The platform game: Tackling the challenges of digital platform business models
PA Consulting’s global head of platform strategy and innovation, Hugo Raaijmakers, comments on the benefits of operating a digital platform business model in Tech Monitor.
Commenting on why the challenges of pursuing a digital platform business model are less frequently discussed, Hugo says: "The platform business model is super-interesting because it is asset-light, it has enormous scaling potential, and you can leverage the network effects. But it's also an extremely complex business model to embrace. It [requires] a lot of design and careful execution to make it a success."
Hugo adds that would-be platform companies must also assess whether their market or industry can support a platform: "Important aspects are, for instance, if the market is very fragmented, with many players in the market but no dominant platform orchestrator. Is there still room to find opportunities where, with a platform, you can uniquely connect customers to producers?"
Another crucial question is whether Big Tech already has its eyes on the platform opportunity in your market. "If you look at finance, for instance, a lot of Big Tech players have spotted the opportunity, and it is becoming increasingly difficult to get your position with your market offering," says Hugo.
Hugo advises companies to follow the tech giants' lead. They make their platforms desirable by offering access to a "large curated market of consumers, where [producers] have to spend much less [on] marketing in order to get traction". They also provide insights into what customers are doing on the platform, Hugo says, and access to supplementary services, such as finance or software. Shopify, for example, provides shop owners with the tools to run an online business. "If you had to build all those capabilities yourself, that's a very significant investment," Hugo explains.
Not every company can be a platform orchestrator – but there are still ways to profit from the model. "You may need to consider a more humble position, whether that is to be a participant in a platform, or maybe to leverage your own capabilities," Hugo says. "For example, you could imagine a finance company providing the payments capability in a platform. Those plays are less profitable, but there is still the [opportunity] to profit from the volume and scale of the ecosystem."
Commenting on which technological capabilities are essential to build a platform strategy, Hugo says that the chief among these is data. So much of the value of a platform derives from the collection, distribution and analysis of data. Philips, for example, was able to launch its HealthSuite platform, which allows third-party app developers to integrate with its medical equipment, thanks to the strength of its approach to data, Hugo explains, leveraging its ecosystem data sources and capabilities. "You need to make sure data is captured, managed and governed in a way that it can become part of any sort of digital ecosystem."
Hugo goes on to say that few traditional companies can launch a successful platform business model without first undergoing a digital transformation. "There will always be this digital transformation that you have to go through in order to innovate," he says. "There are companies that build [a platform] from scratch along with a digital transformation, but it's a very long and costly journey sometimes."
Hugo concludes by warning that many traditional companies risk missing the opportunity to build these platforms: "One of the key issues is the lack of digital leadership in traditional companies. This often leads to a poor understanding of the opportunities and threats. Making sure the leadership has the same understanding and unified vision around platform opportunities will significantly help fast track the organisation’s progress in the short term."
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