Laure Claire Reillier is COO and Co-founder at Launchworks & Co (www.launchworks.co), a London-based consultancy that specializes in helping companies adopt, design and scale platform business models. Prior to founding Launchworks & Co, Reillier was a senior executive at eBay Europe and worked for a number of high-growth startups and established tech firms. She holds a Master’s degree in computer science and telecoms and an MBA from London Business School. She and Launchworks’ Co-founder and CEO Benoit Reillier are the co-authors of Platform Strategy: How to Unlock The Power of Communities and Networks To Grow Your Business, which is available in both English and French through Routledge (www.platformstrategy.co) and Dunod (www.platformstrategy.fr) publishing houses. Reillier recently spoke to The Innovator about why European businesses should consider adopting platform business models.
Q: Seven out of the top 10 biggest companies in the world now base their business models on platforms. What exactly is a platform business model?
LCR: The word platform is used in many different contexts and this is a source of confusion. People talk about political platforms, oil platforms, and even Lady Gaga wears ‘platform shoes’! In business, the word also has several definitions. Chief Technology Officers often talk about technical platforms (like Intel’s), Chief Products Officers talk about modular products as platforms (e.g. our Jaguar X uses the Ford Mondeo platform) and economists often use the term platform to describe markets that are multi-sided in which prices can be negative (e.g. credit card holders get rewarded for using their cards while merchants pay).
For Launchworks & Co a platform is first and foremost a business model. It’s an organization that attracts two or more different groups of customers and matches them to enable them to transact. Four broad categories of companies fit that definition: marketplaces of products (like eBay) or services (like Upwork); social networks (like Facebook or Linkedin), financial networks (like Visa or Amex) and operating systems and app stores like iOS or Android.
When we advise non-platform firms we almost always start our engagements with a workshop to align the management team behind a clear platform definition. This is a powerful way to unlock strategic thinking and a prerequisite to the formulation of a proper Platform Strategy.
Q: Why should traditional companies be paying attention to this?
LCR: Most sectors and industries are now being disrupted by digital platforms but at a different speed and degree. In some cases, the disruption is frontal and rapid, like in the media world, be it in print, music or traditional TV. In other cases, platform disruption occurs at the edge of an industry. For example, car manufacturers do not see their core production processes impacted but car/ride sharing platforms are redefining car ownership and therefore impacting the size of manufacturers’ historic markets.
While many traditional firms seem to believe that somehow these platform models are only relevant in a Business to Consumer (B2C) context, it is in the Business to Business (B2B) world that we currently see the most activity. The development of ‘after markets’ with spare parts in many verticals (Siemens’ EasySpareParts marketplace), Service Providers on demand (like Globality), boutique law firm services (Lexoo), Office supplies for businesses (Amazon Business marketplace) etc. are all recent B2B platform developments.
I see B2B and B2C platforms emerging in many sectors including manufacturing, retail, education, healthcare, transport, agritech, fintech, petcare, real estate, etc.
Q: Some of the best-known platform companies are now moving to the next phase: Platform 2.0. What does this entail?
LCR: Since the Web was born, we have seen firms approach these technologies in three different ways. The first one is to ignore technological progress — usually this leads to failure as the firm becomes uncompetitive and eventually disappears. The second one is to use technology to improve the efficiency of an existing business model. Many firms currently undergoing their ‘digital transformation’ are in this category. They may distribute their products and services online but the core of their value chain and activities remains the same. The last category uses technology as a way to organize themselves differently and this is what platform businesses have done. They have harnessed Web and mobile technologies to create entire ecosystems to attract participants, match them, connect them and enable them to transact.
Some of the best-known platforms (Platform 1.0), including Amazon, Facebook and Google, are now heavily investing and developing AI [artificial intelligence] and blockchain technologies. Amazon AWS has recently launched two new blockchain products for its Cloud offering, while Google Cloud’s division is catching-up fast. There are also many rumors surrounding Facebook’s growing blockchain team and what their leader David Marcus, might be working on.
The question is: will today’s successful Platforms 1.0 use these new technologies to simply make their current platform model more efficient? Or will they enable different, more decentralized, more transparent, more cooperative new business models, where governance principles are co-developed by the community? Smart contract ecosystems like Ethereum pave the way to enable new organizational models that we call Platforms 2.0. We are at the very beginning of this trend, and probably a few years before widespread adoption, but it is important to keep an eye on this next wave of disruption.
Q: How long does it typically take for a company to move to a platform business model?
LCR: This is a difficult question since firms and sectors are disrupted in different ways and at different paces. If we look at the publishing industry, some establishers players have managed to move to a platform business model. Schibsted, a 150+ year old media company that still publishes its original newspaper Aftenposten, has morphed over the past 10 years into a formidable disruptor, by building a mix of physical/digital and linear/platform businesses.
Not all companies will require a full move to a platform model. More often than not, we see the need to shift towards a hybrid model, or what we call a platform-powered ecosystem. The existing traditional model of the firm is supplemented by a platform business for some activities, as a key success factor for differentiation. For example, a manufacturer could add a marketplace of spare parts or a platform of complementary value-add services. A retailer could supplement its inventory with a long tail of complementary products.
This combination of traditional models and platforms is at the heart of many successful businesses. Apple uses a value chain to produce its hardware–raw materials are transformed into phones and laptops that are then sold at a margin. But increasingly the value of the firm is driven by its millions of apps–through the platform app store. The beauty of a platform-powered ecosystem is that the combination of businesses –phone and app store- is worth more than the sum of its parts. In fact, this is the rationale behind Apple’s decision to stop reporting hardware sales. They want analysts to start assessing them on the health of their ecosystem –and the margin generated- rather than the number of products sold.
Once the leadership team has clarity as to what a platform is, it usually takes a few months to adopt a suitable platform strategy. If the design and launch of a platform is required as part of the initiative, this can be done in less than six months although the scaling phase can take longer.
Q: What is your best advice to companies that are considering a platform strategy? What should they do to get started?
LCR: It all starts with a shared understanding of what a platform business is and how it operates. It is impossible to cogently articulate the impact of platforms on an industry or firm, let alone craft an appropriate strategic response without this clarity. Some large firms that have embarked upon platform initiatives in the past with less than stellar successes –GE and its Predix platform comes to mind- have often suffered from a certain confusion around whether they were developing a technical, product or business platform. So, to paraphrase Benjamin Franklin I’d say that ‘an investment in platform knowledge pays the best interests’. One way to understand platforms is to become an experienced platform user yourself — leverage flexible resources, join information exchanges, participate in open innovation.
In most cases the platform journey also requires a shift in mindset. It is not straightforward to start thinking in terms of open ecosystems and network effects where value is co-created by participants through incentives and governance principles when all you’ve studied, read and experienced all your life is about value chains, closed businesses, linear processes and direct control of the customer experience. So, I often advise companies to:
· Train your teams so that everyone across the business understands the tools, frameworks and concepts that underpin platform business models.
· Analyze platform disruption holistically to protect the core and design a platform strategy that captures both first and second order effects.
· Nurture ecosystem thinking and develop dynamic capabilities to see, seize and harness opportunities — especially if you’re an established business because this will allow you to be the ‘first to scale’ a new platform idea.