Platform Business Model Keynote | Sangeet Paul Choudary

I want to talk about a shift in business that I started seeing approximately six years back for the first time which I started then looking into more deeply and that's what I think of as the platform revolution six years back when I first started looking at this when I first started seeing a few ingredients coming together I started getting fascinated by two aspects about platforms the first was the idea that platforms and I'll explain shortly what I mean by platforms but the first was the idea that platform businesses scale in a manner that is very different from traditional business models this scale without commensurate effort and costs and walls from the business itself the scale happens outside the business and so with that I the first book I wrote on this topic was what I call platform scale exploring how platforms were scaling in a way that defies the traditional industrial models of scale when I looked at it further I realized that this little shift that was happening across industry that was something that's going to be as evolution and that's why I coined this the platform revolution a shift that's happening across industries right now and especially over the last two years the idea of the platform revolution has gone outside something that's in Silicon Valley or among the start of circles to something that now applies to every industry no matter what industry you are then it applies to every industry fundamentally let me talk about what I mean by platforms when I think of platforms I think of contrasting them with the traditional model in which industrial business is used to work which is what I call the pipeline model the pipeline model works like this you have somebody creating value you have the production side then you have the assembly side and then you have the distribution side whether you think of products whether you think of services whether you think of media the telecom any industry if you think of it it works in this pipeline model starting at one and pushing things out the success of this model is to push mole out at the minimum cost possible and that is where the mass distribution mass production model came into being what we see now is that because of three shifts that are happening right now fundamentally the way the world works is changing the way this business model works is not the way businesses work is not in the pipeline business model anymore there are three shifts that are happening right now first and we understand these shifts very well I just want to bring them together first of all we understand that things are getting connected everywhere we talk about getting connected more and more connectivity is happening first connectivity was just about desktop computers then all of us got connected with smart phones now the things around us are getting connected so connectivity is a big thing that is happening a big shift that is happening at this point the second simultaneous shift that is happening is that every connected thing is becoming intelligent because it's not just connected it sends data it gets back intelligence connectivity and intelligence are working together the third and really important shift that is happening right now and all three of these leaders to platforms the third shift is that the means of production are no longer with the big companies anymore we are starting to see the means of production moving outwards to more and more smaller companies as well and smaller businesses are scaling much faster and so these three shifts together leading to the rise of what I believe is the platform business model which fundamentally has a very different structure from the pipeline business model the platform business model has a structure where the business acts as an infrastructure and enables producers and consumers from outside to come in and interact with each other the business does not create the product in itself even if it does it does not its role is not to sell the product only its role is to enable interactions around an infrastructure and so the business stops seeing the product at the end deliverable and start seeing it as an infrastructure around which interactions can happen think of the iPhone the iPhone is not just an end product which Apple sells and it gets done but after the iPhone comes out all of us personalize the iPhone because of our interactions with developers on the App Store without those interactions we used to have the Nokia model which was due years of research launched 40 different handsets confuse everybody and then sell 40 different handsets in the pipeline model the same thing is happening in many different industries if you look at how hotels used to work they used to work in the pipeline model but Airbnb works in this platform based model and be seeing this happening with increasing energy right now in the car industry for example in the energy industry in a lot of different industries that are moving in this direction what's interesting and important about the platform business model and I will come back to this repeatedly is that the platform model is centered around the cool interaction between two participants in the ecosystem traditional pipeline bot models were centered around a process as a result of which the goal of a platform business model or the structure of the platform business model is to be an infrastructure on which these interactions happen and the repeated goal is to keep increasing the quality and the quantity of these interactions contrast this with the pipeline model the industrial model will let us run more than more processes manufacture more things and have a quality control department so the goal there was to increase and improve the quantity and quality of internal processes in a platform model what you want to do is once your customer your suppliers start interacting with with each other through you you start improving the quality of those interactions and that is how you scale the