5 key concepts for converting to a platform business

In this turbulent business environment, CEOs and other corporate leaders are looking for new ways to unlock growth and sustain competitive advantage. Many people are finding that the answer can be found by looking at the successes of tech giants.

Platform businesses – focused on creating and promoting a business model ecosystem where multiple participants can exchange value – provide significant new growth opportunities and competitive advantages.

In a linear (traditional) business, value is usually generated within the organization using company assets. The platform business acts primarily as a value broker, although the platform can also serve as a channel for its own solutions or products. They are relatively asset-lite and create value through attachment rather than production. Most importantly, many traditional linear businesses have the features needed to become a successful platform business.

Platform businesses dominate the leaderboard, outperforming peers and disrupting markets. Over the course of two decades, platform businesses have dominated the market and today include some of the most valuable companies in the world. Listed below are the combined market capitalization of the seven platform companies that increased from $ 5.9 trillion immediately before the epidemic (March 2020) to $ 10.5 trillion by December 31, 2021. It also includes 10 of the top 15 beneficiaries. Equity value in that period. Collectively, they added $ 4 trillion to the equity value.

Although the tech giants have been trailblazers for the most part, business leaders from all walks of life can learn from their experiences as they consider the transition from a linear to platform business model:

1. Rediscover how you create value for your customers.

Many companies excel at engaging customers, understanding their needs and preferences, and finding new ways to deploy assets and capabilities. Linear companies look to meet those needs Inside Their organization. Platform widens the gap for businesses to identify profitable ways to deploy assets Out An organization to address those or other incomplete needs. They provide an ecosystem in which external participants can interact and exchange value, while being rewarded for the value they create. In some cases, the cost of this multilateral platform is zero. That is, every additional purchase on the platform can increase the company’s revenue without incurring additional costs.

Some companies outside of big tech have had success in this jump. A few years ago, an industrial equipment company launched a cross-industry software marketplace. It created an ecosystem where its customers could acquire assets and solutions outside the company’s portfolio.

2. Build an ecosystem around your current strengths and where you have brand permission.

Organizations that want to make this shift need to play to their strengths. One of the world’s leading manufacturing groups has built IoT- and device-enabled platforms. He created the whole experience around the needs and business needs of industrial manufacturers and plant operators – a kind of customer whom the company knew well and served for decades. The platform became a natural but innovative extension of their linear business-enhanced customer loyalty and alternative revenue streams.

3. Rethink your role in the value chain.

As the owner of the platform, one of the main responsibilities of the company is to facilitate seamless exchange between the participants of the platform, whether they are exchanging products, services, materials or skills. An effective platform can create the right conditions for the entire ecosystem to thrive by reducing or eliminating friction and reducing costs to deal with the entire platform. Effectively fulfilling this role enables these participants to create value for each other, ultimately increasing the value of the entire platform.

4. Decide whether to build or buy.

Starting a platform business is achievable for most linear organizations, it doesn’t make it easy. Some companies may already have most of the infrastructure needed for construction and expansion. For those companies, the focus will be more on the strategic and commercial aspects of the build-out – creating an attractive ecosystem value proposition, aligning technology investments, establishing a governance framework, upskilling and onboarding solution partners.

For others, buying a technology asset or an entire platform business may make more sense. Examples of deal activity in the non-tech space include the retail giant that acquired an ecommerce platform for onboard third-party vendors, and a large fitness apparel company that bought multiple social fitness platforms simultaneously, eventually building a powerful and successful digital fit. .

5. Focus on building earnings and confidence in the ecosystem. It is more important now than ever before.

According to PwC’s Trust in US Business Survey, 62% of consumers surveyed identified data protection and cyber security as one of the trust’s top core components. ” Surprisingly, consumers do not respond favorably when their data is not secure or badly shared with other parties for unforeseen purposes. Nurturing trust is even more important for platform businesses because it is influenced not only by the actions of the platform owner but also by the actions of other ecosystem participants.

While these five principles are fundamental, there are numerous other considerations. However, they can provide an important starting point for companies by examining the three pillars of strong foundation for growth: deciding where and how to provide more value to customers, establishing the right infrastructure and continuing to build trust and loyalty with participants. . Ecosystem

Even if some businesses do not have a technology-based foundation or history, they can use technology to help them re-examine their development agenda, so that they too can dominate the leaderboard and explore what is possible.

Mohammed Kande is the Vice Chair of Consulting Solutions at PWC and Global Advisory Leader.

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