Deep Dive: Digital Platforms - Your newest opportunity
Can B2B innovators rethink the platform business model, embrace it, and use it as a new frontier for business innovation?
For many B2B innovators, platforms are disruptors—interlopers launched from the tech community, designed to leverage semi-mystical capabilities like “network effects” and ultimately intended to enter markets with the goal of defeating, replacing, or co-opting existing companies. But this point of view is changing. In an earlier edition, I shared Douglas Ready’s perspective for digital-age leadership that today’s strategic emphasis “needs to be on platforms, the space in which users create value for other users.” This is a challenge for innovators at established companies because, as places where users help other users, a platform requires a fundamentally different approach for creating strategic advantage. As a longtime go-to-market strategist, I recognized the challenge, and I am seeking more insights. An article from MIT Sloan School of Management’s Ideas Made to Matter series, Platform strategy, explained, offers an excellent overview of platform strategy, complete with the do’s and don’ts that determine success. The article is written by Zach Church, and shares the exceptional insights of MIT Sloan Professors Catherine Tucker and Pierre Azoulay. Below, I highlight several insights from the article, add my thoughts, and explore platforms as opportunities for B2B innovators.
What is a platform?
Before I dig in, let’s review the fundamentals. Platforms are places where users help other users. Church adds depth to this definition, explaining that “platforms are environments, computing or otherwise, that connect different groups and derive benefits from others participating in the platform.” Unpacking this sentence, it seems platforms are not just about individual users, but groups as well. You gain benefits by participating in the platform through user-to-user (or group-to-group!) collaboration. Still, the platform itself may offer value through user interfaces, tools, ratings, judgments, and more.
A platform is not a value chain—the traditional method by which manufactured products are distributed to customers—with value added by one or more intermediaries. In a value chain, B2B companies achieve competitive advantage through features and benefits of proprietary products and services. Value chain strategies align a company’s products, employees, partners, and core capabilities to sell customers and generate profits. Value chain strategies may work toward the betterment of customer communities, but they seldom, if ever, lead by enabling customers to help each other.
There are many platform types, some familiar and some not, depending on your marketplace and profession. Applico provides valuable definitions and examples for nine types of exchange and maker platforms, including services (Uber), products (eBay), payments (PayPal), investments (AngelList), social networking (Twitter), communicating (WhatsApp), social gaming (FanDuel), content (YouTube), and development (Android). This list is a helpful starting point for considering platforms beyond “buy and sell” marketplaces. For today’s B2B leaders, see Alex Moazed’s article on MDM, Applico’s Top 50 B2B Marketplace Ranking.
What is platform strategy?
Church writes, “A platform strategy is an approach to entering a market which revolves around the task of allowing platform participants to benefit from the presence of others.” Attracting customers to participate on the platform is often tricky, but getting customers to engage, talk, and trade is the more challenging problem. Tucker suggests a process he names “coring,” which is about making a platform “the core of an ecosystem, the place where users meet and make connections, where commerce happens.” This requires a degree of governing and policing by the platform operator. Azoulay explains, “There are a lot of non-pricing rules involved. Who can join, what kind of information you get to have on what’s happening on the other side, how open the data that’s generated by your platform is to others, how easy it is for others to play with that data.”
Many platform strategists may attempt to copy a seemingly applicable model from the above platform types, but creative thinking is essential. As Church explains, 'Don't just be the ‘Uber for … [your platform idea].’ Think about how your platform will make new connections.” Tucker offers an example of a platform that needed to reinvent itself and did so by reinventing the connections it made:
The company [Axon], formerly called Taser, still makes stun guns for law enforcement and for personal self-defense. But its new focus begins with body cameras and includes data storage and collaboration tools. Connections are built between police officers and other law enforcement staff and attorneys with the goal of boosting efficiency, such as reducing the time officers [spend] writing and filing reports.
So, what does this mean for B2B innovators?
The article offers many more insights from Tucker and Azoulay, as well as references and additional insights around platform economics and leadership. I’ve read them all. If digital-age leadership requires mastery of platforms, all are excellent resources.
Now, when I thought about my work with B2B innovators, these two paragraphs from Church’s article jumped out:
“Platform strategy is, in some sense, one of the most ambitious ways of entering a market you could have, because it requires coordinating the behaviors of multiple parties that might not know each other, that might not even want to know each other,” Azoulay says. “You’re sort of this orchestra conductor, and as a result of being very ambitious, it also fails very often.”
Arguably, your platform strategy is more critical to success than the idea behind the platform itself. Building a platform, especially after a decade of buzzworthy attempts and a few huge successes (Amazon, eBay, Uber, Airbnb), is really, really hard. There are countless ways to flub this. A solid platform strategy will answer two key questions: How will you attract customers? And how will you make your technology the core of an ecosystem?
