My ADTRAN

PLATFORM ECONOMY

An open debate on the future of service providers




PLATFORM
ECONOMY


An open debate on the future of service providers




PLATFORM ECONOMY

An open debate on the future of service providers







Laure Reillier

Laure Reillier is an advisor to disruptive, high growth platform businesses at Launchworks & Co and author of “Platform Strategy: How to Unlock the Power of Communities and Networks to Grow Your Business.” We asked Laure to overview the choices and challenges confronting service providers as they seek to understand the potential and threats of the platform economy.

What are the defining attributes of a platform?

Unhelpfully, the term platform has many definitions: a raised plank, a type of shoe, … even in business, people typically talk about platforms to describe three different things:

  • Product people often talk about platforms as ‘products’ that are modular or reuse components from a previous model (e.g. ‘the Jaguar X-Type uses the same platform as the Ford Mondeo’).
  • Engineers and tech people often talk about platforms as ‘technology’ and associated solutions (e.g. ‘the PC platform benefited from the replacement of DOS by Windows’).
  • Economists tend to talk about platforms as ‘multisided-markets’ where individuals transact amongst themselves (e.g. eBay operates in a platform market where people can buy and sell second hand goods).

For us, a platform is first and foremost a business model that creates significant value by attracting two or more distinct groups of customers – matching, connecting, and enabling them to transact.

Platforms are very different in nature from traditional linear businesses. Instead of buying raw materials and resources (inputs) to transform them into products or services (outputs) that can then be sold at a margin, platforms enable transactions between participants.

Definitions have far reaching implications since the way platforms are managed is fundamentally different from the way traditional firms work:

  • The frameworks and tools that were developed to manage linear firms – and are still taught in business schools – no longer apply.
  • The value chain is no longer internal and controlled, but distributed and shared (Airbnb has no real estate to rent, Uber owns no cars, Facebook has no journalists)
  • The role of the firm is no longer to produce goods and services but to enable interactions and transactions amongst platform participants.
  • The bottlenecks are no longer simple hurdles in a linear process but complex feedback loops in an ecosystem.
  • In this new world, the ability to co-create value with platform participants and harness the power of communities are new core skills and capabilities.

How might a telco or cable provider’s platform business take shape?

If we look at the largest companies in the world in May 2017 in terms of market capitalization (Apple, Google (Alphabet), Microsoft, Amazon.com and Facebook), these firms have something new and unique in common. They are platform-powered businesses. They combine platform business models with linear ones to create powerful ecosystems. Instead of just manufacturing or distributing goods and services, these firms also match and connect community participants to enable transactions. Apple does this with its app store where it harnesses the power of thousands of developers to offer one of the largest marketplaces of applications. Amazon does this by connecting its customers with merchants connected to its platform. Google matches people looking for content and those creating it.

The telcos have strategic choices to make. They could focus on becoming very good linear ‘pipes’ and while it may not be a sexy strategy, becoming a successful utility may not be the end of the world. Another choice is to try and re-invent themselves as platforms. Arguably that would be a real challenge culturally and competitively, since other firms with scale represent formidable competition.

Or they could adopt a more hybrid approach and focus on enabling other users and participants connected to their infrastructure. By ‘opening’ part of their business to complementary providers (like Twilio with its APIs for example) they can start to develop their own ‘platform-powered ecosystem’. This is the opportunity I believe the more farsighted telcos will try to seize.

Telecoms companies are ‘pipeline’ business by instinct. How can we help these businesses understand the mindset shift required to operate as a platform?

Telecom operators had many platform characteristics in the early days. They were matching people through phone books, physically connecting them through a switch board to enable a conversation between the caller and the person being called. Yet the original telecoms firms were vertically integrated (often even including a business unit manufacturing the hardware) as well as government owned and controlled. They were originally given monopoly protection (and enormous financing from taxpayers) in order to fulfill a public policy objective of ubiquitous connection to the network. While they succeeded in achieving near total coverage, that original focus on ‘pipes’, and the ensuing regulatory structure and corporate culture this created, didn’t help with the innovation side of things.

Becoming the orchestrator of an ecosystem rather than a manufacturer or distributor requires a mindset shift. People need to be comfortable with customers and ecosystem participants co-creating value, and as a result share some of that value. They also need to be open to relinquish total control of the customer experience and focus instead on the governance principles, which foster trust between participants, define the rules of engagement, and encourage growth for the ecosystem.

To briefly summarize, here are the main mindset shifts:

Traditional model Platform model
Closed Open
Full control of the customer experience Influence on the customer experience
Creation of value Co-creation of value
Capture all the value created Share value created with platform customers
Linear value chain Platform-powered ecosystem

And what can we say about skill-sets? Might it be that every business intuition and strategy they took as gospel turns out to be false?

Being ambidextrous in the platform economy means you need to be both open where it makes sense to harness the power of outside communities and networks, and closed where a tight control of the value chain is what will give you a competitive advantage. These organizations are what we call ‘platform-powered ecosystems’ in that they combine the best of both worlds. When it works, the ‘whole is worth more than the sum of its parts’.

The skills and capabilities required to succeed with these platform strategies are however in short supply within many telco organizations.

Is there a ‘middle way’?

I wouldn’t call it a ‘middle way’ but it is fair to say that platforms are not ‘binary’ – you have a continuum of options. For example, you need not be fully open and some platforms have strict filters and carefully curate participation in order for the platform owner to control some of the experience. Yet the control that is exercised should not be the same as in a traditional model since the objective is still to attract external participants and co-create value with them!

Also as I mentioned previously, operators need not become 100% platform but they may be able to carry on operating a traditional telco model, supplementing it with some open platform aspects in order to become more like a ‘platform-powered ecosystem’.