5 key concepts for transforming into a platform business

In this turbulent business environment, CEOs and other business leaders are looking for new ways to achieve growth and secure competitive advantage. Many are discovering that the answer lies in the successes of tech giants.

Platform companies – a business model focused on creating and nurturing ecosystems where multiple participants can share value – offer significant new growth opportunities and competitive advantages.

In a linear (traditional) business, value is typically created within the organization using company assets. A platform company acts primarily as a value broker, although the platform can also serve as a conduit for proprietary solutions or products. They tend to be relatively resource-poor and create value through connection rather than production. Most importantly, many traditional linear companies have the traits required to successfully become a platform company.

Platform companies dominate the leaderboards, outperforming competitors and disrupting markets. For two decades, platform companies have dominated the market and are now among the most valuable companies in the world. The seven platform companies listed below have a combined market capitalization that has grown from $5.9 trillion immediately before the pandemic (March 2020) to a whopping $10.5 trillion as of December 31, 2021. They also included 10 of the 15 biggest gainers in stock value over the period. Together they added $4 trillion in stock value.

Although tech giants have largely been the forerunners, business leaders across all industries can learn from their experience as they consider a transition from a linear to a platform business model:

1. Rethink how you create value for your customers.

Many companies excel at engaging with customers, understanding their needs and preferences, and finding new ways to deploy resources and skills. Linear companies try to fill these needs Inside their organization. Platform companies are expanding the openness to find profitable ways to deliver assets outdoors the organization to address these or other unmet needs. They provide an ecosystem where external participants can interact and share value while being rewarded for the value created. In some cases, these multi-sided platforms are practically free. That is, each additional purchase on the platform can increase the company’s sales without increasing the additional costs.

A few companies outside of big tech have successfully made this leap. A few years ago, an industrial equipment company launched a cross-industry software marketplace. It created an ecosystem where its customers could access assets and solutions beyond the company’s portfolio.

2. Build the ecosystem around your current strengths and where you have branding permission.

Companies striving for this change must play to their strengths. One of the world’s leading manufacturing groups has built an IoT and device-enabled platform. It has developed the entire experience around the needs and business requirements of industrial manufacturers and plant operators – a type of customer that the company knew well and has been serving for decades. The platform became a natural yet innovative extension of their linear business, improving customer retention and creating alternative revenue streams.

3. Rethink your role in the value chain.

As the owner of the platform, one of the company’s main missions is to contribute to seamless interactions between the participants of the platform, whether they are sharing products, services, content or expertise. An effective platform can create the right conditions for the entire ecosystem to thrive, reducing or eliminating friction and lowering the cost of transacting through the platform. Effectively performing this role allows these participants to create value for each other and ultimately enhance the value of the platform as a whole.

4. Decide if you want to build or buy.

While starting a platform business is doable for most linear organizations, that doesn’t make it easy. Some companies may already have most of the infrastructure needed to build and expand. For these companies, the focus will be more on the strategic and commercial aspects of scale-out – creating a compelling ecosystem value proposition, aligning technology investments, establishing governance frameworks, upskilling and onboarding solution partners.

For others, buying a technology asset or an entire platform company may make more sense. Examples of non-tech deal activity include a retail giant that acquired an e-commerce platform to bring third-party vendors on board, and a large fitness apparel company that bought multiple social fitness platforms at once to order ultimately building a powerful and successful digital fitness ecosystem.

5. Focus on gaining and building trust in the ecosystem. It matters now more than ever.

According to PwC’s Trust in US Business Survey, 62% of consumers surveyed cited data protection and cybersecurity as one of the most important foundational elements of trust.” Unsurprisingly, consumers don’t respond positively when their data isn’t secure or, worse , shared with other parties for unintended purposes. Trust building is even more important for platform companies as it is influenced not only by the actions of the platform owner but also by the actions of other ecosystem participants.

While these five principles are fundamental, there are numerous other considerations. However, they can provide an important starting point for businesses by examining the three pillars of a strong foundation for growth: determining where and how to deliver more value to customers, putting in place the appropriate infrastructure, and further building trust and loyalty among participants within the ecosystem.

Even if certain companies don’t have a technology-based foundation or history, they can use technology to rethink their growth agenda so they too can dominate the leaderboards and explore what’s possible.

Mohamed Kande is Vice Chair of Consulting Solutions and Global Advisory Leader at PwC.