How to Integrate Digital Platforms Into Your Business

Trends attract a crowd. As digital platform-based firms emerge as some of the most profitable businesses in the last 20 years, startups and established companies alike are embracing the movement in great numbers. (Quick recap: a digital platform brings together two or more distinct groups of customers on a common online platform that creates value for all.) eBay, one of the earliest and still most successful cyber platforms, brings together private sellers, commercial retailers and buyers to sell new and used items. 

According to MIT, 14 of the top 30 global brands by market capitalization in 2013 were platform-oriented companies. The stunning success of some digital platform businesses in both the B2C and B2B arenas may lead entrepreneurs and business leaders to believe they are the holy grail of growth. Still, this disruptive online innovation does not suit all businesses, and leaders need to weigh carefully the value of investing in such a course. 

Examples of Successful Digital Platforms

The concept of facilitated business exchanges is nothing new. We have always had platform businessesChampagne fairs in medieval times are an early example, says Professor Catherine Tucker, Sloan Distinguished Professor of Management and Professor of Marketing at MITs Sloan School of Management, who teaches Platform Strategy: Building and Thriving in a Vibrant Ecosystem. What the internet has changed is the ability to scale such businesses and make them profitable, she adds. Indeed, todays best platform companies create new markets, are less expensive to operate and are highly expandable.

A well-known example is the transportation network Uber, one of todays most successful B2C digital platforms. Using Uber, drivers earn cash using their own vehicles, riders enjoy a more structured car-hailing system and often get lower rates than they would get from taxis, and the company profits from bringing the two sides together. Uber launched in 2009 with one class of service in one city (San Francisco), and has since scaled to 300 cities and multiple service lines. It is now valued at more than 50 billion dollars.

Beyond B2C

While public focus tends to be on B2C online platforms like Uber, Lyft and AirBnB, there is plenty of growth on the B2B side, too. Akamai, a B2B content delivery network services provider, hosts a platform for web developers and users to interact, and profits by selling its products to developers.

Older, well-established companies are finding ways to integrate platforms into parts of their business, too. Tractor manufacturer John Deere, for instance, introduced the MyJohnDeere Operations Center in 2014. Through collaborations with service providers, the platform allows farmers and other producers to access and share agricultural data, such as weather, maps, fuel use and seed prices.

Tucker believes that there is a lot of value to be created in traditional B2B sectors by introducing digital platforms into the mix. In the metals industry, for example, the potential opportunities for creating a platform and making the buying and selling process more efficient and customised is immense, she says.

Should You Integrate Digital Platforms Into Your Business?

Leaders in organisations considering whether to implement a digital platform or not need to understand a number of aspects of this business model. The pricing structure is important but complex, and must take into account the willingness of the different participants in a platform to pay to join. Often companies must forego profits from one group of participants and recoup them from another. Tucker comments that businesses are often concerned about building a monetisation model into the DNA of the platform.

Whether to tie customers to a proprietary platform rather than create an open network is also an important decision point. Another matter is how many sides to include in a platform. Some businesses will function better as a two-party platform, like Apple (users and app developers), while others will maximize potential as three- or more-party platforms, as in the case of LinkedIn (job seekers, recruiters and advertisers). In Tuckers experience, finding the right technique to attract the right first group of customers is an additional crucial success factor. 

A common evolution pattern for digital platforms is that businesses focus simply on obtaining customersat their peril. When they see that these customers begin to have less than satisfactory interactions, they need to build up the core of the platform to safeguard its reputation and its customers, she explains. Tucker cites eBay as an example: In the early days it was a case of caveat emptor, but since then the company has evolved in terms of ensuring that user feedback systems are robust and that there are extensive safeguards in place to protect both buyers and sellers.

Overall, running a successful platform business and developing the right techniques and technologies for making sure that interactions across the platform go well, according to Tucker, is a huge challenge.

Learning to Lead Digital Platforms

Executive education programmes devoted to training leaders on the topic are appearing and just in time. Sloan launched the first-ever platform course earlier this year and is already oversubscribed. The interest has been quite humbling, says Tucker. CEIBS has since launched its own version at its Shanghai campus. At both schools, the two-day programmes introduce participants to the unique ecosystem of digital platforms while discussing the key questions surrounding the concept, design, deployment and growth of such a business. 

So far, most of the participants in the Sloan programme have been leaders in established companies, but they come with a startup mindset. Their aim is to comprehend better what the platform business model means for them, and they use the course to make a go or no go decision about investing in platform development, according to Tucker. 

The Sloan course covers a wide range of B2C and B2B platform business examples using vignettes and exercises. CEIBS instructs with a combination of case studies, lectures and group exercises, with a particular focus on Chinese digital platforms. 

As with the case of any business model that has proven its value, multi-sided digital platforms will continue to evolve as companies innovate new ways to bring disparate parties together to share, sell and buy. It will be up to leaders to direct them to long-term success.