Key Points

  • In order to stay competitive, companies need to evolve traditional business models

  • To do this requires a mindset shift, from being a product-centric company to becoming a platform-driven one

  • The multi-sided platform (MSP) model allows all involved parties to both create and extract value

  • To develop a MSP companies need to undergo this mindset shift, get clear on their true value prop, develop a community/marketplace strategy, then build a roadmap out for how data/infrastructure will support that vision

Just as the Industrial Revolution upended manufacturing 250 years ago, the Digital Revolution continues to evolve business as we know it. But instead of being about developing new means to make existing processes more efficient - like how power-driven machines replaced hand tools - the Age of Data isn’t just about using technology to optimize existing systems, it’s about leveraging technology to create entirely new systems, all together.

In this new age, traditional business models, based on a company’s production and sale of a singular product or suite of products, are becoming increasingly outdated. Forward-thinking companies are aware of this, and seek to shift away from a product-centric mindset, in favor of a more platform-centric one, but often don’t know where to begin. Inspired by Mark Bonchek and Sangeet Paul Choudary’s Harvard Business Review article on the topic, Causeit created this guide. We hope it will give you an understanding of the new expectations of today’s customers, flesh out what becoming a platform-centric company means, and help you develop the first steps to effectively apply this new model to your organization’s offering.

When it comes to innovation, there are three kinds of companies:

Reactors — Companies playing catch-up in a digital world. They don’t create anything new and will almost certainly fall behind in market share.

Adaptors — Companies that don’t want to be left behind, but need to take action to get ahead of the curve. They want to be disruptive, but are unsure about how to actually do that.

Disruptors - Companies challenging the status quo with true innovation. They’re far out ahead of the pack, and unafraid of taking major risks.

No matter which kind of company you are, when considering your next moves, getting clarity on the kind of customers that you wish to engage is an important first step.

Children of the 1990s were the first generation to grow up with the widespread adoption of the consumer Internet. Commonly referred to as ‘digital natives’, this population understood digital technology as a core part of all infrastructure, and relied on it for information about the world around them. As technology continued to develop in the mid-2000s, however, a new generation emerged. Digital natives were joined by ‘data natives’, a new generation that expected all aspects of their daily life to be mediated digitally. 

While a digital native might have learned about a concert online, called a friend to see if they want to go together, purchased tickets online via credit card, hailed a taxi to the concert hall, paid the driver in cash, then showed their printed-out tickets for entry, the experience of a data native would likely be quite different. They might be sent a push notification about the concert, purchase tickets for themself and their friend in one click via ApplePay, have their friend pay them back via the payment sharing app Venmo, hail a ride-sharing service like Lyft to take them to the concert, then gain entry via QR code, directly from their device. In the data native’s world, commerce has become a series of interoperable technologies that serve to make all of their experiences quicker, smoother, and most of all, more convenient. 

Though not far apart in age, these two populations have vastly different expectations of the products and services they engage with. Digital natives grew up satisfied with access to information, but data natives have come to expect their data to be tailored to them. They don’t just want to ask their device to navigate them to a destination, they want to be automatically told what time they need to leave at in order to arrive on time, based on historical traffic information. They also expect to be offered alternate routes, in case delays occur on the route they’re on. For them, technology isn’t just informative, it’s real-time, adaptive, and even predictive. 

It’s important for companies to understand this new breed of customer in order to shape offerings around these new expectations. Whereas a digital native might’ve been satisfied with product innovation alone, watching technology evolve from cassette to CD, and from CD to online streaming, the data native now expects to play an active role within that product evolution. They don’t just want streaming music, they want social playlist features, recommendations for similar songs, and community reviews for each piece of music that they listen to. They don’t just download, they upload, too. On a service like YouTube, watching clips alone is not enough of an experience for them, they also want to create their own clips, then share, remix, comment, and interact with other members of the community, too. In short, the customer of today doesn’t just want to be a passive consumer, instead, they want to be a co-creator of value within a brand’s larger ecosystem, and the companies that pay attention to this trend are the ones that will play an important role in shaping the future of their respective industries.

Customer expectations aren’t the only thing that has shifted in the last few decades, the ways that business leverages technology continues to change, as well. In the 1990s and early 2000s, companies integrated tech into their existing processes with the intention of streamlining production and sales. While this allowed companies to push out more product, quicker and in more cost-effective ways than ever before, most of value created was because of improved efficiency. 

But in this Age of Data, technology’s role now shifts from optimizing products, to enabling platforms.
And given the contemporary user expectations, outlined above, these new platforms are no longer about finding better ways to push goods and services out to users. Instead, they’re about creating an entry point of participation, giving users and strategic partners the opportunity to both co-create, consume, and extract value in surprising ways, all within an entirely new type of branded environment.

So, laid side by side what does this evolution from IT-enabled systems to networked platforms look like?

