Platforms In Healthcare-Pt. 2 What It Takes to Build A Successful Platform Bus.-The HSB Blog 12/6/21
As an increasing number of companies attempt to transition from a product to a platform business model or sometimes combine elements of both, now more than ever it is critical for companies to understand the elements that make up a successful platform business and what can be learned from them. While several of the world’s most valuable companies are dominant online platforms that have successfully created digital communities and market spaces for people to interact and transact, it is far from an easy feat to create. Moreover, McKinsey predicted in its report, “Winning in Digital Ecosystems” that digital platforms will mediate over 30% of global economic activity by the year 2025 but noted only 3% of established companies have adopted an effective platform strategy. As the platform economy continues reshaping the global economy, companies are contemplating the viability of leveraging the platform business model to their industry’s advantage, making it essential to understand the foundations of such models.
Between 1992 and 2015, 209 platform organizations failed, with an average survival rate of about 5 years.
According to McKinsey, digital platforms will mediate over 30% of global economic activity by 2025 yet only 3% of established companies have adopted an effective platform strategy.
Forbes Insights survey (2017) reported that 31% of organizations in North America and Western Europe have adopted platform thinking.
Anaconda, an open-source platform of 27M Python data scientists, has seen a total of approximately 10 billion downloads of its software library packages as of Spring 2021.
As noted in “The Power of Platforms” by Deloitte, traditional supply/demand distribution approaches are based on what are called “push-based approaches” whereby producers “simply made an efficient batch size of what they sold and foisted it onto the marketplace. This of course meant investing effort into anticipating what the customer demand might be, using that to create a sales forecast, and then procuring the right resources and people to produce the appropriate quantity of goods.” By contrast, platform-based approaches to supply/demand facilitate and empower so-called “pull-based approaches” whereby producers “reorient operations such that nothing happens until actual demand signals are received from real buyers.” However, companies in diverse sectors are adopting the platform business model to tap into its pull-based approach and profitability without adopting the competitive strategies that make platform companies successful.
Some existing companies, aiming to either grow or even survive, focus more on replicating platform success and less on the power dynamics and risks associated with platform markets. However, success is not easy, according to a report entitled “The Evolution of the Global Digital Platform Economy: 1971-2021”, over 200 platform organizations failed between 1995 and 2015, with an average survival rate of only about 5 years. As the authors note “a platform often requires underwriting one side of the market to encourage the other side to participate. But knowing which side should get charged and which side should get subsidized may be the single most important strategic decision for a platform”, hence managers attempting to build platforms can “misprice” one side of the platform when underwriting the market. In addition, the authors also conclude that although several reasons account for some companies’ inability to leverage the platform model effectively, the wide knowledge gap is the most prominent reason. Many company managers do not understand how platforms operate and compete because it differs from the traditional supply-driven market.
In addition, having an experienced platform leader does not guarantee a platform company’s success, especially if the company applies ineffective strategies or limits access to the platform. For example, in the 1980s, Steve Jobs struggled with creating a platform that was open enough for connecting Apple customers to the company’s software producers. Google Health, despite having an experienced platform leader, failed because it focused on healthcare consumers instead of healthcare providers (please see the Our Take blog “Lessons Learned: Big Tech Stumbles in Healthcare Again, Google Health Closing-The HSB Blog 8/30/21” for more detail). Ultimately, for platform businesses, determining which side of the market to emphasize is a crucial element of success. Unlike supply-side markets where external forces are considered threatening, understanding when to either include or remove ecosystem value is fundamental to platform strategy.
In 2017 Forbes conducted a survey showing that 31% of organizations have adopted what is called “platform thinking”. As noted by Erich Joachimsthaler in “What is Platform Thinking”, the concept of “platform thinking changes how we connect with consumers or customers.” Business functions like “marketing, communications, and selling [become] about connection – engagement and interaction, and creating a gravitational force that pulls consumers in, and that empowers them.” In an MIT Sloan Management Review article entitled “How to win at the Platform Game” the authors highlight three strategic elements that are pivotal for platform businesses:
Business models built around subscription-based software as a service.
