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Accelerate

Unboxing Digital Business: 5. Digital Business as a Platform

Chapter 5: Digital Business as a Service

Augmented Reality (AR) is playing an increasing part in knowledge transfer, both in terms of inspections and in performing an operational or maintenance task. The culmination of hyper-scalable digital infrastructure that enables cyber-physical systems - which leverages AI - is creating powerful interconnected platforms that enable AR in maintenance situations.



The Rise of the Platform Model

The evolution of flight control systems serve as a good example of how the platform model has developed. Aircraft originally relied on mechanical means (a combination of cables and pulleys) to manipulate various actuators or flight control surfaces. Airbus was first to introduce “fly-by-wire”, which saw those cables and pulleys replaced by a fully electronic or digital control system. This model, that allows a computer to interpret the inputs from a pilot and translate them into movement of the flight control surfaces, has transformed what becomes possible across the entire process of designing, operating, and maintaining aircraft fleets. A Flight Management System is an example of how a digital platform model functions and is indicative of what becomes possible for your business if you adopt such a model for the delivery of digital business services.

Watch how GE’s Flight Management System demonstrates the inherent benefits of a platform model in operation, maintenance and management of aircraft fleets.

Network Effects

Metcalfe’s Law states that “the value of a network is proportional to the square of the number of connected users. As the physical cost of the network grows linearly, its value grows exponentially.” That means that many of the network effects of communication technologies such as the Internet, social networking and the Web are directly related to the number of users on that system. This is a useful way to understand that an interconnected system such as a telephone network needs a certain critical mass for it to have utility. Beyond this, what we see with a platform model that leverages data generated by the users of the platform is exponential increase in the insight – and therefore value – that can be generated.

With the Flight Management System, the efficiency improvements accumulate based on the total number of aircrafts connected to the network – not just across an airline’s fleet. Engine system performance data gathered from a sample size of 50 is not nearly as significant as data gathered from 10,000. Moreover, the probability of early detection of a problem or failure is greatly increased with that larger sample size. In other words, the more users on the system, the smarter the platform is able to become and the lower the cost of operation will be.

The not so obvious X-factor here is that the more diverse those users of the platform are, the greater the opportunity is for more tailored services leveraging data. The one-size-fits-all approach that leverages economies of scale to address large markets will become a relic of previous industrial revolutions. The platform model is driving increased market and service differentiation through the use of information.

Air New Zealand In Flight Entertainment GUI on Behance

Air New Zealand's service differentiation using a platform model: By simply putting a name on the screen in front of someone’s aircraft seat, you are expected and therefore welcomed in a personalised way.

Henry Ford is famed for the technique of mass production and the statement:

“Any customer can have a car painted any colour that he wants, so long as it is black”.

The use of the assembly line in the automotive industry made it possible for many more consumers to enter the market. Economies of scale led to many more people being able to access products, but at the price of a highly standardised experience. The Model T is an example of this – with one colour, one engine, one configuration. As markets have grown, customer expectations have increased. Likewise, as technology has evolved, it is now possible to gather an unprecedented diversity of data points that is yielding new forms of customisation for users. The platform model enables this.

Upstart Differentiation using a Platform Approach

Numerous examples are around of platform business models that have developed in recent years - from Uber to Lime for ride sharing and last mile transportation and from AirBnB to Home Exchange for sharing accommodation. A common thread amongst these businesses is that they enable a new form of asset sharing – made possible through digital technology.

A slightly more obscure example of a platform business model is Amazon – one of The Four mentioned in Chapter 2. Often perceived as a successful online retailer, part of the Jeff Bezos’ secret is to develop platforms that can be horizontally leveraged to new effect. Opening the Amazon online marketplace to other (smaller) retailers is an example of how building a platform allows you to deliver new forms of value to market segments that you would not otherwise service. Beyond this, the need for scalable digital infrastructure for Amazon’s corporate needs lead to the development of AWS – extending their reach into cloud services. A lesser-known example outside of the US is in logistics and delivery.

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Read: CNBC on the rise of Amazon shipping

“In 2014, Amazon started building its global transportation network from scratch. Seven years and 10 billion deliveries later, Amazon now has 400,000 drivers worldwide, 40,000 semi-trucks, 30,000 vans, and a fleet of more than 70 planes. Perhaps the biggest investment so far is the new $1.5 billion Amazon Air hub that opened in Kentucky in August.”

This pattern of building a platform and then leveraging that platform model to deliver new and better forms of value is something that Amazon has done with spectacular effect with a market cap of nearly $1.8 trillion as of November 2021.

Amazon has capitalised on sharing the assets it has built as a way to drive new value that has left historic retailers far behind.

Electric Vehicles as a Platform

Tesla is another example of a platform model at work. Because of the platform architecture, the more Tesla cars drive around, the smarter the platform becomes. The combination of eight cameras, radar, sonar and GPS aboard a Tesla driving platform has enabled the development of auto-pilot – something that can only be done with the constant capture of real-world data.

