When outspoken venture capitalist and Netscape co-founder Marc Andreessen wrote in The Wall Street Journal in 2011 that software is eating the world, he was only partly correct. In fact, business services based on software platforms are what’s eating the world.
Companies like Apple, which remade the mobile phone industry by offering app developers easy access to millions of iPhone owners through its iTunes App Store platform, are changing the economy. However, these world-eating companies are not just in the tech world. They are also emerging in industries that you might not expect: retailers, finance companies, transportation firms, and others outside of Silicon Valley are all at the forefront of the platform revolution.
These outsiders are taking platforms to the next level by building them around business services and data, not just apps. Companies are making business services such as logistics, 3D printing, and even roadside assistance for drivers available through a software connection that other companies can plug in to and consume or offer to their own customers.
There are two kinds of players in this business platform revolution: providers and participants. Providers create the platform and create incentives for developers to write apps for it. Developers, meanwhile, are participants; they can extend the reach of their apps by offering them through the platform’s virtual shelves.
Business platforms let companies outside of the technology world become powerful tech players, unleashing a torrent of innovation that they could never produce on their own. Good business platforms create millions in extra revenue for companies by enlisting external developers to innovate for them. It’s as if strangers are handing you entirely new revenue streams and business models on the street.
Powering this movement are application programming interfaces (APIs) and software development kits (SDKs), which enable developers to easily plug their apps into a platform without having to know much about the complex software code that drives it. Developers get more time to focus on what they do best: writing great apps. Platform providers benefit because they can offer many innovative business services to end customers without having to create them themselves.
Expedia makes 90% of its revenue through its API.
Any company can leverage APIs and SDKs to create new business models and products that might not, in fact, be its primary method of monetization. However, these platforms give companies new opportunities and let them outflank smaller, more nimble competitors.
Indeed, the platform economy can generate unbelievable revenue streams for companies. According to Platform Revolution authors Geoffrey G. Parker, Marshall W. Van Alstyne, and Sangeet Paul Choudary, travel site Expedia makes approximately 90% of its revenue by making business services available to other travel companies through its API.
In TechCrunch in May 2016, Matt Murphy and Steve Sloane wrote that “the number of SaaS applications has exploded and there is a rising wave of software innovation in APIs that provide critical connective tissue and increasingly important functionality.” ProgrammableWeb.com, an API resource and directory, offers searchable access to more than 15,000 different APIs.
According to Accenture Technology Vision 2016, 82% of executives believe that platforms will be the “glue that brings organizations together in the digital economy.” The top 15 platforms (which include companies built entirely on this software architecture, such as eBay and Priceline.com) have a combined market capitalization of US$2.6 trillion.
It’s time for all companies to join the revolution. Whether working in alliance with partners or launching entirely in-house, companies need to think about platforms now, because they will have a disruptive impact on every major industry.
To the Barricades
Several factors converged to make monetizing a company’s business services easier. Many of the factors come from the rise of smartphones, specifically the rise of Bluetooth and 3G (and then 4G and LTE) connections. These connections turned smartphones into consumption hubs that weren’t feasible when high-speed mobile access was spottier.
One good example of this is PayPal’s rise. In the early 2000s, it functioned primarily as a standalone web site, but as mobile purchasing became more widespread, third-party merchants clamored to integrate PayPal’s payment processing service into their own sites and apps.
In Platform Revolution, Parker, Van Alstyne, and Choudary claim that “platforms are eating pipelines,” with pipelines being the old, direct-to-consumer business methods of the past. The first stage of this takeover involved much more efficient digital pipelines (think of Amazon in the retail space and Grubhub for food delivery) challenging their offline counterparts.
What Makes Great Business Platforms Run?
The quality of the ecosystem that powers your platform is as important as the quality of experience you offer to customers. Here’s how to do it right.
Although the platform economy depends on them, application programming interfaces (APIs) and software development kits (SDKs) aren’t magic buttons. They’re tools that organizations can leverage to attract users and developers.
To succeed, organizations must ensure that APIs include extensive documentation and are easy for developers to add into their own products. Another part of platform success is building a general digital enterprise platform that includes both APIs and SDKs.
A good platform balances ease of use, developer support, security, data architecture (that is, will it play nice with a company’s existing systems?), edge processing (whether analytics are processed locally or in the cloud), and infrastructure (whether a platform provider operates its own data centers and cloud infrastructure or uses public cloud services). The exact formula for which elements to embrace, however, will vary according to the use case, the industry, the organization, and its customers.
In all cases, the platform should offer a value proposition that’s a cut above its competitors. That means a platform should offer a compelling business service that is difficult to duplicate.
By creating open standards and easy-to-work-with tools, organizations can greatly improve the platforms they offer. APIs and SDKs may sound complicated, but they’re just tools for talented people to do their jobs with. Enable these talented people, and your platform will take off.
In the second stage, platforms replace pipelines. Platform Revolution’s authors write: “The Internet no longer acts merely as a distribution channel (a pipeline). It also acts as a creation infrastructure and a coordination mechanism. Platforms are leveraging this new capability to create entirely new business models.” Good examples of second-stage companies include Airbnb, DoubleClick, Spotify, and Uber.
