Plaforms adapt to survive

MIT Initiative on the Digital EconomyPlatform Strategy Summit 2020

Key takeaways 1 Platforms will become more resilient, especially compared to incumbent firms, because of their ecosystem design and network effects.

2 When production takes place largely outside of the firm (the “inverted firm”), the business is adept at working with a diverse set of changing partners.

3 The agility advantage allows platforms to more swiftly switch to new partners and new customers, when the need arises.

Digital platforms: It’s how business operates in 2020 From Uber rides to Grubhub food delivery, Spotify entertainment to online healthcare, digital marketplaces are increasingly offering new products, services, and networking.

Nevertheless, the current economic crisis is testing the resiliency and mettle of these innovators like never before. Since the COVID-19 pandemic—and the resulting economic nosedive—platform models are being tested.

The question is: Can disruptors like Airbnb pivot as quickly as they began? Which platforms will grow and which may fail? Is this the time for traditional industries to ramp up their platform capabilities?

MIT IDE Platform Strategy Summit 2020: Where we’re at and what’s aheadAt the 2020 MIT IDE Platform Strategy Summit in July, emerging and incumbent platform leaders discussed their strategies. The day-long Summit, with more than 900 virtual attendees, featured experts from several fields and industries.

“We’re living in a platform economy,” said Peter Evans, manager partner at the Platform Strategy Institute and a conference co-chair. “But digital markets are also volatile and tremendous challenges loom.”

Evans noted that an onslaught of new models are emerging due to the pandemic. “We’re moving from obvious to more complex ecosystems, where multiple platforms merge into one. It’s exciting, but you must know how to lean into platforms to create new value to old products and services.”

As platform business models—and the technology stacks needed to run them—become widely understood and available, talent has become the next frontier of the platform economy.

Put to the test In 2020, the resolve of platform markets—like every other business sector—is being tested in real time.

03 Overview

04 Siemens assembles a platform future

05 The super-app economy

06 Telemedicine takes a giant leap ahead

07 Ping An’s evolution from finance to platforms

08 Despite the pandemic, the show must go on

09 Tales from a platform pioneer

10 Action items

2 / MIT IDE Platform Strategy Summit 2020

View videos of the 2020 MIT IDE Platform Strategy Summit

Peter Evans forecasts high demand for platform talent and the rise of platform professionals during the pandemic. “A key component to successfully launching and running platforms is the talent you bring to execute on those strategies,” he said.

The key roles that firms are seeking to fill include platform strategists, product management, ecosystem managers, engineers, data managers, and privacy and compliance experts.

“Applicants need deep technical expertise, but also broad competencies,” Evans said. “It’s extremely difficult to find one person that can meet all these capabilities.”

A significant question—especially for larger companies on the hunt for platform professionals—is whether to groom from within or recruit from outside. For example, Nike recently hired a seasoned platform executive, former CEO of eBay, as its new CEO.

Firms will need to design organizational structures and functions so that platform capabilities, including strategy, project management, and ecosystem management, become embedded in the organization.

“We’ve seen both precipitous demand drops as well as explosions in platform markets,” said Geoffrey Parker.

Among those riding the wave are Amazon, which is experiencing market cap gains in the range of $400 billion and Zoom, which posted a revenue increase of 355 percent in the second quarter of 2020.

“We’ve also seen huge disruptions in the finance and energy sectors where market losses have been up to $130 billion,” he said. In-person dining at U.S. restaurants has shriveled, and ride-sharing platforms experienced immediate declines when lockdowns were ordered. “The pandemic clearly has had different impacts across sectors.”

On the supply side, winning firms made end-to-end digital connections that allowed them to quickly pivot to meet new customer demands.

“The business model is how you realize revenue, and the operating model is how you deliver value,” said Parker. “These need to be correctly matched to one another.”

A bird’s-eye view

Geoffrey Parker Professor, Dartmouth MIT IDE Digital Fellow Platform Strategy Summit Co-Chair

3 / Overview

Summit co-chairs analyzed platform market trends unfolding in a chaotic environment.

Resourcesto tip market?

Markettransform?

Product/service

Coalition resources to control market?Control

customerrelationship?

Platform

Federated platform

Product/ serviceon platform

Platform vs federated platform vs product on a platform

Recalibrating supply and demand

Peter Evans Managing Partner, Platform Strategy Institute Platform Strategy Summit Co-Chair

Marshall Van Alstyne explained when it makes sense to become a platform and when to be a product on someone else’s platform.

When a market is evolving to a platform, a firm must consider whether it has the resources to tip the market and whether it can control the relationship with the customer. If not, it may need to partner to offer a jointly controlled or federated platform.

Van Alstyne also presented research introducing the notion of “inter-temporal” network effects, or the value that users create for other users that lasts through time.

This model helps explain the success of firms like the Chinese shopping platform, Meituan, versus the relative lack of success of Groupon in the U.S. “Despite having identical business structures and the fact that Groupon had a two-year head start, Meituan designed network effects that kept interactions on-platform and created more spillover value,” Van Alstyne said.