Existing IT-Enabled Systems New Networked Platforms
Backend infrastructure only for internal use Backend infrastructure is now partly accessible by end users and partners
Siloed and inflexible set of closed systems and data, built for specific goal(s) Fully open and interoperable systems and data, built for third-parties to ‘plug and play’
Cost center—infrastructure optimizes existing processes, but does not create new opportunities for revenue or attract new customers Revenue generator—infrastructure supports a marketplace where third-parties can create independent offerings, that attract new customers
Company creates, delivers, and maintains all value in the customer relationship via a single product, or suite of products Company hosts a platform that enables customers, strategic partners, and other third-parties to both co-create and extract value, as well

Once a company understands the benefits of moving from a product- to a platform-centric model, the question then becomes: How?

Many companies approach the challenge to innovate from the same mindset they’ve been operating from for decades. It’s not uncommon for them to unknowingly revert to old models; they might apply fresh design or new technology to existing systems, and expect innovation to somehow occur on its own. Others may focus on innovating in one specific area of their business, but find it challenging to connect this singular innovation to their wider offerings. 

The real answer to ‘How?’ is that a radical mindset shift is required. Companies need to take bold and imaginative steps if they wish to participate in this new digital economy, and approach technology not just as something that optimizes the value of existing systems, but as something that can create entirely new systems of value. 

Think of Apple, for example. While the company began as a computer manufacturer, they began to transition from products to platforms with the introduction of iTunes. iTunes wasn’t a product, per se, it was the platform that created a new experience of how music could be accessed, and its value extended far beyond the songs it catalogued. On it, users could organize their music, stream songs, purchase new music, leave reviews, build playlists, and discover new artists that they might not have come across, otherwise. In fact, a user never even needed to purchase a single song on iTunes or an Apple device to extract a great deal of value from the platform.

According to standard business models, built around the idea of selling ‘things’, a user who never translates into a customer is seen as an unsuccessful conversion. But within a platform model, shaped around many different kinds of value, a user of this nature may be viewed as a prized and vital part of co-creating value in the form of contributed reviews, shared playlists, etc. - whether they ultimately end up purchasing products, or just enriching the platform experience for other customers. 

It’s this shift - from making and selling things, to enabling value - that has the capacity to intimately transform a company’s relationships to its audience and partners, and the single best way to effect this kind of change is to transition from a single product mentality to multi-sided platform (MSP) one.

Building a multi-sided platform is all about developing a digital ecosystem that enables users and partners to build products and services that co-create value for all parties involved. To begin to create such a platform, your model must be made up of these four interlinked layers:

msp components defined

 
See how these four elements of an MSP come alive when applied to the example of the Apple iPhone:

  • DATA: Apple creates both on-phone and in-cloud datasets about their customers. This data isn’t used primarily for Apple’s purposes, it’s for customers to gain further insight about themselves, or receive better functionality from their devices and the apps which run on them. For example, health data which can be used, securely, across multiple apps.
  • INFRASTRUCTURE Apple develops an extensible operating system with APIs and SDKs that enable third-party developers to create on top of their own hardware and software platform, minimizing their own cost and risk. The company’s HealthKit is one such API that allows wellness apps and sensors within wearables to contribute to, and access, one another’s data and functions.
  • MARKETPLACE: The iOS App Store functions as a distribution channel for app-creators to sell their products on a centralized market. Users can download apps like Nike+ or Strava, which tap into data about a user’s health via the HealthKit API.
  • COMMUNITY: New value is created for the iOS App Store, where users discover and review health apps, and other communities, like Nike+’s user base, where they can connect with each other around fitness for encouragement, ideas, and friendly competition. 

So, unlike the technology of the 90s and early 2000s that only optimized internal processes, MSPs use tech to create entirely new external-facing opportunities - for all involved parties. In fact, ongoing relationships, where the more a user participates with the platform, the more value they get, are one of the main hallmarks of a successful MSP. 

For the company that develops and hosts the MSP, this might mean building closer relationships with customers and earning access to more data about them, as well as enjoying the shared revenue created by partners. For partners, value comes in the form of being able to create, distribute, and profit from products the develop on the MSP’s marketplace. And users receive value from the constantly expanding set of apps that they engage with on the platform, as well as from allowing data about themselves to be fed back to them in useful ways, like via recommendations, for example.
 

Once you’re ready to shift your strategy away from products, and towards more of a platform mindset, the first step is to get clear on your company’s real value proposition. This requires you to dig a bit deeper into your true offering, possibly even beyond your existing product or service. The goal of this inquiry is to identify the part of your business that only you can do and that no disruptor or competitor can imitate, then use that purpose as a powerful base from which to develop your MSP. When you invest in this question, the answer may not be entirely intuitive, and very well may surprise you. 

Nike is a good example of a company that shifted their strategy from product to platform after understanding their real value proposition. Beyond the sale of T-shirts and sneakers, the company ultimately came to understand that they were really about enabling each customer to live a healthy and fit lifestyle, so, when they decided to ‘go digital’, this was the purpose that guided the creation of Nike+, an online membership community that provided members with numerous apps and resources to encourage health and fitness.
 