Allstate Takes Advantage of Its Hidden Jewels
Many companies taking advantage of platforms were around long before APIs, or even the internet, existed. Allstate, one of the largest insurers in the United States, has traditionally focused on insurance services. But recently, the company expanded into new markets—including the platform economy.
Allstate companies Allstate Roadside Services (ARS) and Arity, a technology company founded by Allstate in late 2016, have provided their parent company with new sources of revenue, thanks to new offerings. ARS launched Good Hands Rescue APIs, which allow third parties to leverage Allstate’s roadside assistance network in their own apps. Meanwhile, Arity offers a portfolio of APIs that let third parties leverage Allstate’s aggregate data on driver behavior and intellectual property related to risk prediction for uses spanning mobility, consumer, and insurance solutions.
For example, Verizon licenses an Allstate Good Hands Rescue API for its own roadside assistance app. And automakers GM and BMW also offer roadside assistance service through Allstate.
Potential customers for Arity’s API include insurance providers, shared mobility companies, automotive parts makers, telecoms, and others.
“Arity is an acknowledgement that we have to be digital first and think about the services we provide to customers and businesses,” says Chetan Phadnis, Arity’s head of product development. “Thinking about our intellectual property system and software products is a key part of our transformation. We think it will create new ways to make money in the vertical transportation ecosystem.”
One of Allstate’s major challenges is a change in auto ownership that threatens the traditional auto insurance model. No-car and one-car households are on the rise, ridesharing services such as Uber and Lyft work on very different insurance models than passenger cars or traditional taxi companies, and autonomous vehicles could disrupt the traditional auto insurance model entirely.
This means that companies like Allstate are smart to look for revenue streams beyond traditional insurance offerings. The intangible assets that Allstate has accumulated over the years—a massive aggregate collection of driver data, an extensive set of risk models and predictive algorithms, and a network of garages and mechanics to help stranded motorists—can also serve as a new revenue stream for the future.
By offering two distinct API services for the platform economy, Allstate is also able to see what customers might want in the future. While the Good Hands Rescue APIs let third-party users integrate a specific service (such as roadside assistance) into their software tools, Arity instead lets third-party developers leverage huge data sets as a piece of other, less narrowly defined projects, such as auto maintenance. As Arity gains insights into how customers use and respond to those offerings, it gets a preview into potential future directions for its own products and services.
Farmers Harvest Cash from a Platform
Another example of innovation fueling the platform economy doesn’t come from a boldfaced tech name. Instead, it comes from a relatively small startup that has nimbly built its business model around data with an interesting twist: it turns its customers into entrepreneurs.
Farmobile is a Kansas City–based agriculture tech company whose smart device, the Passive Uplink Connection (PUC), can be plugged into tractors, combines, sprayers, and other farm equipment.
Farmobile uses the PUC to enable farmers to monetize data from their fields, which is one of the savviest routes to success with platforms—making your platform so irresistible to end consumers that they foment the revolution for you.
Once installed, says CEO Jason Tatge, the PUC streams second-by-second data to farmers’ Farmobile accounts. This gives them finely detailed reports, called Electronic Field Records (EFRs), that they can use to improve their own business, share with trusted advisors, and sell to third parties.
Farmobile helps farmers gather data to improve their own business or sell to third parties.
The PUC gives farmers detailed records for tracking analytics on their crops, farms, and equipment and creates a marketplace where farmers can sell their data to third parties. Farmers benefit because they generate extra income; Farmobile benefits because it makes a commission on each purchase and builds a giant store of aggregated farming data.
This last bit is important if Farmobile is to successfully compete with traditional agricultural equipment manufacturers, which also gather data from farmers. Farmobile’s advantage (at least for now) is that the equipment makers limit their data gathering to their existing customer bases and sell it back to them in the form of services designed to improve crop yields and optimize equipment performance.
Farmobile, meanwhile, is trying to appeal to all farmers by sharing the wealth, which could help it leapfrog the giants that already have large customer bases. “The ability to bring data together easily is good for farmers, so we built API integrations to put data in one place,” says Tatge.
Farmers can resell their data on Farmobile’s Data Store to buyers such as reinsurance firm Guy Carpenter. To encourage farmers to opt in, says Tatge, “we told farmers that if they run our device over planting and harvest season, we can guarantee them $2 per acre for their EFRs.”
So far, Farmobile’s customers have sent the Data Store approximately 4,200 completed EFRs for both planting and harvest, which will serve as the backbone of the company’s data monetization efforts. Eventually, Farmobile hopes to expand the offerings on the Data Store to include records from at least 10 times as many different farm fields.
Under Armour Binges on APIs
Another model for the emerging business platform world comes from Under Armour, the sports apparel giant. Alongside its very successful clothing and shoe lines, Under Armour has put its platform at the heart of its business model.
But rather than build a platform itself, Under Armour has used its growing revenues to create an industry-leading ecosystem. Over the past decade, it has purchased companies that already offer APIs, including MapMyFitness, Endomondo, and MyFitnessPal, and then linked them all together into a massive platform that serves 30 million consumers.