business you improve increase the quantity of those interactions and so you scale the business this becomes interesting when you take examples of companies that start with just enabling one interaction and then start building multi stakeholder ecosystems on top of it leaving more than more interaction so let's take an example of a company let's turn that over the last 10 years if you think of LinkedIn LinkedIn started by enabling a simple interaction helped professionals to connect with each other it just provided the infrastructure to enable these interactions it also on increasing the quantity of the interaction so it connected with your Outlook email calendar and all of those things and it focused on the quality as well so that if people got unsolicited unsolicited requests on the platform they could be barred from sending those requests again that was their first interaction then LinkedIn realized it had to monetize it started a second interaction with the first interaction it has gotten all of this data about different professionals and it started using this data to connect these professionals with interesting job opportunities and then LinkedIn realized that unlike Facebook it did not have good engagement so it started at third interaction it started bringing in influences on the platform to start publishing content and over time open that so that everybody could start publishing that content as well my goal over here is to show that you can start a platform model with a very small idea and from there keep on layering new interactions bringing in new people but because you have this central infrastructure you can keep on adding exponentially on top of it instead of doing it the traditional way the traditional pipeline model of adding new things would have been pushed one more products that's what Proctor and Gamble is a traditional Pepsi model Procter & Gamble model if you will but the LinkedIn model or the platform model is to keep the central infrastructure on which more and more people can plug in and keep interacting in new ways and this is where the value of the platform model comes in because the more interactions you enable the more opportunity there is for you as a business to capture that value there are three ways in which this shift is happening I talked about how we're moving from pipelines to platforms the first shift that is happening instead when we run these businesses we stop measuring consumers only we measuring we start measuring participants we don't just look at who is buying a product we look at KPIs that show how people are participating in our business we try to start converting our products into services that integrate into our customers so that we can know whether customers are actually succeeding and then we start basing our revenue models on the customer success so we start moving from a consumption driven model to an outcome driven model and in the same industry if you have one business selling a consumption driven model and another business selling an outcome driven model a customer would want to go with somebody who's selling an outcome driven model because the customer is succeeding when the company is succeeding and all customers would want that a second shift that happens when we move from pipelines to a platform model is that we no longer focus only on figuring out what are the resources that are important to us what kind of resources do we build we don't just focus on internal assets we start focusing on ecosystem assets there was this tweet by the founder of Airbnb a couple of years back where he says that Marriott plans to add 50,000 rooms by the end of this year we intend to add the same number of rooms in the next 10 days and what that shows is that Airbnb is leveraging assets in the ecosystem it is adding rooms in the ecosystem instead of trying to build all the rooms from scratch and so this is the second shift that happens where we move from processes to maybe move from resources to ecosystems the third shift that I talked about initially and that is is the single most important shift is that we stop managing our internal processes only we start also managing external interactions in the ecosystem and this has many different kinds of implications if you were managing just an internal process you owned that whole process let's suppose you have to manage an external interaction let's think of Kappa Phi Kappa Phi which helps you find a driver whenever you want to go to someplace an external interaction is when you open the app and you do not find any driver available to take your request that is a failure of an external interaction so if you are a business you want to manage that failure but the challenge is that you don't own the factors that are leading to that failure and that is where data becomes important because data tells you how to manage your ecosystem participants better how to give them the right conditions by which such failure does not happen and so this shift from processes to interactions requires a fundamentally different mindset for running the company and that is why when platform business models come in an industry for the first time what they do is they digitize an important decision-making factor or an important source of value in that particular industry if you look at any industry we see that industry move to a platform business model the moment the critical decision-making factor or the critical source of supply gets digitized let's take a few examples 15 to 20 years back for the first time Amazon and Netflix started the online commerce wave when they digitized the consumers buying behavior their innovation was not in delivering things online the innovation was in the fact that they knew the consumer and so they could personalize for the consumer they digitized that buying behavior for the first time which before them always used to lie in scattered sales receipts it was not in one place it was not integrated there was no way the company could use that wealth of data Amazon and