The optimal platform strategy

Digital platforms are all the rage. Many companies are trying to jump on the bandwagon and create their own platforms. But it this the right path to take?

Platforms like Alibaba and Zalando have achieved enormous global reach and dizzying market capitalization. This has got CEOs from established companies currently in the middle of their digital transformation thinking. Are the platforms good examples to follow? Is it worth following suit? Should companies collaborate with these platforms or would it better to simply ignore platform aspirations?

The answers to these questions are not easy. Ignoring the topic in a world where platforms beat products hands down may appear risky. But building a platform in markets already home to global platforms may seem like a David and Goliath battle.

Not all platforms are created equal

The characteristics of platforms vary: some have been created by established companies, other are very sector-specific, and then there are horizontal platforms from major global players. We can generally see that platforms are distributed throughout a wide range of digital markets. It’s also undisputed that successful platforms from established companies are accompanied by significant increases in performance.

Digital platform vs ecosystem

There are basically two digital core structures (digital platforms and ecosystems) that dominate the new competitive environment. Facebook, for example, could be described as a digital platform. It can be used as the foundation to create a range of digital products. In the case of Facebook, these are advertising offers and the distribution of media.

Ecosystems often arise from the needs of consumers for specific services and examples include Uber and AirBnB. They create a space where supply and demand can be brought together. As such, they act as the mediator in the relationship between travellers and property owners, or car drivers and potential passengers.

The Chinese company Ping An is advancing the model beyond industry boundaries. It offers customers digital locations to satisfy a range of needs from car insurance through to property services and appointments with doctors. The boundaries between platforms and ecosystems are becoming increasingly blurred.

Successfully operating a platform is a major undertaking. Established companies often choose to collaborate with global platforms and ecosystems to reap the benefits of their size. But it’s worth considering that many other companies are doing the same thing, which makes it difficult for you to differentiate your range of products and services from your rivals.

Distribution platforms

Established companies such as Daimler, Nike and Unilever have introduced their own platforms. It’s usually only companies that could be described as “digital natives” that dare to take such a bold step. Their justification for being committed to platforms is frequently found in the options available to combine individual services and integrate them into a full-service offer. Such companies also hope to profit from a large customer base by using the platform.

In a competitive environment – with the spread of platforms and ecosystems as well as the expansion of network effects – the dynamics that established companies have to face will become even more important.

More collaboration than direct competition

Whether the multitude of new, self-operated platforms will take hold is questionable. It’s reasonable to assume that companies who decided to set up their own platform were totally unaware that running a platform entails direct and indirect costs. And platforms which are successful on the market often provide additional services, which is often overlooked. This sometimes means that these value-added services make more money than is generated directly by the platform itself.

At the moment, it may be more profitable for companies to join established platforms instead of building their own. Companies starting out with an industry platform may discover that working with a global player increases their penetration rate considerably.

Digital platforms have become a characteristic feature of the corporate landscape. For established companies, a platform strategy that is pursued alone or together is becomes a necessity for competition. Companies which have not yet taken a step forwards are likely to find it increasingly difficult to make up for lost ground.