This strategy has made Under Armour an indispensable part of the sprawling mobile fitness economy. According to the company’s 2016 annual results, its business platform ecosystem, known as the Connected Fitness division, generated $80 million in revenue that year—a 51% increase over 2015.
By combining existing APIs from its different apps with original tools built in-house, extensive developer support, and a robust SDK, third-party developers have everything they need to build their own fitness app or web site.
Depending on their needs, third-party developers can sign up for several different payment plans with varying access to Under Armour’s APIs and SDKs. Indeed, the company’s tiered developer pricing plan for Connected Fitness, which is separated into Starter, Pro, and Premium levels, makes Under Armour seem more like a tech company than a sports apparel firm.
As a result, Under Armour’s APIs and SDKs are the underpinnings of a vast platform cooperative. Under Armour’s apps seamlessly integrate with popular services like Fitbit and Garmin (even though Under Armour has a fitness tracker of its own) and are licensed by corporations ranging from Microsoft to Coca-Cola to Purina. They’re even used by fitness app competitors like AthletePath and Lose It.
A large part of Under Armour’s success is the sheer amount of data its fitness apps collect and then make available to developers. MyFitnessPal, for instance, is an industry-leading calorie and food tracker used for weight loss, and Endomondo is an extremely popular running and biking record keeper and route-sharing platform.
One way of looking at the Connected Fitness platform is as a combination of traditional consumer purchasing data with insights gleaned from Under Armour’s suite of apps, as well as from the third-party apps that Under Armour’s products use.
Indeed, Under Armour gets a bonus from the platform economy: it helps the company understand its customers better, creating a virtuous cycle. As end users use different apps fueled by Under Armour’s services and data-sharing capabilities, Under Armour can then use that data to fuel customer engagement and attract additional third-party app developers to add new services to the ecosystem.
What Successful Platforms Have in Common
The most successful business platforms have three things in common: They’re easy to work with, they fulfill a market need, and they offer data that’s useful to customers.
For instance, Farmobile’s marketplace fulfills a valuable need in the market: it lets farmers monetize data and develop a new revenue stream that otherwise would not exist. Similarly, Allstate’s Arity experiment turns large volumes of data collected by Allstate over the years into a revenue stream that drives down costs for Arity’s clients by giving them more accurate data to integrate into their apps and software tools.
Meanwhile, Under Armour’s Connected Fitness platform and API suite encourage users to sign up for more apps in the company’s ecosystem. If you track your meals in MyFitnessPal, you’ll want to track your runs in Endomondo or MapMyRun. Similarly, if you’re an app developer in the health and fitness space, Under Armour has a readily available collection of tools that will make it easy for users to switch over to your app and cheaper for you to develop your app.
As the platform economy grows, all three of these approaches—Allstate’s leveraging of its legacy business data, Farmobile’s marketplace for users to become data entrepreneurs, and Under Armour’s one-stop fitness app ecosystem—are extremely useful examples of what happens next.
In the coming months and years, the platform economy will see other big changes. In 2016 for example, Apple, Microsoft, Facebook, and Google all released APIs for their AI-powered voice assistant platforms, the most famous of which is Apple’s Siri.
The introduction of APIs confirms that the AI technology behind these bots has matured significantly and that a new wave of AI-based platform innovation is nigh. (In fact, Digitalist predicted last year that the emergence of an API for these AIs would open them up beyond conventional uses.) New voice-operated technologies such as Google Home and Amazon Alexa offer exciting opportunities for developers to create full-featured, immersive applications on top of existing platforms.
We will also see AI- and machine learning–based APIs emerge that will allow developers to quickly leverage unstructured data (such as social media posts or texts) for new applications and services. For instance, sentiment analysis APIs can help explore and better understand customers’ interests, emotions, and preferences in social media.
As large providers offer APIs and associated services for smaller organizations to leverage AI and machine learning, these companies can in turn create their own platforms for clients to use unstructured data—everything from insights from uploaded photographs to recognizing a user’s emotion based on facial expression or tone of voice—in their own apps and products. Meanwhile, the ever-increasing power of cloud platforms like Amazon Web Services and Microsoft Azure will give these computing-intensive app platforms the juice they need to become deeper and richer.
These business services will depend on easy ways to exchange and implement data for success. The good news is that finding easy ways to share data isn’t hard and the API and SDK offerings that fuel the platform economy will become increasingly robust. Thanks to the opportunities generated by these new platforms and the new opportunities offered to end users, developers, and platform businesses themselves, everyone stands to win—if they act soon. D!
About the Authors
Bernd Leukert is a member of the Executive Board, Products and Innovation, for SAP.
Björn Goerke is Chief Technology Officer and President, SAP Cloud Platform, for SAP.
Volker Hildebrand is Global Vice President for SAP Hybris solutions.
Sethu M is President, Mobile Services, for SAP.
Neal Ungerleider is a Los Angeles-based technology journalist and consultant.
Read more thought provoking articles in the latest issue of the Digitalist Magazine, Executive Quarterly.