Netflix used that to start telling consumers what to start buying you take it forward in recent times after the social web happened and after Facebook came in and gave us all an online identity Airbnb came up because users hadn't had as a real-world identity online identity and Trust had become digitized Airbnb could not have happened ten years before but it happened five years before it happened because identity and real world identity had not yet been digitized and if you want to stay in somebody's house you want to have you want to know the identity of that person you want to have that trust established all of which happen at that particular point in time more along with that we started with the rise of smartphones we started seeing location becoming digitized before the smartphone came up our actual location was not digitized the Internet was something we would use at a desk and then we would leave and that was how we access the Internet but the smartphone converted all of us into moving objects for the first time because of which for the first time a car could become a digital object no longer just a physical object and once the car became a digital object ride sharing platforms came up so if you look at capify and all of these companies today they're we're also going to hear from a movie look at all of these examples they are examples of companies that leveraged the digital location of an object to create a new business model we're starting to see the rise of freelancer platforms right now with reputation of freelancers being digitized and if we go to industrial situations if we look at engines if we look at car companies if you look at aircraft companies we're starting to see machine performance being digitized for the first time because machine performance is digitized a company can respond to a disaster management scenario and come in and do predictive maintenance before the change as before the the issue actually happens and so we're starting to see whenever the cool source of value or the cool source of consumer decision-making in an industry gets digitized you have an opportunity for a new business model what you need to do when you think about applying platforms in your industry is ask yourself in your industry in us in from the perspective of supply and demand what is the new and important source of value or the new and important consumer decision-making factor that is getting digitized for the first time once you identify that you can build a platform business model around owning that particular source of value or owning that particular decision factor because then your competitiveness is not about how many products yourself it's about how much data you have about this new form of digital value in your industry that is the opportunity that the platform model has for every industry today now if we apply this to various ways in which various ways in which managing platforms changes my view of a platform in a traditional business is the following the traditional business the form still exists but you create a platform around the firm with which the firm then interact with the ecosystem so your suppliers your customers are all in the ecosystem but what we're seeing today because of connectivity because of intelligence and because of the democratization of production that I talked about initially what we're seeing is that the boundary of your firm is becoming more blood yesterday you used to have people in house today they are freelancers outside yesterday you would need entire functions to be inside the company because coordination cost so very high today you can do it through suppliers around the world in a global supply chain so we we've seen this shift happening for some time for the first time we have a mechanism by which all of these ecosystem players can be orchestrated together of a central platform and that is the view that I have for all incumbent organizations when they move from a firm only model to a firm plus ecosystem model when you move in this direction the first and most important thing you need to do is that you need to integrate your enterprise so that you have one view of the ecosystem if every business unit within your enterprise has a different data set about your suppliers has a different identity of your customer you cannot work with the ecosystem in a way that is efficient in a way that leverages the scale that a platform provides so the first step is to find the infrastructure that enables you end-to-end integration of your current enterprise getting different pieces of infrastructure different pieces of software from different vendors and digitizing different parts of your functions is not going to help run a platform model you need an end-to-end infrastructure provider to integrate your enterprise but that's only the first step once you've integrated the enterprise that's when the fun begins once you integrate the enterprise then you need to start thinking about what should you open because opening everything is not good you need to open enough in a way that innovation increases more innovation comes in from outside from your suppliers but at the same time you close the critical points of control in your ecosystem a great example of this is the Android platform when Android first launched it opened everything it allowed everybody to use Android launched a new phone and so Amazon Samsung everybody started launching their own ecosystems and androids realized that unless it closed the critical resources the power would go away from Android to the ecosystem partners so then what Android did was it when it split Android into two parts one was the operating system and the other is what we now call the Google Play Store Google Play contains critical elements like maps without a map you cannot digitize location and because you have to work through Google to get the map now Samsung again and Amazon cannot fork and Android into their own ecosystems so by by splitting Android into Android and Google Play by managing