Levels of digital transformation of the enterprise – for a huge number of businesses, these words, in reality, mean something very modern and important, but, alas, little associated with the activities of companies. In a rapidly changing world that is also grappling with the consequences of a pandemic, the transformation of any business activity into a “digit” is a literal implementation of the principle of “digitalize or die”. It is about how to connect your business and digital transformation into a single whole – in the material below.
Many digital transformation-focused CEOs are improving corporate business performance by adding new digital business models to their product and service portfolios. More often than not, these business models operate based on certain platforms (or rather, Platform Business Model) and allow companies to launch pilot projects for their products and services.
Thanks to Platform Business Model (PBM), many well-known companies in the world have become what they are today: successful, developed, rich, digital. During the corona-crisis, the trend towards digitalization through platforms only intensified. What is PBM and what is it for?
The platform is a fully digital business model that creates value, making it easier to communicate between two or more interdependent groups, usually consumers and manufacturers, but it also depends on the business itself – for a software company, it can be a group of developers and business analysts. Examples of the most successful of such structures, in Ukraine, are – Uber, Rozetka, Prom.ua, OLX and many others. These companies do not create or control the value chain of products directly, as traditional companies do.
Platform Business Model vs other business models
Modern executives admire and at the same time are afraid of industrial giants, however, they would like to emulate or try some of their “secret chips” on their own business, but do not know how to do it.
They would be happy to invest large sums in digitizing their existing business model and finance start-ups, pilot projects in new fields, but it turns out that it doesn’t work that way. Managers with extensive experience in traditional business models find it difficult to fully understand the types of digital business models that work best in the world of gadgets and social networks, and as a result, properly redistribute significant funds and resources in favor of digital transformation.
There is a huge confusion in the perception of the “digital business models” themselves and which ones are more suitable for creating or adapting products. It is also important to understand how a traditional company can create a portfolio of effective innovations that will make good use of the assets of the core business while creating a new product of greater value (Bundle) for the end consumer than its individual parts.
After analyzing the financial performance of business models of about a thousand leading companies, Simon Torrance, Senior Advisor, a representative of the New Growth Playbook, adapted the results of his research and surveys of leaders in strategy and innovation into a single system of certain archetypes in line with a particular sector or market.
The lion’s share of management strategies in most sectors still belong to Archetype No.1 – the digitization of their traditional products, interfaces and distribution channels.
But to be competitive tomorrow, now efforts to digitize products alone are not enough. New ways of creating the value of products need to be identified before digitalization destroys all traditional sources of earnings.
The true archetypes of the digital business model below use platform thinking and platform economics, the principles of which are often new to traditional leaders.
Platform thinking is to apply the benefits of agile and digital infrastructure to engage other economic actors (third parties and/or developers) on a large scale to create new values for customers or markets.
Instead of trying to design and build everything on your own – which most companies do by default – platform thinking encourages you to act as a coordinator or intermediary between the needs of your customers, your own experiences and those of other consumers. If you can do it right, the economic impact will exceed your expectations, as you will benefit from the creativity of the rest of the participants and reduce your costs and risks of innovation.
The business platform example looks something like the one in the picture below, combining all sorts of products and services for a wide variety of customer types.
If you can correctly interpret the effects of network interaction and their trends, then your business model will eventually surpass the effectiveness of the competitor model – just remember projects such as Visa or Mastercard, whose value is not in doubt, and all because these products are excellent examples of platform interactions between manufacturers and consumers.
Most successful digital transformation projects start by focusing on solving very narrow customer problems, and if successful, expand through additional functions, either within their organization or by engaging partners and outsourcing.
For example, the British banking service Revolut began with the offer of currency conversion at a favorable rate for travelers and has now expanded to a wide range of financial and non-financial services, effectively turning into a global banking structure, estimated at 6 billion dollars.
Platform concepts are profitable and popular in the venture environment, but for many traditional businesses the use of these strategies, in reality, conceals a lot of complex nuances, so few of the traditional companies dare to implement them at home. It remains to focus on the departments of innovation development of enterprises, the practical developments of which can become the basis of business models for other businesses.
Archetype 2: Intelligent Digital Solutions
This is the new generation of digital services: personalized, low-cost platforms with artificial intelligence features that combine a variety of components that allow you to respond flexibly to the needs of a particular niche audience. Today they are widely used for mobile applications.
Of course, there are many other great examples in the consumer world. Favorite Ukrainians’ Netflix or Spotify, which thanks to the quality development of digital solutions forever changed the consumption of music and video content.
In the industrial world, the GE Predix platform is very well known – for remote maintenance and management of large machines, such as trains, power plants, wind farms, or software to improve agricultural productivity, that is so popular with Ukrainian farmers’ agricultural machinery John Deere.
