Business Models Going Digital: The Value of a Platform
The power of digital is clearly changing the lives of people and it is being driven by numerous technology trends: internet of things, artificial intelligence, cloud computing, cyber-security, social media, big data and analytics, etc. This change is so profound that sometimes it seems as new technologies are popping up in almost every aspect of the human life – from the daily routines that all people engage into, such as: searching for information, communicating, shopping, traveling, etc., to non-routine and exploratory activities reserved only for some people: scientific research, deep underwater and space explorations, fighting the climate changes, etc.
All of this has been enabled by many companies who understood that the new race had begun – the race for digital transformation. But unlike some other races that companies have run in the past, this one will most definitely result in a significant shakeout, leaving behind and eliminating those that cannot keep up, thus resulting in a radically changed competitive landscape. With this in mind, companies in various industries all over the world are struggling to embrace the digital and earn their place in the new digital world by keeping up.
But what is digital transformation exactly? Digital transformation may be seen as the process of using digital technologies to create new or modify existing business models and trying to disrupt the industry. On the other hand, digital transformation is much more than that. It is not just about digital technology, but about the fact that organizations need to embrace new culture, structure and processes that will be aligned with IT architecture, resulting in comprehensive digital solutions. It is about mutual alignment between strategy, capabilities, processes, organizational structure, organizational culture, and people practices, into one cohesive system using digital technologies and scalable digital platforms.
Taking all this into consideration, one might conclude that digital transformation is a fundamental change that lasts long and consumes significant resources. Therefore, it should not come as a surprise that, even though digital transformation is being embraced by many companies, so they could deliver new customer experiences in order to meet their changing requirements, a vast majority of them is ill-equipped for this kind of endeavor.
So, how is digital transformation affecting companies on a global scale? Gartner’s research of CIOs showed that digital business/digital transformation is going to be the second most frequent top business objective for the next two years (17%), right after growth/market share (26%). At the same time, 14% of respondents expect digitalization will help their businesses differentiate from the competitors, while 79% believe that digital business has created a greater capacity for change and a more open mindset.
Furthermore, BCG’s ranking of the 50 most innovative companies in 2018 lists some of the best companies that provide seamless digital experience for their customers in the first five places: (1) Apple, (2) Google, (3) Microsoft, (4) Amazon, and (5) Samsung. Most of the other companies in this list are also innovators in the field of digital products and services, thus indicating that innovativeness is being more and more tied to the area of digital and less to some other business aspects. Further more, BCG’s research (2018) revealed that more than 40% of the strong innovative companies are actively targeting technology platforms, big data analytics, and mobile products and capabilities as their areas of innovation.
Business digitalization is being viewed as the vehicle for companies to create a strong connection with their end customers, and with other companies that they partner with, to better serve the customers’ needs (Weill & Woerner, 2018). The best way to produce this kind of value is through a platform – a new business model that uses technology to connect people, organizations, and resources in an interactive ecosystem in which significant amounts of value can be created and exchanged. This ecosystem allows some companies to act as digital platform providers, hosting and connecting numerous modules, while others will perform a role of module providers. Of course, there are companies capable of being platform providers, while connected to some other platforms as modular providers at the same time (Parker, Van Alstyne & Choudary, 2016).
The superiority of a platform compared to other business models lies in its ability to serve the needs of all its stakeholders, not just the consumers. “A platform is a business based on enabling value-creating interactions between external producers and consumers. The platform provides an open, participative infrastructure for these interactions and sets governance conditions for them. The platform’s overarching purpose: to consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value creation for all participants.” (Parker, Van Alstyne & Choudary, 2016, p. 5)
Empirical evidences are showing that platform businesses are usually outperforming other business models in various industries. One should be aware that some of the most famous contemporary companies, such as Apple, Google, and Microsoft, all run platform business models. These gamechangers have had a huge impact on setting the direction and pace of the next profound change in the business landscape – it is a digital transformation.
References:
Boston Consulting Group (2018). The Most Innovative Companies 2018: Innovators Go All in on Digital. https://www.bcg.com/publications/collections/most-innovative-companies-2018.aspx
Gartner (2018). Mastering the New Business Executive Job of the CIO: Insights From the 2018 CIO Agenda Report. https://www.gartner.com/imagesrv/cio-trends/pdf/cio_agenda_2018.pdf
Parker, G. G., Van Alstyne, M. W. and Choudary, S. P. (2016). Platform Revolution: How Networked Markets are Transforming the Economy and How to Make Them Work for You. New York, NY: W. W. Norton & Company, Inc.
Weill, P. and Woerner, S. L. (2018). What's Your Digital Business Model? Six Questions to Help You Build the Next-generation Enterprise. Boston, MA: Harvard Business Review Press.