Platform ecosystems: a new strategy to collaborate for profit

Platforms shift value from products and services to interactions. Ecosystems promote scale through interactions, not volume. Platform ecosystems build better businesses.

Platforms shift value from products and services to interactions. Ecosystems promote scale through interactions, not volume. Historical growth drivers focused on consumer goods will transition to business models where platform-enabled connected interactions are at the center of the ecosystem. The orchestration of interactions enhances an ecosystem’s value as organizationally siloed processes transform into a shared ecosystem — a community of trust.

A new definition for scale

Emerging business models are moving from pipes to platforms: toward communities of value and away from the traditional pipeline value models originating from manufacturing supply chains. Shifts in markets, shifts in competitive advantage, and shifts in value creation have highlighted that value can no longer be created solely by company processes rearranging labor and resources. Value creation stems from scale grown out of interactions.

Platforms ecosystems and strategy

Platform-based companies employ 1.3 million people with a total market capitalization of $4.3 trillion, making platform ecosystems a critical component of corporate strategy. Today, success demands business leaders understand how platform-based ecosystems are reshaping traditional organization hierarchies and building new value.

A sure way for companies to become obsolete is to maintain a narrow focus on internal products and services. Managerial incentives and new organizational cultures are creating business curiosity about ecosystem profits and asset-light platforms. The question of profits raises questions about what competitors are working on next. Yesterday, a firm’s competitors were known. Today, competitor identification is not so simple. How are competitors defined? Should we focus on incumbents or emerging markets? Do we weight risk by market capitalization and value or agility? Nielsen, Forrester, Gartner, Millward Brown, Ipsos, and Capital IQare all discovering the challenges of defining industry outlooks.

Profit considerations with multihoming

The speed and explosion of platforms have created platform competition for horizontally differentiated platforms that offer complementary interactions. When two-sided markets contain more than one competing platform, the condition of users affiliating with more than one platform is called multihoming. Carrying credit cards from more than one bank is an example of multihoming. This concept is not the same as switching costs, as these users do not terminate service switching to the second platform — they use both platforms.

Have you used LinkedIn and Twitter? You didn’t cancel your LinkedIn account when you joined Twitter, right? This is an example of multihoming. The “homing” costs are what’s important. These costs are comprised of all the expenses incurred by a user’s affiliation with different platforms. When multihoming costs are high, users are less willing to be affiliated with multiple platforms that provide similar services. As industry regulations mushroom, multihoming costs rise, increasing the likelihood of industry consolidation.

Platforms and the surge of value

Outside-in technology-driven business models define the platform economy. These models don’t create value from inside the organization; value is created by the community outside the organization. These technological changes disrupt business models and alter the global macroeconomic environment. The economy is undergoing a rebirth with platform ecosystems that bring the enterprise to scale in months not years. Every company across every industry has the potential to unlock the power of platform-based business models. Unparalleled growth has arrived: Accenture estimated the top 15 public platform companies represent $2.6 trillion in market capitalization worldwide. “Unicorns” (companies with valuations of $1 billion or more) and “decacorns” (companies valued at over $10 billion) are realizing profitability leveraging profitability with platform ecosystem strategies. Platform strategies have fueled the growth of over 168 “unicorns,” with private unicorn companies reaching a cumulative valuation of $500 billion. Platforms that utilize network effects place producers and consumers together to create new value — co-creation of value through communities.

Traditional brick-and-mortar companies are embracing platform ecosystems and developing new emergent strategies. In fact, Accenture identified even traditional companies that are embracing dynamic platform strategies including: Fiat(connected car), Kaiser Permanente (digital health), Disney (MagicBands), Caterpillar (connected machines), Schneider Electric (smart cities, buildings and homes), Walgreens (retail pharmacy), Goldman Sachs (customer analytics), Bank of New York Mellon (financial services), McCormick/Vivanda (FlavorPrint), Houghton Mifflin Harcourt (education) — and the list goes on.

The platform world has arrived. Business profitability depends on platform-based business models leveraging communities to build value.

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Peter is a technology executive with 19 years of experience, dedicated to driving innovation, digital transformation, leadership, and data in business. He helps organizations connect strategy to execution to maximize company performance. He has been recognized for Digital Innovation by CIO 100, MIT Sloan, Computerworld, and the Project Management Institute. As Managing Director at OROCA Innovations, Peter leads the CXO advisory services practice, driving digital strategies. Peter was honored as an MIT Sloan CIO Leadership Award Finalist in 2015 and is a regular contributor to CIO.com on innovation. Peter has led businesses through complex changes, including the adoption of data-first approaches for portfolio management, lean six sigma for operational excellence, departmental transformations, process improvements, maximizing team performance, designing new IT operating models, digitizing platforms, leading large-scale mission-critical technology deployments, product management, agile methodologies, and building high-performance teams. As Chief Information Officer, Peter was responsible for Connecticut’s Health Insurance Exchange’s (HIX) industry-leading digital platform transforming consumerism and retail oriented services for the health insurance industry. Peter championed the Connecticut marketplace digital implementation with a transformational cloud-based SaaS platform and mobile application recognized as a 2014 PMI Project of the Year Award finalist, CIO 100, and awards for best digital services, API, and platform. He also received a lifetime achievement award for leadership and digital transformation, honored as a 2016 Computerworld Premier 100 IT Leader. Peter is the author of Learning Intelligence: Expand Thinking. Absorb Alternative. Unlock Possibilities (2017), which Marshall Goldsmith, author of the New York Times No. 1 bestseller Triggers, calls "a must-read for any leader wanting to compete in the innovation-powered landscape of today." Peter also authored The Power of Blockchain for Healthcare: How Blockchain Will Ignite The Future of Healthcare (2017), the first book to explore the vast opportunities for blockchain to transform the patient experience. Peter has a B.S. in C.I.S from Bentley University and an MBA from Quinnipiac University, where he graduated Summa Cum Laude. He earned his PMP® in 2001 and is a certified Six Sigma Master Black Belt, Masters in Business Relationship Management (MBRM) and Certified Scrum Master. As a Commercial Rated Aviation Pilot and Master Scuba Diver, Peter understands first hand, how to anticipate change and lead boldly.