for example) but can also include offerings such as those from mattress manufacturer and vendor Purple, who disrupted the market by selling online. This model makes the offering more affordable and simpler to use.

Finally, there are new-market disruptions, such as Netflix. These both create new categories and give a whole new range of companies the chance to profit.

However, in practice, these divisions are somewhat artificial. Just as one man’s meat is another man’s poison, one person’s high-end disruption is a new-market disruption. Spotify, for instance is a service (low-end) – but is it also a better version of radio (high-end) and/or a whole new category (new-market)?

Hunt around (or indeed open the pages of any paper, any day) and you’ll find countless examples of companies that fall into one or more of these categories: YouTube, Amazon, Next Label, the Apple Store and Philips HealthSuite, for example. Some, such as Amazon with its reported $107bn turnover, have become digital gorillas in their sectors. Others carve out a highly profitable niche. But what do these disruptors have in common? Two things. They’re all successful businesses. And, what’s more, they’ve all got where they are through business models based on the clever use of platforms.

Platform business models – the way ahead?

According to Jo Caudron and Dado Van Peteghem’s book Digital Transformation, there are at least ten discrete platform-based business models at the heart of digital disruption and seven strategies that help address its challenges. But what is the essence of a platform business model – and what makes it tick?

A platform business model isn’t about technology. It’s a way of bringing consumers and producers together – and it’s not a new idea. Platform business models have been around for years, using bricks and mortar as the place where business exchanges happen. July 2016’s MIT Platform Summit defined the model as “an infrastructure on top of which external producers can come and create value, and on top of which consumers can come in and consume the value”.

“If you always do what you’ve always done, you’ll always get what you always got.” Henry Ford’s comment has a point. If you’re going to be different, it’s time to start thinking platform, not product. And that means it’s time to come to terms with the way in which the internet has changed the rules of business.

The dominant business model used to be “create, push, sell” – in other words, produce the products, push them out and sell them to customers. But now the internet has allowed us to switch from “pipe” to “platform”, where users add value and then consume it themselves. TV is a pipe, that simply issues content. YouTube, on the other hand, is a platform model. And make no mistake, business platform models are the business of the future: as Marshall Alstyne of MIT said in Platform Strategy & Open Business Models, “Platforms beat products every time.”

Start your planning now

Over the next few weeks, this series of blogs will look in more detail at platform business models. We’ll assess the key ingredients that combine to create one, why it’s particularly relevant to CIOs, how to start, and the nine key areas that you need to consider. By 2018, according to IDC, >50% of large enterprises – and more than 80% of enterprises with advanced digital transformation strategies – that will have a platform business model in place. With our help, you could be ready to join them.

Watch out for the next in this series, where we’ll cast an eye over the elements that you’ll need to put in place.

How can businesses stay ahead of the curve on platformisation? Let us know your thoughts in the comments below.