Models built around marketplaces that connect many buyers and sellers.
Combining a and b with data and machine learning models.
For example, Amazon, which is perhaps the most successful platform company in the world and one of the world’s largest cloud services providers, has aggregated users from multiple industries (sometimes supplying the cloud infrastructure for competitors in parts of its business), has a straightforward cloud infrastructure, and many credible use cases. Amazon started by generating high value with an online bookstore and gradually expanded to other adjacent markets or markets with similar competitive dynamics where it felt it could create an advantage. According to the Harvard Business Review article entitled “Pipelines, Platforms and the New Rules of Strategy'' most successful platforms start with a high value generating single interaction before moving to adjacent types of interactions. This explains Amazon’s moves to integrate itself into every value chain by owning its customer interactions, amassing large amounts of data, and managing users' experience. The article also notes that network effects are central to the execution of every successful platform. A more robust network enhances supply and demand matches, leading to richer data that leads to improved matching (please see, Platforms In Healthcare-Part 1. Platforms Explained-The HSB Blog 11/29/21 for more on network effects).
For example, in 2007, Apple was generally not considered a threatening player in the cell phone manufacturing market compared to the major cell phone manufacturers at the time (ex: Samsung, Nokia, and Motorola), even though it had innovative designs and new capabilities. The company’s fortunes changed in the cell phone market when Apple began to think of the iPhone as a connector rather than solely as a mobile communications product. By adopting this approach, Apple built a platform business that generated 92% of global profits by 2015. Conversely, a study of more than 250 failed platform companies found that the most prominent reasons for failure generally fell into 4 categories: 1) poor timing,2) dismissing the competition prematurely, 3) absence of trust between users and partners, and 4) mispricing on the wrong side of the market.
A Deloitte Insights article on “Digital Platform as a growth lever” outlined fundamental questions that leaders must consider when transitioning to a platform business model. These questions include:
Does the business align with a platform-based business model?
Are there enough influence points on the platform to connect disparate parties?
Are transitioning or new businesses able to develop a trust-based relationship with other partners on the platform?
Does the business have the capabilities to build and sustain a platform?
Apart from evaluating the viability of the platform business model with an existing or new business, companies also need to balance decision making with strategy formulation, process, and technology. The most important decision is determining the customer type. For a healthcare digital platform, the consumers include both patients and providers because often gaining provider/clinician buy-in can be crucial for gaining patients’ trust. Apart from platform offerings themselves, the supporting capabilities associated with the platform should not be underestimated and should be given due consideration. Healthcare organizations that intend to build healthcare platforms need to consider and envision the added benefits that the platforms can potentially provide to both customers and partners and their value proposition. Another noteworthy point is that while many corporate leaders believe platform models are only applicable for business-to-consumer models (B2C), platforms are increasingly more useful for business-to-business models (B2B). According to Laure Claire Reillier, a former senior executive at eBay Euro and author of “Platform Strategy: How to Unlock the Power of Communities and Networks to Grow Your Business”, the business-to-business model is currently showing the most activity. Incorporating both models within the healthcare platform could mean better-targeted services at lower costs. While a great deal of focus has been on B2C platforms there is great potential for B2B platforms in software development, provider asset management, and service optimization. Building a successful healthcare platform requires patient centricity, powerful analytic capabilities to read and interpret data meaningfully, and seamless data management. The evolution of information technology has reduced the cost of computing power storage and communication and made platform building and scaling cheaper and more straightforward.
In addition, continued efforts in B2C healthcare platforms could allow for better communication, care coordination, and outcomes for patients. Developing effective healthcare platforms holds a promise of taking the stress off providers and expanding the range of services offered to facilitate improved patient care. When used properly, healthcare platforms foster an improved doctor-patient relationship due to much-needed improvements in the level of communication, convenience, and responsiveness. As noted, both B2B and B2C platforms present the healthcare industry with opportunities to either grow services or make them more efficient as they look to address the increasingly complex health and healthcare problems of diverse populations.
The Evolution of the Global Digital Platform Economy: 1971–2021