For the most part, my audience of B2B innovators are not entering markets. They are in them. They are not technology experts, at least not in the way that tech-savvy digital startups draw on founders, workers, and investors that are steeped in the Silicon Valley way of innovation. B2B innovators will likely need to add new technologies to build a platform and make it the core of their ecosystem in the markets they serve. It makes sense that attracting customers is essential, but established businesses already have customers and partners up or down the value chain.
It also seems that before creating a platform strategy and building a platform, B2B innovators at established companies have a unique opportunity to understand and, through the platform, solve some of the long-standing intractable problems and impossibilities in their value chain. I have argued that when exploring options for partnering with a digital startup, incumbent innovators must ask the startup to explain its highest purpose by asking, “what is your project for the B2B market:”
I use the word “project” in the grand sense, as a historian might explore “the American project” for representative democracy and enabling life, liberty, and the pursuit of happiness. What is the B2B startup’s big idea? What is the established company’s purpose? How can the established real-world business and the startup work together to make a more significant impact than either can do on their own? How will the collaboration create better outcomes measured as customer, community, social, and economic gains?
Ideas for project-driven platforms
Considering Church’s article and Applico’s platform examples, I suggest four project-driven platforms:
Enable sophisticated digital technology strategies for midmarket companies. Many distributors and manufacturers struggle to understand the landscape of transformative digital technologies and to implement e-commerce, ERP, CRM, digital marketing, and more. They suffer from an information asymmetry when engaging technology vendors without a firm grasp of their needs and solutions. Peer-to-peer advice through a platform that matches businesses with similar capabilities and goals could help move midmarket companies forward, helping them keep pace with more giant, scaled competitors.
Improve the “quality of business” for community business development. Every local community is in a pitched battle to attract businesses through economic development initiatives. Often, regional commissions pitch “quality of life” to welcome employees who might move into their community. Local distributors and manufacturers could band together to pitch “quality of business,” which is achieved through their coordinated local products and services. A platform might match recruited companies with local businesses and their leaders, managers, experts, and workers. On a national scale, the platform could offer relocation advice and matching services to connect with appropriate vendors.
Create a data platform for collaborative AI across the value chain. As I understand AI, the quality and size of the database matters. Today, value chains operate as a collection of independent businesses that often compete even as they collaborate. AI is applied one-off as a tool for individual enterprises to optimize their results. By pooling data and using state-of-the-art algorithms and machine learning, it might be possible to improve the entire value chain’s ability to deliver unimagined customer experiences. A platform business might be the independent holder of collective data, with matches made among value chain partners to enhance services, improve delivery, identify next-generation products, and more.
Upgrade omnichannel execution, including digital marketing. Omnichannel strategies are about leveraging technology to provide customers a consistent experience and seamless handoff between a company’s channels, including field sales, inside sales, customer service, technical support, and so forth. Digital marketing can be game-changing by teeing up customer opportunities that are assigned to sales or support resources not according to their physical proximity to a customer but by their ability to deliver the right experience at the right time. That’s the theory, anyway. Much as midmarket companies could use a platform to master digital technologies, a platform might be created to match companies for working on specific aspects of omnichannel execution.
Join our innovation community (by asking questions)
Do my suggestions for project-driven platforms resonate with your market knowledge and experience? If not, can you suggest others? As a tool for imagining other game-changing platforms, I recommend the following questions:
What are the most critical communities among your company’s value chain partners? As discussed in this edition, communities are the segments of the digital age. Segments are about targeting, positioning, and selling. Communities are about committing to work toward bettering how work is done and lives are lived. By focusing on communities, platform creators might find a willing group of people to help each other, the core concept for a community suggested by Ready.
How can you build trust between customers, distributors, and suppliers in your market? Facebook’s recent upbraiding exposes the Achilles heel of big technology: Digital business models are more about generating profits than improving the human experience. As real-world businesses, established companies can build trust as they do business for humans as humans. If the core of B2B trust is placed at the center of innovation, there may be an opportunity to enhance trust in the traditional value chain or broader ecosystem and enable progress on a platform.
Do you understand the digital startups or fledgling platforms seeking to enter your markets? Starting with Applico’s Top 50 B2B Marketplace Ranking, many outside-in platforms attempt to succeed in B2B markets. For B2B innovators with an idea for a project, these digital startups present a make/buy decision. By asking the right questions, one may align the startup’s purpose with established companies’ ideas. Doing so may accelerate the use of platforms to upgrade and transform traditional ways of doing work and usher in new, post-channel, platform-driven methods to create value for customers and profits for partners.
Many platform dreams are hyper-focused on business transactions that are about the exchange of currency—money spent in the acquisition of products. Perhaps this is because taking a cut of the payment flow is the easiest way to fund the platform and create wealth for its founders. But it seems to me that this is the laziest approach. If platforms are to be applied to a market’s most significant problems or opportunities, platform designers should create matches around ideas, knowledge, experiences, resources, and solutions. This approach may be a long road to launching a unicorn, but the value created for all market participants would be substantially greater.
As always, don’t be a stranger. Share your thoughts in the comments section below. If you prefer, reach out directly at email@example.com.