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Platforms, Present and Future XII

2.6 billion $ is the worldwide AI platforms market value in 2018. AI is seen by several industry as a “must” to make sense of the huge amount of data industry is producing along the value chain. Graphic source: IDC

Platforms as enabler of business (and services) I

What follows is the result of several interactions I had with key people (CEOs, CTOs, Directors) in several industries covering a broad spectrum of verticals, from mechanical to textile, from food to transportation.

The general comment I got is that industry is not interested in technology (and specifically in platform technology) but in what a platform can do to the bottom line of a company. A nice citation mentioned Theodore Levitt (economist and professor at Harvard) saying:

people don’t want a quarter inch drill they want a quarter inch hole.

Industries are seeing a transformation of the supply and delivery chain and a different relation with the market that is bringing platforms and ecosystems to the fore. Platforms are seen as a way to reduce cost (increase efficiency) and, even more important as a way to connect the platform owner to the market. This connection generates data and these data can be leveraged to fine tune products and to offer services. More than that. Platforms are seen as a tool supporting new business models and in particular the “Outcome Economy“.

Since this relatively new concept of Outcome Economy has been voiced over and over in the interactions I had it is better to clarify its meaning.

The Outcome Economy is a concept that has been socialised by the Economic World Forum noting that:

companies will shift from competing through selling products and services, to competing on delivering measurable results important to the customer

This means that rather than charging a price for a product or a service a company will charge a fee based on the “use” and “value” of that product/service for the end customer as it is being used. This approach is becoming possible because of IoT (and connectivity, obviously). IoT can connect the use with the provider and make possible this kind of business model. McKinsey expects the Industrial IoT (IIoT) market to reach 7.7 trillion $ by 2025 with SAS foreseeing 55 billions of IIoT in operation at that time.

Notice that this is good for the user since it pays based on the value accrued and it is good for the provider because it allows a continuous relation with the user fostering further business opportunities. Besides, this avoids the risk of commoditisation since the platforms connect me, as producer, to the customer/user and it is this connection that delivers the specific value.

Platforms , controlled by the producer, are the tools that support the tracking and the connectivity. The platform accrues usage data that in turn can be monetised.

Textile manufacturing involves very sophisticated and extensive plants having hundred thousands components (320,000 bearings, 1,250 motors, 3,500 transmission belts, 50,000 spindles to produce 43,000kg of fabric a day). Downtime is extremely costly and can kill margin. Image credit: Indian textile journal

An example is the growing interest of insurance companies that by having the customer accepting to install a tracking device on his car can offer a potentially more advantageous pricing based on the actual use (how many km, how fast you drive, where you drive…).

Another example is the sellers of certain complex systems, like a textile manufacturing (converting fibre into yarn, yarn into fabric, fabric into dyed or printed fabric and then transformed into clothes) that will package the equipment with the maintenance, transforming maintenance into preventive maintenance (using IoT and predictive software). In this area, as in several others, the margins are razor thin: the spinning of yarn to create fabric produces a revenue of 3$ per kg with a margin of few cents per kg. The plant works 8,500 hours per year (there are only 8,760 hour per year, hence we are talking of continuous operation) hence it is obvious the crucial importance of preventive maintenance to avoid downtime. These plants are operating in Countries far away from the producer of the plant and remote monitoring to provide proactive and preventive maintenance is essential. The digital transformation is changing the value chain and making possible these new business models.

About Roberto Saracco

Roberto Saracco fell in love with technology and its implications long time ago. His background is in math and computer science. Until April 2017 he led the EIT Digital Italian Node and then was head of the Industrial Doctoral School of EIT Digital up to September 2018. Previously, up to December 2011 he was the Director of the Telecom Italia Future Centre in Venice, looking at the interplay of technology evolution, economics and society. At the turn of the century he led a World Bank-Infodev project to stimulate entrepreneurship in Latin America. He is a senior member of IEEE where he leads the Industry Advisory Board within the Future Directions Committee and co-chairs the Digital Reality Initiative. He teaches a Master course on Technology Forecasting and Market impact at the University of Trento. He has published over 100 papers in journals and magazines and 14 books.

2 comments

  1. Gentile Prof. Saracco , sono interessato ad approfondire l’OUTCOME ECONOMY , io mi occupo di produzione tessuti nel sistema moda abbigliamento ( tutti i settori merceologici ) , dove posso trovare altre informazioni?
    Ci siamo da poco incontrati a Trento , partecipo al Master PREVISIONI SOCIALI .
    Grazie
    Nello Marelli

    • Che ne dice se ne parliamo la prossima volta che ci vediamo?. Se mi manda la sua maille posso inviare un contatto diretto