By Barry Libert, Megan Back, Jerry (Yoram) Wind
So you want to have a digital platform. It’s only natural — all the cool kids do. Billion-dollar startups built around digital platforms are drawing customers, employees, and investors. And despite their relatively short existences, digital platforms such as Uber, Airbnb, Pinterest, and Snapchat are wreaking havoc on traditional businesses.
What differentiates most of these upstarts is the way they create value. They bring together a network of individuals who both create and share in that value. Network businesses have always been around, from matchmakers to real estate brokers, but it’s the move to digital platforms that has led to market-shaking effects. Digital platforms, such as online communication channels or marketplaces, allow for rapid and inexpensive scaling, among other advantages. Digital platforms are grease for the flywheel, facilitating the rapid exchange of value between network participants at near-zero marginal cost.
Organizations that manage digital networks (we call them network orchestrators) are different from traditional product and service providers. They begin with different values, invest in different assets, and choose different leaders. These differences mean that it can be very difficult for an established, legacy organization to build a digital platform. Difficult, but not impossible. Here are three ways it can be done.
1. Use existing tools. Think about this option as digital platform “lite.” Companies that go this route use preexisting digital platform tools to engage their networks. Facebook, Twitter, and Instagram are prime examples of these tools, and all offer opportunities for two-way, collaborative communication.
- Airline JetBlue has turned its Twitter account into a highly responsive, 24/7 customer service line. Customers can tweet at JetBlue with questions or problems, and the account helps keep JetBlue front of mind for its followers, even when they’re not traveling.
- Action camera manufacturer GoPro maintains a much-followed Instagram account where it, and its users, share exciting photos and videos created with GoPros. Instagram is an exciting marketing channel; GoPro’s account helps keep users engaged with the company and lets GoPro know how people use its products.
- British retailer ASOS also maintains a popular Instagram account. What it does a bit differently is recruit “stylists” who have their own @asos accounts and contribute regularly to the brand’s image feed.
No strategy is static.
While the use of these free platforms is widespread among companies today, these organizations went beyond the normal marketing messaging, collaborating with their networks of users and adding more value. This type of digital platform has limitations and isn’t going to transform your organization, but it’s a great way to dip your toes in the digital platform waters.
2. Find a partner or invest. At the next level we have partnering with or taking a stake in a digital platform. This is for organizations that want to diversify to include digital platforms but don’t currently have the skill sets or time to do it themselves. For most organizations, this is the least risky option, and a good middle road, despite the fact that many traditional organizations often see digital network operators as threats rather than allies.
- General Motors recently introduced digital platforms to its portfolio with a $500M to investment in ridesharing company Lyft. It recently rolled out a short-term car rental product called Express Driv, through which Lyft drivers can rent GM cars. Down the line, GM intends to use Lyft and Cruise (a driverless-car startup) to help shift its business to autonomous vehicles.
- BancAlliance, a consortium of community banks, has partnered with Lending Club, a peer-to-peer lending marketplace. Customized, individual lending has historically been difficult for small banks because of regulatory risk and the high cost of underwriting a large pool of loans. Now BancAlliance will leverage Lending Club’s software and vetting process to reach these customers.
- Starbucks invested in and partnered with Square in 2012 to bring mobile payment systems into its stores using Square’s Wallet app. However, this may have been a hedging strategy as Starbucks built up its own digital capability, including a popular app and payment system. Starbucks stopped accepting the Square payment system in late 2014.
Each of these organizations looked to the small, exciting platforms startups in its industry to help broaden its products, capabilities, and customers. Many big organizations even help incubate startups in their industry. For example, JPMorgan Chase has a “residency” program for startups.
3. Build it yourself. The final option is the toughest and requires a great deal of organizational adaptation: building the digital platform yourself. For most established players, the technology and skill gaps are intimidating, and it take years of effort to close them. New talent is one of the first requirements, but companies that want to adapt their business model to digital platforms need the willingness to build and manage an entirely different sort of asset. This option is mostly for companies with deep enough pockets to weather some ups and downs and a very clear idea of what type of digital platform will be valuable to their market.
- On top of its partnership with Square, Starbucks invested heavily in building digital technology, particularly its payment platform and mobile app. In 2009 it brought on Chief Digital Officer Adam Brotman, who has helped the organization navigate a digital transformation.
- Jeff Immelt, CEO of General Electric, has decided that GE needs to navigate its own digital transformation. He has led the company to create Predix, a platform for the industrial internet, which had $5 billion in revenue in 2015.
Building in-house is not for the faint of heart. As Immelt has noted, GE’s transformation required having new talent throughout GE, not just in IT, plus new leadership styles and a new culture. Building digital platforms also requires a deep understanding of your customer base. Most companies that go this route, including GE and Starbucks, are focused on better serving current customers, a group they understand well. Companies that want to use digital platforms to reach new customers are better off finding partners.
All three options require capital. Even if you use a ready-made system, you need to have the internal talent to use it wisely. Any transformation will require reallocating your investments, but investing in intangible, digital assets can be particularly challenging for those more comfortable with hard assets like plant, property, and equipment.
For the majority of companies, the right answer is to make use of the digital platforms available to them inexpensively and to keep an eye out for innovative partners while building up their internal capability — because within another decade, few companies without these skills will still be around.