the connect with the customer directly through the Play Store Android was able to retain control of the ecosystem so openness is a very important decision factor that you have to think through as you start building a platform the second thing and this is where it becomes more interesting is once you start opening up you start seeing Network effects the more people come onto your platform the more other people benefit from all of these people in the ecosystem the more producers come on board the more suppliers come on board the more consumers start benefiting the more consumers come on board the more suppliers will come in one direction and because of this in a lot of industries would be start seeing is that the winner starts taking it all because network effects all producers all producers all suppliers all consumers start coalescing together on one platform and give the platform a lot of power in that particular industry we've seen this happen in the in the souq will take industry so far in different waves with Microsoft Apple Google Amazon and many other companies creating their own ecosystems but I will give you a couple of examples later on of traditional companies doing this in industries that we've not thought of a stick although as I explained some time back the moment you digitize the source of value or the consumer decision making factor every company every industry is a tech industry and so it's all about asking yourself what is the core digital value that you can digitize for the first time so that's the idea of network effects now the thing about Network effects is that when more people come in there are more interactions but as as I mentioned in the beginning it's not just about quantity of interactions it's also about quality of interactions and so the next thing that you need to do is you need to govern the ecosystem not everybody should come on board some people should not be allowed to comment board if they don't meet a minimum quality criteria the more data you get about different suppliers you can start weeding out the suppliers who are not performing well enough to be on your ecosystem so governance of the ecosystem becomes really important and because of all of these things you start seeing feedback loops where customers encourage suppliers suppliers encourage customers you need you don't even need to be in the middle of all of this all of them start interacting with each other and start growing your business and all of this gets amplified even further because your platform is benefiting from machine learning it's capturing information about how customers are making purchases how suppliers are performing it takes all of this information and it is then able to predictively orchestrate the ecosystem even further it is able to make new matches for the first time and to all of this you start getting more value because you own all of this information so when you are building your infrastructure you need to ensure that the cool components of machine learning are in place because that's what helps you get sustainable competitive advantage in a platform business model finally I want to talk to you briefly about the idea of digital transformation that we saw in the video before this the stock I see a lot of digital transformation today as a shift from the pipeline base model to the platform based model but a lot of digital transformation unfortunately looks like this a lot of experiments that have nothing to do with each other happening in different parts of the enterprise so the marketing unit is doing its own experiment the customer service unit is doing its own experiment five business lines are doing their five different experiments none of it is connected this is how a lot of digital transformation used to look like till very recently and then companies realize that the value is not in all of the experiments the value is then having common infrastructure on top of which you ran the experiment so that the moment something is successful it feeds back into the overall business rather than just helping a particular business line and so we need a new kind of transformation roadmap that helps us move from the firm way of thinking to the platform and ecosystem way of thinking I see this that roadmap is having three steps the first step is that we need to digitize the enterprise what that means is that everything that is critical inside the enterprise first we need to get a whole own house in order everything that is critical inside the enterprise critical assets critical interactions with external people critical flows into inside the enterprise all of those things should be digitized and that is the first step but this is what I mentioned some time back just digitizing things will not solve for creating an ecosystem in addition to digitizing you also need to make the enterprise ecosystem very which is to say that there should be flow across all silos within the company the bigger your company are even if even with very small companies you start seeing things break into silos whether it is processes whether it is data all of these things should flow with each other so that it gives you a single view of the customer a single view of the supplier and hence a single view of the overall ecosystem around you without a single view of the ecosystem you cannot manage the ecosystem it's like running a puppet show but having strings in five different places for the same person you cannot orchestrate the ecosystem unless you have a common view of a single view of the entire ecosystem and that's when you move to the third step which is where the third phase is where value really kicks in once you see the whole ecosystem you start harnessing the flows in the ecosystem you start connecting the right suppliers with the right buyers is that connecting your partners with your customers what becomes important is the company that owns the engagement of the customer wins because all partners starts coming to this company all of them start organizing themselves