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Tweet: Tesla's sensor array - FT Research 

Competitive differentiation is being derived from treating the vehicle (and larger fleet) as massive data gathering platform. This has led Tesla to offer vehicle insurance in California and Texas with rates based on a driving safety score – calculated using all the previously mentioned sensors.

A Skateboard as a Platform

Taking the concept of a platform business model to the next level is Canoo, an upstart EV developer launching in 2022. The “loft on wheels” is the first iteration that leverages a platform model for the personalisation of the user experience.

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60-sec watch of Canoo's platform model in action - showing the design principle and variants that result 

Unique to Canoo is the skateboard chassis design, which provides a very low centre of gravity and “fly-by-wire” steering, enabling several different variants to be developed around the persona of the user – at a fraction of the cost of having several different chassis designs.

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Description automatically generatedSeeing the chassis as a platform has enabled Canoo to develop three different designs from the beginning, enabling it to address three distinct market segments simultaneously – something that a conventional design approach would not have allowed for.

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The CANOO Pickup variant – check out the customisable components and utility of the design

The skateboard design allows for adjustable overhangs for further modularity in the designs that sit on top of the skateboard.

GIF: the Canoo delivery van

Part of the platform design ethos is to design something for second and third owners. By making the designs modular and component-ised, repairs are made more affordable. And when a second owner wants to adapt some aspect of the vehicle to their specific requirement, that module can be easily retrofitted to the platform.

The Real Threat to Enterprise Competitiveness

As discussed in Chapter 3 on cyber-physical systems, the platform model connects old systems with new, the physical with digital via sensors and robotics, and enables enterprises with an incumbent market position to unlock the value in an installed base. In any Asset Intensive business, the barrier of entry to competitors historically lay in the investment required to acquire the assets. While acting as a natural barrier to competition, this defence to disruption can be eroded by a platform model. The EV industry serves as a cautionary tale for how incumbent manufacturers are seeing market share erode as new entrants like Tesla, Rivian, Lucid and CANOO enter the market.

Beyond simply modernising systems like adding adaptive lane assist to a vehicle, an incumbent car manufacturer that uses a platform approach to leverage their installed user base will have the opportunity to beat an upstart – because of their existing user base and brand loyalty. In fact, this is the strategy that both Google and Apple are using to enter the autonomous vehicle market. And Amazon with their recent acquisition of Rivian stock is a bet on EV’s, which could be sold using Amazon's digital platforms.

Rivian&#39;s “Tank Turn” feature for R1T and R1S officially delayed

Rivian Electric Pick Up Truck set to disrupt the market in 2021

What this suggests is that if you are an enterprise with incumbent dominance in a sector, the next generation of competition could come from an equally well-heeled enterprise that has used a platform model to find opportunity in adjacent markets by leveraging their user information to create new forms of value. Adopting a digital platform model could be your enterprise’s next big thing – to tackle new market segments that you don’t currently operate in.

Applying a Platform Model

On a day-to-day operational level, a platform-thinking approach to systems development, process improvement and ultimately innovation will enable your enterprise to evolve into a digital business modality and ultimately a digital business model. This begins with a mindset shift for key stakeholders – one that allows business units to experiment using platform thinking.

As discussed in Chapter 2, a platform model for the deliveries can be an enabler for the wider business to optimise existing processes, while allowing for innovative experimentation. Incumbent practices and mindsets often act as barriers to innovation. The adoption of a platform thinking approach offers up the opportunity to enable appropriate experimentation and the application of an entrepreneurial management style.

The Startup Way by Eric Ries – Book review – Liberated.Company

From Eric Ries - The Start Up Way. Follow this link to see Eric talk about the Start Up Way, which is based on the Lean Start Up Method.

Finding ways to allow experiments with new technologies, methods and frameworks is essential to develop the next generation of products and services for your enterprise. Eric Ries describes this as the difference between treating innovation as a noun – the name of something that happens sporadically – versus treating it as something that you do constantly. A platform model enables this to happen continuously and incorporates a long-term sustainable innovation perspective into the corporate services model.

Operational Innovation vs Business Model Innovation

A common misconception in modernising operational business systems is that because historically they have been siloed as an internal system devoid of interaction with customer or supplier systems, they don’t fit the platform model. And perhaps because of security concerns the system should have physical separation from the outside systems. What we are seeing with ground-up platforms like Tesla is that a platform modality that collects and interprets data for experience improvement and innovation is viable, while maintaining security. Essentially having a different point of view or platform mindset provides the opportunity to deliver differentiated digital business solutions that can beat the competition.

The real challenge we have from an incumbent operational standpoint is which paradigms we keep and which we discard as we adapt in the Fourth Industrial Revolution?

In the final chapter we will explore how ecosystems and digital business exchanges or marketplaces are enabling innovative leaps to take place using the digital platform model.

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The next post in this series explores how the business models of our industries will change based on the ability of systems to sense, understand and respond in the physical realm. Sign up for the series now to find out how each concept applies to business innovation.