One Economy to Rule Them All
In many ways, it doesn’t feel like that long ago.
In terms of digital business models however, it feels like a lifetime has passed.
It’s something that Simon Torrance, one of the world’s leading experts on corporate innovation, platform strategy and corporate venturing, knows all about.
Simon shared his insights and predictions with us at a recent Invigorate Masterclass – one we were all very excited to attend and which certainly drew a crowd!
What happened in 2016?
According to Simon, 2016 was a seminal year in the history of digital business.
It was the year that the most valuable companies in the world flipped from being oil companies, banks and industrial conglomerates, to being platform companies such as Google, Facebook and Alibaba.
Indeed, in just four short years, the platform model has become the most important in the world.
So much so that entrepreneurs and growing businesses not incorporating a platform model nowadays are as well to look elsewhere for funding as many VCs and investors are unlikely to invest if you haven’t got a ‘platform’ baked in!
That said, the ‘platform business model’ (PBM) is still relatively new, especially to larger corporates and more established brands.
What is the ‘Platform Business Model?’
You can find out more about what the PBM actually is on Simon’s blog here.
In a nutshell, the platform acts as an intermediary between producers and consumers, connecting and matching parties together more efficiently and creating a very powerful ecosystem that can grow very fast.
VCs and investors love the PBM!
Why? Because platforms are good at solving problems for target audiences without having to create actual products or services.
Take Uber or Airbnb as examples – they don’t have ‘products’ per se, they don’t manufacture anything. All they do is ‘connect’ people to other people or services.
Tied to the PBM is what’s known as the Network Effect, which investors also love!
The Network Effect is that of becoming stronger and stronger the more people use something. And it’s critical to digital business models.
Never mind the startups, how can corporates apply the platform model to their businesses?
The key features of the PBM that companies of all shapes and sizes need to pay attention to are:
- Making the platform open, for example to 3rd party developers and the like.
- Keeping track of the data – such that behaviours and transactions can be observed, mined and optimised.
In terms of big corporates, Simon points to 4 different ways in which they can apply the PBM to their existing structures. These can be seen in the diagram below (also available in more detail on Simon’s blog).
Not everyone needs to be the next Uber.
And the Platform Business Model doesn’t always have to centre around a marketplace.
What is important though is creating a rich ecosystem that collectively makes your business attractive to customer bases.
This means leveraging other people to collaborate and incentivise.
It means adopting a non-linear approach to building a business.
And it means a substantial mental shift for many traditional businesses.
Can corporates really be more innovative?
According to Simon, yes. But it requires a very different approach to tackling innovation than simply bolting on another ‘innovative’ product, solution or service.
In fact, Simon’s recipe for success here is to undertake what he calls dual or parallel innovation.
Where corporates create an entirely separate unit tasked with building the ‘platform’.
A unit that isn’t stifled by the core business, but that can still leverage the incredible assets that corporate brands have.
It’s a structure that unless it’s adopted from the top-down, will lead to much frustration and probably failure.
Take BP for example. They’ve recently created an initiative called BP Launchpad to help scale businesses that create better types of energy. Governed by BP’s Deputy CEO, the structure in place allows these businesses to flourish, whilst at the same time using the ‘good’ governance that comes with a behemoth such as BP.
The role of startups and scaleups
However, this structure isn’t the only one available to corporates. The other route is to simply identify portfolio gaps and leverage what startups and scaleups are already building in those areas.
Many corporates even partner with startups and growing scaleups to execute on pilot programmes. If they’re successful, then they can be added to the corporate portfolio, or the corporate can even choose to buy out the startup or scaleup.
It’s not all about the £££!
If 2016 to 2020 saw what’s commonly known as ‘blitz scaling’ in the platform economy, i.e. throwing more and more money at unicorn businesses to achieve global dominance and finally hit profitability.
Then 2020 was reality check time…
…where ventures are now more focused on getting to profitability quicker, at the same time as achieving a more sustainable business model overall.
It’s an approach that of course sits well with the Platform Business Model!
So what sectors should we all have our eyes on?
The simple answer, according to Simon, is threefold:
- Climate change
And particularly those ventures attached to the United Nations’ Sustainable Development Goals or SDGs.
Within Education, one particular area that Simon finds interesting is in retraining or reskilling workforce staff, especially those that are being laid off.
Nokia, for example, created a ‘Bridge programme’ a few years ago aimed at retraining their staff in entrepreneurial skills rather than simply firing them.
Startup Bootcamp offer a similar proposition to corporates whereby people being laid off undergo a 20 week training programme.
And then there’s the whole ‘work from home’ trend, which Simon sees as crucial to regenerating local communities and creating more interesting cultural experiences on a local level, rather than in the big cities where culture has tended to concentrate for so many years.
If 2020 has taught us anything, it’s that just as digitization has been accelerated for so many companies, so too has society been forced to rethink its approach to areas such as climate change, culture and societal systems.
And of course, the Platform economy is one of the best-placed to support this major rethink.