around this particular come and from the perspective of the company all of these partners are not necessarily competing they're complementary they are partners that enhance the value for the customer and that is how the overall platform based ecosystem gets created let's take an example I want to give you an example of a company called Walgreens in the US which is China Bill's pharmacy as a platform the world needs has been in the traditional business of selling medicines selling medicines is a pipeline business buy medicines push it through and sell it and just ensure that you can sell the maximum number of medicines before the expiry date comes in because that is what will make it a good process that is what will reduce the costs involved in your supply chain and so they've been doing that when they move to a platform based ecosystem the first thing they did with it digitized consumer decisions with the pharmacy what they realized is that unlike other kinds of situations when you're buying groceries when you're buying something else unlike those situations in the case of healthcare if you know all the medicines the patient is consuming you can have a very good profile of that patient you can probably have a better profile of the patient than his five different hospitals with whom he is interacting and so if you can own all consumer purchases in one place you can have a really good profile of a meta medical profile of that consumer so the first thing they did when they started this loyalty program and internally it was a good sale because they were not saying with building this big platform they were saying we just making customers more loyal and that is what's important when you are incumbents and you want to move towards a platform model you'll see a lot of resistance inside you need to frame your load map so that the first step itself has some form of otherwise as you see in this example with increased loyalty they started seeing economies because customer lifetime value increase no matter where the customer went and bought as long as he bought it at Walgreens or on the mobile phone app also you know and Amazon echo a kind of assistant irrespective of which channels the customer purchased own all of that data was tied to a single view of the customer what does enables them to do is that especially for customers who have long-term diseases like let's say diabetes customers who have long-term medication management these are getting a lot of data and so they then move to the externalities phase where they connected these customers with telehealth experts based on the data they started connecting them with other kinds of partners who would give the customers even more value once they were connected with them and this is how they move from a pharmacy which is a traditional pipeline business model it's it is so textbook pipeline that even if even a third-grade student can understand why a pharmacy is a pipeline they move from that model to a platform based model and what you see over here is that they did two or three things that are really important first of all they digitize the full profile of the customer that's really important the moment you digitize that you have the maximum power within that industry because the final decision the final decision-making factor is owned by you you own the final decision-making factor not just for medicines but for anything in healthcare and so with that Walgreens can move to becoming an end-to-end health care platform not just a better medicine pipeline so the first thing is the digitization the second thing is the ownership of the customer which then draws the participants and the other partners and the third important thing internally that they did was they ensured that there was a business case at every sale of this road map you cannot sell a business case internally which will give you business in seven years time in ten years time sure that is when all the externalities would kick in maybe in the next three years four years but you need a business case for the first year as well what will digitization give you maybe it will cut your costs maybe it will increase your revenues you need to ensure that you look at your business in this model and have a business case framed out for every step in this journey so finally I want to bring it all home with this one key statement that I want you to all to leave with which is that the goal of a platform if you want to move and participate in the platform revolution what you need to do is integrate the enterprise to orchestrate the ecosystem the two things have to work together you cannot think of a platform model without having integrated the enterprise first I see a lot of you bringing out your mobile phones right now I'd love to do a very small exercise as we close this keynote today great request all of you to bring out your mobile phones and today I request you to turn it on to camera mode this is small exercise that I like to end my talks with in the spirit of the fact that we talked about the cool interaction we said that the cool interaction is what the platform business model is built around I'd like you to turn your phones to the screen and kick start our own core interaction this is my email address feel free to connect if you would like to learn more about platforms if you'd like to get information about how to think about it what you do next was the next step let's start a core interaction as well thank you so much

Channel: Digital Platforms - by Sangeet Paul Choudary

Views: 30,008

Keywords: Sangeet Paul Choudary, Platform Business Model, Microsoft EMEA’s, platform business model, platform business, platform scale, digital transformation, big tech, startups, platform innovation, digital transformation examples, disruptive innovation examples, business model strategies, big tech companies, ecosystem mapping, sangeet choudary, sangeet paul choundary, platform scale book

Id: RDfp4l8yUUQ

Length: 29min 52sec (1792 seconds)

Published: Mon Feb 06 2017