The Nike+ platform has all four components of an MSP:

  • DATA: Once a member joins Nike+, they choose which particular app they want to access, and the app tracks their activity, stats, and allows them to set personal goals to improve performance.
  • INFRASTRUCTURE: Activity can be tracked via smartphone, but Nike also partnered with Apple to have Nike+ pre-installed in certain iPod models, plus developed their own FuelBand and SportWatch GPS in partnership with TomTom, both of which track the user’s movements. Additionally, Nike+ integrates with Apple and Spotify to motivate users via music, when a user’s performance starts lagging within their workout.
  • MARKETPLACE: When logging into Nike+, members are lightly encouraged to shop for Nike products, but the company’s products are also promoted indirectly via community members discussing the best gear for whatever sport they engage in.
  • COMMUNITY: When signing up for Nike+, users create profiles with the intention of interacting with one another. They can motivate one another, get tips, connect for real-life meetups, engage in friendly competition with one another, and share their successes with the wider community within the app, as well as on Facebook,Twitter, Pinterest, and Instagram.

As evidenced in the Nike+ example, part of the shift from product to platform is about deepening a brand’s relationship to its customers. When Nike positioned itself as an apparel company, they might interact with a customer just once a year, when it was time for them to level up their sportswear. But, by transforming themselves into a MSP dedicated to their true value proposition - a life dedicated to health and fitness - Nike may now have dozens, if not hundreds, of touchpoints with that same customer, and not over the course of a year, but all within a single month.

So, while getting to your core, then developing a marketplace and community strategy is your first step, your next move is to develop an infrastructure roadmap to support this new model. The good news is, it isn’t possible to innovate within all areas of your business in-house, so you have to think about what you can build yourself, what you can buy, and what you can partner on in order to develop this new model. And this dependence on third-parties should actually be looked at as a benefit, as it will quickly become apparent your MSP will be better, and less risky, when networked together with other third-parties. 

Airbnb is a helpful example here. Emerging from the vacation rentals market, the company was clear that its true value proposition was to provide customers with on-demand beds, but instead of creating every single part of the supply chain necessary to deliver on that offering, they linked up with strategic partners to build out their MSP, and create more value at the same time. On the infrastructure level, they weren’t going to create entire payment systems of their very own, so they partnered with Mastercard and Visa to process their transactions. They also tapped into into the infrastructure, communities, and marketplaces of Apple and Facebook to promote the company via targeted ads, enable users to easily refer the service to their friends, and create an even more seamless user experience via features like having a single sign-on capability.

The next challenge for companies is to willingly unyoke themselves from the prevailing business models that have gotten them to where they are today. Doing so requires a firm leap of faith, but the opportunity available to them on the other side of that leap is nothing short of exponential. 

Some more tentative product-driven companies understand the value of such a leap, but find themselves unable to make it in one fell swoop. So, they employ various strategies to get started. Some develop strategic partnerships, some merge with, or acquire, companies more innovative than themselves, and others develop ‘Labs’; internal start-ups that engage in edgier kinds of experiments to test out platform innovation and see what sticks, before scaling any new model up to the enterprise level. 

We’ve seen each of these strategies employed with automakers over the last few years. Once they discover that their true value prop is around the concept of Mobility, not necessarily the manufacture of cars themselves, entirely new possibilities for their businesses become available to them. BMW, for example, created the Drivenow platform, which uses the brand’s own vehicles, but offers them to users at an hourly rate, on a model akin to Zipcar. Others focus first on developing strategic partnerships, like Ford, who partnered with peer-to-peer carsharing service, Getaround, to test out non-traditional business models, or GM, who invested heavily in Uber competitor Lyft. 

Whether or not a company commits to transforming their entire model at once, or toys with more experimental offshoots within the company, ultimately, the fundamental question that they need to be asking themselves is this: How do we create a branded ecosystem that enables others to easily pick up where we leave off? By starting from this question, you’re best positioned to build the right kind of infrastructure that encourages community, enables a marketplace, and supports the full exchange and co-creation of value within your MSP.

WHAT YOU CAN DO IN THE NEXT QUARTER

At the outset, your company needs to delve deep into the mindset shift and strategy work, outlined above. At this initial phase you can benefit from bringing in the fresh eyes of an external partner, like us at Causeit, for a kickoff workshop, or summit with key stakeholders, to help introduce these new ways of thinking. We can help you determine your real value proposition, assess the resources already available to you, and provide insight into how you might link disparate parts together in order to develop your very own MSP model. 

WHAT YOU CAN DO IN THE NEXT YEAR

The longer term work requires applying the Build, Buy, Partner lens to the business model that you develop. This might mean developing new infrastructure and integrations, and taking the first steps to form strategic partnerships. Keep in mind, though, that regardless of whether your partners are internal or external, they, too, will need to be introduced to the thinking behind platform-based business models. Causeit can help guide these conversations, too, to ensure that all parties share in the overall vision, and are supported in mapping their own initiatives to the marketplace, infrastructure, and data layers of your emerging platform.