To platform, or not to platform

Marshall Van Alstyne Professor, Boston University and Visiting Scholar, MIT Initiative on the Digital Economy Platform Strategy Summit Co-Chair

Replenishers Companies trying to meet demand or replace employees lost through attrition

Builders & startups Companies hiring to build their workforce

Incumbents Legacy companies that need talent to drive platform strategies

The rise of platform professionals

Weather the stormGo into resource-

conservation mode

Rapidly pivotTake assets into

other markets

Ride the waveDemand explodes,

hang on for dear life

Three common responses to the COVID-driven crisis

Demand for platform talent during the COVID-19 pandemic

Drawing on principles of information economics, van Altsyne presented new research on how social media platforms can reduce the lies in political advertising. Read the report.

While most of the splashy headlines about platform firms involve digital native players, much is brewing behind the scenes at traditional firms.

Siemens AG, the German-based industrial company with a revenue of $86 billion worldwide and a workforce of 385,000 employees, is among a group of industry leaders that is initiating several platform projects.

Dr. Roland Busch, CTO and deputy CEO at Siemens, explained how the company combines the physical and the digital worlds, and how platform strategies are being integrated. “We are preparing for the disruptive changes of Industry 4.0,” he said. “Not only will hardware and

software be decoupled, industries will change from linear to networked value chains.”

Busch also oversees Siemens‘ venture capital arm, Next47, which is involved in artificial intelligence, cybersecurity, carbon neutrality initiatives, and Internet of Things (IoT).

The market for IoT is expected to reach $11 trillion by 2025, according to forecasts, and Busch said B2B would be 70 percent of that. The potential of B2B platforms, therefore, could exceed B2C offerings by then.

Railigent, Siemens’ open platform B2B ecosystem for rail applications,

is already monitoring and connecting railroad sensor data to measure their activity and status. Railigent is a software-as-a-service platform that will soon bring competitors and suppliers into the ecosystem for mutual benefits and value.

“We can predict as far out as 10 days which door in a train is going to fail and why,” said Busch. “This gives us the opportunity to run our assets with 100 percent availability and to detect failures before they occur.”

Another example is Mendix, a no-code/low-code application development platform that can build applications up to 10 times faster with 70 percent fewer

resources than traditional approaches. The platform has grown to more than 750 customers across 25 industries, universities, and developers.

Platforms are nonlinear, they’re networked, and the highest value lies outside the firm, said Busch. “We have to train people on platform ecosystems. We all have to relearn business models and revamp our culture.”

“This is how an inverted company operates, and we have to learn that lesson. It’s not in the current DNA of our managers. If we really want to play in the platform game, we have to understand the mechanisms behind it.”

Siemens AG is among a group of industry leaders that is actively pursuing platform projects.

Siemens assembles a platform future

The industrial Internet of Things will unleash the next era of growth and innovation by combining the physical and the digital worlds. Dr. Roland Busch Siemens AG

4 / Keynote: Manufacturing Perspective

Dr. Roland Busch Deputy Chief Executive Officer and CTO, Siemens

Siemen’s Railigent platform uses sensors to monitor trains within its ecosystem.

As general partner at Andreessen Horowitz, Connie Chan studies developing markets to identify platform investment opportunities. The venture capitalist predicts that mobile ‘super apps’ will find their way to Western markets within the next five years—and perhaps become as ubiquitous as in China.

“China is not only a mobile-first society, but really a ‘mobile-only’ society,” said Chan. “Apps are accepted more easily there.” She expects these apps to spread widely, especially as mobile-only users become the norm.

Chan noted that the rise of super apps like WeChat, which combine several mobile services for a more streamlined user experience, will burgeon globally. WeChat started as a consumer messaging app that

now provides access to street vendors, food delivery, and news companies—all from one screen.

Chan maintains that the rise of single sign-on, frictionless apps is inevitable. The goal for businesses is to use low-margin—but high frequency or long-term user experiences—as a way to generate leads for new, high- margin user engagement.

The mobile and online payment platform Alipay offers services that may appear unconnected, such as fund transfer and third-party services. Yet the app allows users to seamlessly access municipal services, pay utilities, buy movie tickets, or book a hotel room. As a payment platform, it can scan a barcode instead of requiring separate order and pay functions.

Chan is also bullish on new opportunities for online social and

event platforms, including Run the World, a venture that Andreessen Horowitz has a stake in.

“Run the World will bring like-minded people together online,” said Chan. “Participants can learn from experts and connect in a way that feels natural, safe, and fun, while maintaining professional and personal connections.”

She noted that online conferences are indispensable and that it’s critical to emulate side conversations and build relationships for those with common interests.

All of these technologies depend on robust data banks to boost their impact and to help personalize user experiences, but Chan doesn’t anticipate that privacy concerns will restrict growth. She predicts users in the U.S. will adopt the apps as long as they offer significant user value and convenience.

