Platformization of the economy is no longer an option

With 197% increase in net income in 2020, COVID appears to be a blessing for Amazon. For many companies, on the contrary, it is the end of the adventure. Platforms are sometimes a threat and sometimes an opportunity for millions of companies. Sometimes perceived as an opaque technical revolution, the platformization of the economy is first and foremost a profound economic change. How does platformization make business transformation essential? Why are companies not taking the full measure of it?

The value chain, an exhausted paradigm

Traditionally, the economy is based on a linear model which is characterized by a succession of stages: the extraction of resources, their transformation into products, their distribution, their consumption which marks the end of a march forward. This model experienced its heyday during the 1980s, a decade marked by globalization which encouraged the optimization of the stages of the value chain (Porter, 1985). Outsourcing of support functions becomes the norm, cost control and time reduction are becoming the ideal sought after, to the detriment of versatility and business skills. The business model is standardized and the organization becomes rigid (O’Reilly and Tushman, 2004).

The 90s mark a break. In 1994, economic players of a new kind like Yahoo! appear with the development of the Web, which then had 2,738 sites. The Internet is revolutionizing the economy. A speculative bubble was born, grew and burst in 2001. Multi-client platforms still represent one of the foundations of the online economy today. These so-called “two-sided” markets (Armstrong 2002., and Rochet, Tirole 2003) are based on the simplification of interactions between two types of agents, without a vertical relationship within a sector, thanks to an intermediary. The most popular example of this is TV channels which bring together viewers and advertisers: costs and benefits are present on both sides of a market. The value of the service offered depends on the number of users. Take the case of real estate agencies that put sellers and buyers of real estate in touch with each other. With platforms, the creation of value no longer comes from the purchase of a product, but from a data transaction in return for an experience.

In the two decades that followed, some companies, still locked in a value chain paradigm, did not understand the new risks associated with the information economy and the three main changes induced.

First, the information processing infrastructure has become an operational function and no longer a support, it directly contributes to the creation of value: without data, no connections are possible.

Next, what constitutes the competitive advantage is the firm’s ability to reinvent itself, which underlies an ability to organize its skills to cope with an intense pace of new innovative developments and uncertainty (Prahalad, Hamel ., 1994). This calls for increased and integrated versatility, as well as very strong expertise, which goes against past outsourcing.

Finally, value creation can no longer be linearized or sequenced, since it is atomized and “shared between several actors who form innovation ecosystems” (Kapoor, 2018).

The value loop, a guarantee of freedom!

According to Yann Bonnet, former Secretary General of the National Digital Council: “The platform is neither at the top, nor at the bottom, nor in the middle of the value chain, but at the center of an ecosystem of actors and flows of ‘activities’. In a context of platformization, customer segmentation is abolished and gives way to personalized customer management, whether professional or private. It is the opportunity for a company to manage a varied clientele with a B2B side and a B2C side at least.. The break with the linear model offers new value architectures, notably in “triadic multisided” (Baden-Fuller, Giudici, Morgan, 2017).

The platform that offers services from suppliers to consumers brings benefits to four or even five stakeholders. This is the case, for example, of a platform which connects game creators with customers and which includes targeted advertising to a third party population. In this type of diagram, the innovation ecosystem extends from four types of agents and sees increasing by correlation the volume of data and the value to be shared.

A key player in this transformation, the architect of the platform acts as the conductor of the ecosystem. It forms a loop formed by a cycle of value capture that feeds a cycle of value creation. The first cycle amounts to acquiring data in real time in order to feed the second cycle of content production (according to the principle of the consultant Hardin Tibbs). These two cycles thus form an endless loop of value like a snake biting its tail: the ouroboros. So, linear logic or “cradle to grave” (from cradle to grave) gives way to a looping ecosystem of value creation that can be described as “cradle to cradle” (cradle to cradle). In reality, the adoption of platformization is explained by the simplicity it offers. It increases the interactions then the volume of exchanges, without measures in comparison to the linear economy. Tencent Music is an example: in 2019, the company had a total of 661 million monthly active mobile users, including 35.4 million paying users.

More than a technical transformation, it is essential to understand that platformization is an economic transformation. It transforms both the role of the company in its ecosystem and its revenue model. This transformation is accessible to the vast majority of companies, regardless of their size or field of activity. However, it is essential not to focus on means such as APEisation, but rather to think about how to open new strategic spaces. Platformization offers the opportunity to rethink how and with which partners to co-create value and for whom. It is the opportunity to free oneself from sectors and stimulate exchanges between actors who have not yet met. Platformization is strategic because it questions the vocation of companies.