In this turbulent business environment, CEOs and other corporate leaders are looking for new ways to unlock growth and sustain competitive advantage. Many are discovering that the answer can be found by looking at the successes of tech giants.
Platform businesses — a business model focused on creating and fostering ecosystems where multiple participants can exchange value — offer significant new growth opportunities and competitive advantages.
In a linear (traditional) business, value is typically produced inside the organization using company assets. A platform business operates primarily as a broker of value, though the platform can also serve as a channel for its own solutions or products. They tend to be relatively asset-light and create value through connection rather than production. Most importantly, many traditional linear businesses have the attributes needed to successfully become a platform business.
Platform businesses dominate the leaderboard, outperform peers, and disrupt markets. In the span of two decades, platform businesses have dominated the market and comprise some of the most valuable companies in the world today. The seven platform companies listed below have a combined market capitalization that has increased from $5.9 trillion immediately before the pandemic (March 2020) to a whopping $10.5 trillion as of December 31, 2021. They also comprised 10 out of the top 15 gainers in equity value in that period. Collectively, they added $4 trillion in equity value.
Although tech giants have largely been the trailblazers, business leaders across all sectors can learn from their experiences as they consider a transition from a linear to a platform business model:
1. Reimagine 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 satisfy those needs inside their organization. Platform businesses widen the aperture to identify profitable ways to deploy assets outside the organization to address those or other unmet needs. They provide an ecosystem in which external participants can interact and exchange value, all while being rewarded for the value created. In some cases, these multisided platforms have virtually zero cost. That is, each additional purchase on the platform can increase the company’s revenue without increasing incremental cost.
Some companies outside of big tech have seen success making this jump. A few years ago, an industrial equipment company launched a cross-industry software marketplace. It created an ecosystem where its customers could access assets and solutions beyond those in the company’s portfolio.
2. Build the ecosystem around your current strengths and where you have brand permission.
Organizations looking to make this shift need to play to their strengths. One of the world’s leading manufacturing conglomerates built an IoT- and device-enabled platform. It crafted the entire experience around the needs and business requirements of industrial manufacturers and plant operators — a type of customer the company knew well and had served for decades. The platform became a natural but innovative extension of their linear business-enhancing customer loyalty and creating alternative revenue streams.
3. Rethink your role in the value chain.
As a platform owner, one of the company’s main responsibilities is to help create seamless interactions between the platform’s participants, whether they are exchanging products, services, content or expertise. An effective platform can create the right conditions for the whole ecosystem to thrive by reducing or eliminating friction and lowering the cost to transact across the platform. Performing this role effectively enables these participants to create value for each other, ultimately increasing the value of the platform as a whole.
4. Decide whether to build or buy.
While launching a platform business is attainable for most linear organizations, that doesn’t make it easy. Some companies may already have most of the necessary infrastructure in place to build and expand. For those companies, the focus will be more on strategic and commercial aspects of the build-out – crafting a compelling ecosystem value proposition, aligning technology investments, establishing governance frameworks, upskilling, and onboarding solution partners.
For others, buying a technology asset or a whole platform business may make more sense. Examples of deal activity in the non-tech space include a retail giant that acquired an ecommerce platform to onboard third-party sellers, and a major fitness apparel company that bought multiple social fitness platforms at once, ultimately building a powerful and successful digital fitness ecosystem.
5. Focus on earning and building trust in the ecosystem. It matters now more than ever.
According to PwC’s Trust in U.S. Business Survey, 62% of consumers surveyed identified protecting data and cybersecurity as one of the top foundational elements of trust.” Unsurprisingly, consumers do not react favorably when their data is not protected or, worse, shared with other parties for unintended purposes. Nurturing trust is even more critical to platform businesses because it is impacted 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 a strong foundation for growth: determining where and how to provide more value to customers, establishing the appropriate infrastructure, and continuing to build trust and loyalty with participants within the ecosystem.
Even if certain businesses do not have a technology-based foundation or history, they can utilize technology to help reexamine their growth agenda, so they too can dominate leaderboards and explore what is possible.
Mohamed Kande is vice chair of consulting solutions and global advisory leader at PwC.