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.
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.