In terms of the very approach to the development of a particular Archetype during digital transformation, most companies start with a rather narrow functionality option, then expanding the additional capabilities of their established user base, such as Google search engine or Facebook social network, which were later supplemented with advertising platforms, developer communities, and then expanded in many ways to create a variety of digital ecosystems (i.e., during their time of life they have gone from archetype No.2 to No.5).
Therefore, to remain relevant to their customers, current players in the market will need to create intelligent digital solutions in addition to the digital transformation of their core products or by providing digital delivery channels for them.
Archetype No.3: Developer Support
This is about empowering traditional businesses by engaging external teams and partners to improve the path of digital transformation for the end-user, as well as to develop the practice of successful interaction.
This approach is widely used in an IT field called “microservice architecture”, where the API interface acts as a bridge between your capabilities (data, products, features, or content) and developers who want to embed them into their products.
Example: The Epic Games platform, well-known here in Ukraine (and so much so that its content can be paid for directly in hryvnia), is famous, first of all, for its survival-sandbox Fortnite, long the most popular game in the world, bringing together more than a quarter of a billion players around the globe. However, the company decided that this was not enough and launched Epic Online Services to help engaged developers create as much new game content as possible. Experts now regard this act as a “reasonable step to expand its network, opening up new monetization opportunities.”
And these are just some examples. In general, according to Simon Torrance, the market category of the financial services sector of platforms with service banking and options of embedded payments has turned into a separate super-category with a turnover of $7.2 trillion.
At the same time, it is noted that telecommunications companies have not been able to make a breakthrough in the field of communication platforms As-a-Service and now they are at risk of depreciation of their proposed products (commoditization).
Archetype 4: Marketplaces
This is a strategy of intermediaries, aimed at buyers and sellers at the same time. In Ukraine, there are a sufficient number of marketplaces operating on the same principle, the most famous: Rozetka, Prom.ua, OLX, etc., however, any similar-looking strategy can have significant differences in relation to the options offered by it.
For example, Amazon’s marketplace changed the market, displacing the eBay-leading company by offering its customers something that competitors didn’t have: a vendor-handling service, logistics, storage, and a subscription to an app that guarantees free shipping.
Therefore, while Amazon implemented a new business model of marketplaces, offering additional online services, products of its brands and opened physical stores, eBay remained a classic online auction, losing its unique advantages.
It is important to understand that the market of B2B marketplaces is significantly different from the highly liquid B2C market, so these electronic platforms need a completely different approach to design and operation.
Archetype 5: Digital Ecosystem
These ecosystems create value through the consistent and/or simultaneous involvement of different players, communities, activities, and resources, thereby demonstrating governance rules and mechanisms to engage independent players in distributed collaborative innovations.
What does it look like in practice? On one hand, the simultaneous application of several archetypes of business models can give a new effect due to synergy, which is the main advantage of platform thinking. On the other hand, the digital ecosystem can be aimed at expanding certain market opportunities, often associated with the company’s core business. For example, self-planning travel from A to B for hotel room booking service; accelerating the resolution of communal issues of tenants by the management company from the developer of housing, etc.
The Digital Ecosystem Strategy is based on finding ways to optimize a wide range of interconnected services and solutions to help both individuals and organizations perform complex actions more effectively. In this case, we are talking about a combination of elements of other archetypes – intelligent solutions to support new workflows and marketplaces for interaction with the end consumer.
As a result, the ecosystem-based platform is growing much faster than a single-player platform, demonstrating the potential for successful access to non-core markets as well.
A more attractive economy
New digital business models based on platforms provide previously unexplored economic opportunities, such as income and/or risk from the total revenue generated from the sale of goods and services between stakeholders or members (Risk and Revenue Share).
Digital models are based on the monetization of more marginal “intellectual capital” than expensive “human capital” and provide non-traditional digital management tools, such as multi-channel attribution models or rules by which value is shared between marketing channels involved in attracting buyers.
There is also an important issue of scaling, where platform-based business models initially have opportunities for so-called digital brokerage, previously available only to niche models, such as trading in financial markets or real estate transactions.
The PayPal payment system also began its history as a niche “smart digital solution” on eBay, however, in the course of development significantly increased the value of its business model, using platform thinking and the total capitalization of PayPal in 2020 was $130.94 billion, against only $29.22 billion from eBay.
From a commercial point of view, a platform that provides a digital business model solves the important task of increasing profits by applying the subscription principle (periodic billing or Subscription) – automatically charging the buyer for goods or services on a pre-agreed schedule.
To make an important choice about building your billing management platform or investing in public solutions, it’s important to make sure you’ve taken into account all the requirements of technology, business, and regulatory requirements – so it’s important to get answers to all these questions before you start your digital transformation project.
Why? As an example, the work of MEF.DEV team, which has experience in troubleshooting digital transformation projects in the telecom industry, says that clear recommendations for teams to implement a regular billing platform (namely, the creation of the platform itself and its development, IT and security), as well as the practical experience of “underwater stones” in the implementation of finance and accounting – significantly increases the success of the digital project and reduces the time spent on its implementation.