What to do when your current product strategy is causing you to lose market share.
By Matthew Hoffer
During 2007; Samsung, Sony Ericsson, Nokia, LG, Blackberry and Motorola controlled 90% of industry mobile phone profits combined. A mere decade later, the Apple iPhone alone controls ±92% of global hand-sets. How did this shift happen and more importantly – what strategy can enable you to future-proof your business?
The the story of Apple is a legendary one and might feel of little relevance to you. Yet, such a view would be mistaken, because upon reflection, it is highly likely that your company may share many commonalties with Apple back in 2007:
- A product only company
- Developed products in secrecy
- Supported products through retail and online channels
- Multiple year-on-year new product releases
If today your company is a “product-only” company paired with some or all of the above listed attributes, then undertaking a similar strategy as Apple could be beneficial. At the core are two realisations:
1) We operate in a digital-first environment,
2) The greatest asset is customer date (existing and potential)
Understanding these, Apple further differentiated itself from competitors by also developing an enabling digital platform. In other words, it made the transition from a product-only company to a “product + platform” firm. [Think Kindle + Amazon too, but let’s focus on one pioneer at a time.]
In this article, we provide an easy-to-use framework that will enable your company to build a platform that can propel new growth and capture market share.
Why Platforms beat Products
In a digital-first world, platforms always beat products as they enable companies to create an engaging base-layer of technology that accelerates the exchange of value and information between the supplier and its customers. This continuous collection of data opens paradigms for deep predictive analytics, which are critical to future success - ensuring customer centric offerings, protecting a fortress from competitors.
To keep it simple, there are 3 principle reasons why platforms beat products:
1) shifting from a linear value-chain to a platform enabled model, provides firms with a variety of tools to understand, review and monitor engagement
2) being at the centre of this ecosystem provides orchestrating control; the “oil” of the 21st century is data – and specifically, the analytical flow of data
3) transforming from product only to platform enabled means competitors can become components and complements to the ecosystem (making them work for you)
Michael Porter, in his seminal work “What is strategy”, argued that a key pillar of a successful strategy was to build high barriers to entry (protecting the fortress). However, building such barriers is becoming harder and harder in today’s digital-first landscape.
For this reason, the traditional business model that sits within traditional linear value chains, delivering standalone products and services is dated. The threat for a “product-only” firm is paramount and a shift to platform-enabled customer centricity as an enabler to continued success should be taken seriously, otherwise an undesired fate (such as Blackberry’s) might be lurking.
Figure: How a traditional business model differs from platform enabled model
How to make the shift to platform enabled
Making the shift to platform enabled might seem daunting, however, with the right digital strategy systematic change is possible. Apple is not the only company to have made the shift, Nike for example instrumented their shoes, to connect mobile devices and host analytics in the cloud to develop an ecosystem and social community, enabling users to log runs, interact with each other, join teams and engage in challenges. By building a platform, Nike became more than just a product, by building significant value on top of their core products they continue to “just do it” right.
Start the journey
To begin the shift it is imperative to first focus on customer needs by following a 7-step framework.
These 7 customer-centric steps can transition your company from product-first to platform:
1. Customer needs
Ensure an in-depth understanding of what value a customer is seeking and how a platform can enable the exchange of that value
2. Data Mapping
Understand what minimum core data is required and the ease/difficulty with which it can be obtained
3. Network effects
Know how to attract sufficient users; ensure decisions are guided by the right customer acquisition strategy based on the unique value proposition of the platform
4. Monetisation
Know which side of the platform you’ll monetise from, and how that revenue stream or streams will be generated
5. Technology
Ensure the right investments are made from the architecture, logical data structures to customer UX
6. Behaviour
Develop a clear governance model paired with exceptional security, data protection & encryption
7. Products & services
Continuously build additional features and adjust to consumer demand; allow the community to build their own products using your platform infrastructure
Case study example: Ecosystem orchestrator
Emptytrips: filling spaces to places
Logistics is big business, literally. Trucks, trains, planes and sea vessels transport approximately 10 trillion tonnes of goods each year, with a 7.5% annual growth, equating to more than $7trillion per annum. The environmental costs are potentially crippling too: by 2050, the industry is expected to account for 8 billion tonnes of CO2 per annum – that’s the same output as ±71 Manhattan islands! The problem is further compounded by the fact that most freight transportation travels significantly under-capacity, i.e. empty.
A mismatch in demand and supply at industrial scale requires an orchestrating layer to better pair volumes to capacity, and often expensive capital-intensive assets. Enter, a technology platform named Emptytrips. This South African founded marketplace uses data-driven analytics to quickly, easily and affordably match excess supply with demand – meaning fewer cargo journeys, less pollution, more revenues for logistics providers and reduced logistical costs for shippers; earning a few basis points per transaction and up-selling value-added services such as cargo insurance has earned them industry recognition.
Through the power of platform, Emptytrips is disrupting the way we think of owning, transporting and sharing assets. They have illustrated that a small team can create a new industry orchestrator, digitally.
To make a success of your new platform business will also necessitate a change in your business model – the engine upon which the platform will run. The following three enablers within the company supports the systematic journey toward a new business model:
1. Employee Skills
Understand changes needed in the workforce today vs tomorrow (critical skills gap & filling key positions e.g. engineers, developers, systems engineers, etc)
2. Company Mindset
Ensure the company mindset is reinvigorated and changed to manage the new channel and proposition, including the communication to the market
3. Technology Investment
Prepare to become a technology company. Review your current technology environment, plan to absorb the impending changes, costs and specific requirements still needed. Be sure to understand ahead of time what typical technology investments are required, with a margin for error buffer.
Conclusion
The transition to facilitate a smart platform will require a firm’s leadership to make the commitment to building the right environment, which includes developing steadfast platform architecture, acquiring data-science capabilities, investing time, testing concepts, investing and even potentially failing. This will ensure utilisation of the platform creates value for you, customers and the ecosystem. Adding great easy-to-use design can only add to a continued enjoyable client experience.
Platforms will continue to win as it is often far easier to add product functionalities to a platform, and create subsequent network effects than a product, than vice-versa. By building a platform, the strategy shift focuses from resource control to the value of the exchange. In the process, companies not only put their customers at the heart of everything they do, they can put themselves at the centre of a new ecosystem. Rather than be a mere component in a linear value chain, they become an orchestrator. Mass data allows better service and anticipation of needs.
Finally, a platform model opens up the possibility for firms to monetise and profit from the physical assets of other firms. By orchestrating the collective of assets of the ecosystem digitally, a platform can earn indirect yield and support the industry. By being the player that extracts and facilitates the value, the orchestrator has exponential pull. Building a platform reduces the capital-intensive need for owning many assets; allowing scale in a way that was traditionally unthinkable.
Future-proof your product, by enabling the ecosystem with a platform play.
About the author
Matthew Hoffer serves as an adviser to SeedPitch and is the Managing Partner of Spire Strategy, a Swiss boutique strategy and technology company.
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