The concept of a platform is nothing new, but in the digital era of smart connected products every hardware-centric company needs to urgently work out a platform strategy. Simply put, while a product is something you sell, a platform is infrastructure that enables interactions between various actors.
Market researcher IDC predicted that more than 50% of large enterprises—and more than 80% of enterprises with advanced digital transformation strategies—would have created or partnered with platforms in some form by the end of 2018. Several Internet and software companies have already created successful connected product platforms and many traditional hardware makers will need to consider whether to plug into these platforms as partners or compete directly.
It is important for traditional product businesses to treat platforms, especially those provided by the Internet giants, as potential trusted partners, but also pragmatic competitors. In some cases, they will strongly compete or even try to disrupt your business. In others they will act as partners or facilitators. You might simply use the Apple App Store or Google Play as a channel to distribute application software for your own hardware product, entirely to your company’s benefit.
Our view is that all product-based companies need to have a clear friend-or-foe strategy when it comes to defining their relationship to the Internet platform titans and other rivals. You need to figure out whether to build a platform, and if not, where and when to buy into or partner with one.
Different businesses have positioned themselves differently in the friend-or-foe decision. Automotive players such as Volkswagen or BMW invest a great deal in data technology and data processing centers and even quantum computing projects. German technology behemoth Bosch has thrown the gauntlet to Google by pushing massively into data technology around smart home solutions. Through a new smart home subsidiary, Bosch will deal directly with the end consumer for the first time.
Other businesses go down the ‘friend’ path and become allies of the big Internet giants. Volvo has been a pioneer in marrying digital technology and automobiles. It has turned to outside providers like Ericsson, a Swedish maker of telecommunications equipment, for computer technology. It has announced it will install Google’s Android operating system in new cars from the beginning of 2019 and cooperates with Uber to develop self-driving cars.
Note that adopting platform models does not mean giving up on existing product-based business models. In fact, the existing business lines will often provide the new platform’s foundational strength – and in many cases the funding for establishing a platform in the first place. At its core, Signify (formerly Philips Lighting) is still in the business of making lighting, HP will still make printers, Boeing airplanes, Michelin tires and Mercedes cars. But the platform business model offers such companies the opportunity to leverage these products in the digital era in innovative and highly value-creating ways.
As agile platform pioneers continue to rapidly grow, many traditional product companies have been too slow to both realize the importance of platforms and develop a clear and compelling platform strategy. But you don’t just need a good strategy – and management backing – you need the means to implement it. Even those with a clear vision have struggled to develop the requisite skills and capabilities, as well as execute at the pace needed to compete in the digital era. Missing this generational shift or getting it wrong could result in a long stagnation or decay.
1. Platform business models are creating enormous market value.
2. Every product company must have a platform strategy, and determine whether to build their own platform or partner as well as what type of platform(s) models to participate in. Ignoring is not an option.
3. Many product companies will choose to partner with today’s Internet giants who are platform leaders, but all need to understand the risk versus reward of their choices.