Why Platforms and Ecosystems win? #11
We live in very interesting times. The proven traditional models are being disrupted every day and new winning business models are being popularized across many industries.
COVID-2019 pandemic has revealed the ‘big gaps’ and the ‘ faulty business models’ even more.
Platforms are Future Proof Business Models if not over-exposed to one industry
- Looks at the Q1,Q2 2020 results of the platform-based business models that are industry agnostic and you will realize that they emerged as Winners even during the COVID-2019 pandemic
- Platforms like Airbnb, Traveloka, Booking.com, and mobility apps they suffered huge revenue losses due to overexposure to the industries most hit by the pandemic. This is why Grab, Uber, Go-JEK are even more aggressive in their Super App ambitions now (food-delivery and Financial services)
- Airbnb suffered a lot, but the losses of Marriot and other Hotel chains were even greater. They were not able to reduce the fixed costs
Digital ecosystems are now proving to the most sustainable, scalable, and strategic business models for growth and profitability across every industry. The business leaders now need to fortify their business models not just against the competitors from the same industry or geography, but they should now be preparing a much bigger list of potential threats.
Build, Buy or Partner because there is no 4th option
Comfort-DelGro, never imagined that it will have to fight for market share with first with a US-headquartered on-demand ride-hailing platform called UBER and then with Grab in SEA (once it acquired Uber’s ride-hailing business in SEA) and GO-JEK that is expanding beyond Indonesia.
Xiaomi became the 2nd largest mobile brand in India, by leveraging e-commerce platforms like Flipkart, thereby beating its competitors focusing on establishing a last-mile physical store network (link). What is a common theme across these two companies in taxi and telecom business respectively? The answer is both were impacted by the emergence of digital ecosystems.
Platforms emerge as the gatekeepers of the Industry- Eventually, the platforms become the gatekeepers of the industry and they control the access to the community built by the platform orchestrator.
Sometimes the big platforms fight for platform supremacy too- Google Vs Amazon
Platforms can outsmart the traditional product partners
It is very easy for platforms to outsmart the traditional product partners. The community they mobilize on the platform and the transaction insights they gather- may ultimately motivate the platform orchestrator to launch a private label with higher margins.
Amazon Basics is present in more categories than you can imagine
Why the platforms and ecosystem strategy wins?
- One-stop-shop solution- Focused on one-stop-shop solution, so kind of lock in the customer in an ecosystem they like to be part of. They get all products and services via a single login or through a single platform orchestrator who fulfills the customer expectation with help from the network of partners.
- Leverage a platform- The spine of an ecosystem is the tech-platform that connects the buyer to the seller. The platform could be on an online or an on-demand market place where buyers and sellers transact creating value for each other. The platform needs to reach a critical mass of buyers and sellers to succeed, along with user experience and quality of product/service.
- Community is the focus of platforms- All successful platforms manage to create a community around which the online marketplace/transactions happen.
- Scalable and Geography-less: Digital ecosystems are massively scalable and can expand into other countries with minimum capital investments. It took Uber, 6 years to reach 70+ countries while P&G took 100+ years to reach so many countries. Pokemon revenues crossed a billion dollars in a matter of a few months.
- Industry-less: Do not be confused that digital ecosystems are only present in TMT (tech, media, and telecom) industry. Yes, most of the present day’s mature ecosystems emerged in the TMT industry but now almost every industry has been touched by them- retail, transport and logistics, hospitality, entertainment, etc.
- Less capital intensive assets- Uber does not own cars, Airbnb does not own hotel rooms and Alibaba does not hold inventory. Yes, all startups take some initial capital to scale up but once the infrastructure is ready, then the future investments in the business model are less. The decision to orchestrate or to participate in an ecosystem depends on the long term goals of the company. Every company can build an e-commerce website but then every e-commerce website is not an Amazon or Alibaba.
- Network Effects- More the number of people join an ecosystem, the more popular marketplace it becomes. Eventually, the buyers and the sellers cannot afford not to participate in the digital ecosystem. Most apps have to be on Android and IOS. Most sellers have to be on Alibaba or Amazon or both.
- Digital Infrastructure- The three pillars of digital ecosystems are -Data Analytics, Interface and Technologies that support the overall infrastructure. All successful ecosystems make sense of the user data (ethically of course), ensure seamless user experience, and leverage best technologies- cloud computing, AI, blockchain, etc.
Key questions:
- How fast can you reach your target consumer segment?
- How many consumers can you serve across multiple countries?
- What is your core business and what businesses can you disrupt?
- How fast can you shift channel strategy(offline or online or hybrid)?
- How future proof and diversified are your platforms?
Platforms are the most efficient business models present on the planet. Make sure you do not miss the opportunity to be the digital conqueror of your industry.
Digital and Platform strategy expert
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