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Platforms, Present and Future XV

Ever considered buying a 570S McLaren? It cost around 200,000$ but if you could get it for 20,000$ , why not? Image credit: McLaren

Platforms as enabler of business (and services) IV

As final post in this series on platform I would like to point out an aspect that may not be obvious in the transformation of products into services. Services are made of bits and as such can be easily duplicated at -basically- zero cost. If a manufacturing company manages to transform a product into a service it can decrease it cost and can offer a lower price to the customer expanding its market.

Now, for some product this would seem impossible. Yes, you can decrease the price of the overall cost when considering the package of hardware and software, with the software being shared among many clients and therefore dramatically enjoying economy of scale. But what about the “hardware part”? As an example, consider a self-driving car. Yes, you can duplicate the software (and you do) over thousands of cars decreasing the cost “per-car” but you still need to manufacture a car per each customer. That is true if we look at the present value chain and at the present way of owning and using a car.

Consider this: a smartphone cost between 2,000 and 8,000$ per kg. A car cost between 40 and 70$ per kg! Wow, that’s much cheaper, and one could assume there is less margin in a car than in a smartphone (the assumption is correct, by the way),

A car is so cheap, per kg, because it is used in a marginal way, on average just 5% of the car is used, time-wise. Now consider a self-driving car that can be shared by several users to increase its usage time to some 50-75% of the time. You would be able to push the price per kg to 1,000$, still cheaper than a smartphone but closer. Actually, a car manufacturer would be able to increase the price of the car to 2,000$ per kg and the end user will still pay less than what he is paying today (some 200$ per kg) but he will buy only 1/10 of the car so his total cost will be half of what he is paying today! A 200,000$ cars all of a sudden becomes affordable.

This is the magic of sharing, of course, a way to increase the usage of resources where everybody benefit for the increased system-wide efficiency.

This is what the digital transformation and platforms (IoT, AI, and the like) makes possible.

As platform support the transformation of products into services they are increasing the efficiency of the system, enabling different business model and supporting the shift to the outcome economy where people pay based on the revenues generated (or increased value perceived).

Probably a funny way butnevertheless an intriguing way to looking at things…

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.