Platform-based business models enable companies to connect to and leverage deep and rich contextual data about what is happening in their value chain at ever-increasing speeds. The focus of value creation shifts from extracting value from the hard assets and business processes that companies control and leverage to analyzing data from and about those assets and business processes—all of which can yield innovation based on insight, as shown in the illustration below.
Platforms are driving a breakdown in traditional business hierarchies and forcing companies to build, manage, and grow more modular and flexible business ecosystems (see illustration below). Within these more collaborative relationships, companies and individuals frequently take on new roles, restructuring and engaging with each other based on mutual interest to deliver new forms of value.
Gartner predicts that over time, flexible, platform-based models for ecosystem and value delivery will largely displace the current, more traditional hierarchical business models:
Platform-based businesses represent 3 out of the top 5 companies based on market cap and 7 of the top 10 unicorns. By 2018, IDC predicts that more than 50% of large companies and more than 80% of companies with advanced DT strategies will create and/or partner with industry platforms.
The graphic below reveals how value ecosystems and business models are moving from a focus on product and control toward more modular value creation focused on collaboration across platforms. An example of this shift would be packaged software for a single PC versus a web service built on a cloud platform sold by subscription on an industry marketplace hosted in the public cloud.
All of these shifts are forcing companies to evaluate what platforms mean for their businesses, how they might disrupt the current business model, and how they can be leveraged to create value. In fact, Ray Wang of Constellation Research believes that platform as a service is so important to organizations today that, if they do not embrace it, they will cease to exist. Companies such as GE have moved aggressively to seize new platform-based opportunities. Traditionally known as an industrial company, GE has shifted significantly towards being a platform software company, generating about $6 billion in digital and software revenue just this year. GE has stated its ambition to be a $15 billion software company by 2020, which would make them one of the top 10 software companies in the world.