On one side of the market, technology and connectivity allow companies and people who produce some type of value, to do so more and more independently and “modularize” the items in their offer.
On the other hand, consumers are increasingly able to see their desires for convenience met, and they can also consume any type of value in a more independent and dispersed manner.
The combination of these two movements creates the perfect scenario for the emergence of platform businesses. It creates ecosystems that need coordination, lower transaction costs and generate immense opportunities for new or established companies to leverage, protect or expand their current businesses.
And platform businesses don’t exist without an ecosystem at the top of it.
Startups, in general, are already born with an ecosystem acting on their platform. But for consolidated companies that operate in a more linear model of value generation, the challenge of “fitting” their ecosystem can be more arduous and complex.
So, how do you identify which ecosystem is right for your company’s platform strategy?
It is not really a simple task, but generally a poor ecosystem “emits” signals that it needs coordination. In addition, the company’s vision of operating in the market and the assets that the company has are very helpful in this mission. And, obviously, the movement to act as a platform in some market, must make sense within its strategic context.
A company looking to map which players and entities should be part of its platform strategy, must evaluate and identify 3 fundamental items:
1-) Company`s vision and purpose
2-) Signs that an ecosystem needs more coordination
3-) Internal assets that can be leveraged by the ecosystem.
Let’s explore each of these points further below.
1-) The question that unlocks a company’s ecosystem
The company’s vision in the market can “unlock” the ecosystem to be orchestrated by it. This goes beyond strategic alignment. It is an alignment with the purpose of your business. There is a well-known tool, developed by Simon Sinek called “The Golden Circle”, which helps us in a very pragmatic way to understand the deeper purpose of a business.
The approach says that the company has to be able to answer 3 basic questions:
What does your company do?
How does your company do it?
Why does your company do it?
This last one and most difficult to be answered is the one that opens wide for the company where your ecosystem can be found.
Why does your company do what it does?
Generally, the answer to this question, automatically takes us to all players and entities that can somehow generate and exchange units of value, in an orchestrated way.
Take the example of Mars Petcare. A giant in the animal nutrition segment, owner of brands like Whiskas, Pedigree and Royal Canin. At first a very “traditional” and linear market. The point is that Mars aims to “make a better world for pets” and not just “sell quality feed”. Following this, they created a true platform to connect entrepreneurs and investors in the development and launch of new solutions for the pet segment. The initiative even involves the creation of an investment fund to support new startups. It is yet another example that companies in any segment can transform their business, or at least part of it, into the concept of platforms in order to expand their operations and strengthen themselves in the market.
Alignment with purpose is essential for the company to see its ecosystem. If one day Pampers wants to make a move towards being a platform, it probably will not be very successful following the line that “they sell quality diapers”. But the moment they use the purpose of “Helping in the healthy upbringing and development of babies”, the vision will naturally arise to connect with parents, pediatricians, schools, maternity hospitals, etc. in a unique environment, facilitating the unified generation of value for the company’s business.
2-) A needy ecosystem emits its signals …
Just like any startup at the beginning, every platform must propose to solve an ecosystem problem, or it will not have fit. Generally, when there are opportunities for better coordination between players, some signals are emitted:
High entry barriers: Any segment where new value producers face difficulties to enter the market due to high investments or access to technology, signals an opportunity for a platform to emerge.
Complex transactions: Environments where producers and consumers engage in multiple transactions, with a lot of friction, without a standardized activity workflow also represent a good opportunity for a platform.
Difficulty in creating reputation: Markets where the provision of services is very uniform and widespread create difficulties for professionals to create a reputation and for consumers to choose the best professionals. Platforms can help the best to emerge in the ecosystem with assessments and reviews, for example.
Fragmented offer with low NPS: Naturally, where the offer of value is made in a very dispersed way and with a low degree of customer satisfaction, an environment with high attractiveness for a platform also appears.
Idle infrastructure: Segments where there is idle infrastructure and simultaneously producers outside the market due to lack of access to it, also make platforms emerge as aggregators of shared infrastructure.
Bundle offers: Markets where offers are “bundle” there is an opportunity for platforms to reduce transaction costs and increase transactions through the “unbundling” of services and products. We saw this process happen with the financial segment.
Most likely, a company will not find an environment or market with all the above symptoms. But presenting at least one of them is an indication that there is a good way to go.
3-) Leverage the company’s internal assets in the ecosystem
A final factor for consolidated companies to assess in their potential ecosystems is the possibility of using it to leverage their internal assets be it connections with producers, access to the consumer market, infrastructure, technology or new products and services.
The Martins Group seems to have understood this point well. The largest distributor in Brazil launched its marketplace in 2019. Although it can be considered a traditional “colossus” with its 1500 sales representatives and 1000 own trucks, the company also saw in the platform model the way to strengthen its business and mainly to leverage its other new products: Card, card and services own financial institutions, insurance brokerage and Universidade Martins de Varejo. By building a marketplace connecting suppliers to small retailers, it also created an environment ready to generate interactions with these additional products and services. It also placed its competitors within the platform. Thus, it now also captures part of that value and mainly generates a fundamental asset for the survival of any platform: data. You will be able to know your customers’ purchasing behavior and the potential of new emerging categories much better.
“This ecosystem that we create helps the customer to survive and prosper, because alone he dies. And if he dies, we die together ”, Flavio Martins, Grupo Martins CEO.
The ecosystem at the heart of the strategy
It is in the meeting of these 3 dimensions that a company can identify which ecosystem is the most adherent to its platform strategy.
But most importantly, once the ecosystem is mapped, it must become the center of this strategy. Thereafter, all interactions that the platform proposes to offer, must always aim at solving the pain of these players, reducing coordination costs and facilitating the exchange of units of value between participants. When a platform finds its right model, naturally its ecosystem emerges on it.
Fernando Teixeira da Silva