Super apps—or apps that combine several mobile experiences—will soon be the new norm.

The super-appeconomy

5 / Developing Markets

Connie Chan General Partner, Andreessen Horowitz

Connie Chan doesn’t anticipate that privacy concerns will restrict growth.

Healthcare is a prime example of a traditional sector experiencing major platform strides during the COVID-19 pandemic.

Most notably, virtual care and in-home patient monitoring have soared in popularity due to social distancing measures.

The pandemic has also prompted long-standing medical regulatory constraints to loosen, insurance reimbursement formulas to change, and stubborn restrictions to be lifted around the country. Developments like these were not expected to be widely available for at least another decade

The Mayo Clinic, a 150-year-old national nonprofit medical center, is part of the telehealth surge. John Halamka, M.D., president of the Mayo Clinic Platform, said

that nearly 40 years of halting efforts in telemedicine were condensed into 12 weeks.

“Once doctors could no longer have on-premise visits, everything was possible,” he said. “From asynchronous consultations, to acute home care using sensors and AI, the Mayo Clinic can monitor COPD, kidney function, and heart failure in homes, as well as offer nursing and wound care.”

This platform of virtual care is the new normal as federal agencies and policymakers have had no other choice than to accept the changes.

Consumers will opt for convenience over privacy and high-touch because the gains from telemedicine far outweigh any losses in personal contact. “You will usually get the

same outcomes at lower costs and with greater ease of use for patients.”

Patients who experience barriers to technology, or those who are not tech-savvy may experience obstacles with virtual care.

Halamka suggests a new occupation—the equivalent of what he calls a “care traffic controller”—to help patients navigate the new healthcare options. These professionals could help with tasks such as computer access and monitoring at home or suggest public kiosk locations where telemedicine is available.

New healthcare models will require new human roles and adjustments, and Halamka admits that there will be stumbling blocks and failures along the way. But the long-awaited transition will be worth it.

The COVID-19 pandemic is forcing the healthcare industry to embrace virtual care.

Telemedicine takesa giant leap ahead

6 / Healthcare

John Halamka, M.D. President, Mayo Clinic Platform

We experienced nearly 40 years of halting efforts in telemedicine condensed into 12 weeks.John Halamka Mayo Clinic Platform

New professional roles may be needed to help patients navigate online technologies.

In some cases, platform leaders entered their market indirectly. Jessica Tan, co-CEO, chief operations officer, and chief information officer of the Ping An Insurance Group of China, explained how her company leveraged its financial services expertise to build out larger ecosystems.

Many Americans might be familiar with the Chinese platforms, Alibaba and Tencent, which began as internet providers that grew their ecosystems around consumers.

By contrast, Ping An was a financial services firm that used its finance and technology expertise to foster open ecosystems. The company serves approximately 564 million users in China across five verticals—financial services, healthcare, cars, housing, and smart cities.

“Think of Ping An as a hub and spoke type of model consisting of 10 technology companies in various markets,” Tan said. In each market, the company has its own B2C flagship, which includes Good Doctor and Autohome, the largest health and car portals in China. “More importantly, we have a B2B franchise,” she added. “We believe online and the offline have to merge.”

Outside of its Good Doctor portal, Ping An partners with Smart Healthcare to serve 170,000 hospitals and medical institutions and more than 300,000 offline doctors. The bulk of the economy in all these sectors is still in the offline system.

Even though China is one of the most developed countries in internet finance, online business constitutes only between 10 to 15 percent of the entire financial services market.

The challenge of being in so many markets lies in the complexity, scale, and diversity of Ping An’s users. “Our users come to us for healthcare or to buy cars—in fact, 76 percent of the cars sold in China go through Ping An,” Tan explained. “But we also think of ourselves as a huge department store where users come to shop for many services, all from one app. Users also come to us for wealth management, loans, and education.”

Personalization will be critical moving forward for Ping An and other businesses. With data analytics, the company is able to customize and improve the user experience. For example, the analytics of Autohome can determine when an insurance policy is set to expire, and allow the user to renew with a discount in the app.

Insurance group expands into B2C and B2B markets—both online and offline.

Ping An’s evolution from finance to platforms

Even though China is one of the most developed countries in internet finance, online business constitutes only between 10 to 15 percent of the entire financial services market.

7 / Open Ecosystems

Jessica Tan Group Co-CEO, Ping An Group

Platforms are spreading into new markets —matching meeting places with business people, music events with audiences, and brands with marketing opportunities—all while offering users personalized experiences.

“Consumers, and increasingly, business people, want experiences and events that engage each person in a personal way,” said Joe Pine, a consultant and author of The Experience Economy.

Experience platforms can harness network effects with the recognition that experiences serve as the critical link between a company and its customers in an increasingly distractable and time-starved world.

Commodities and goods have always been sold on platforms, noted Pine, and service platforms and experience platforms followed suit.

But the COVID-19 pandemic has prompted several companies to think differently about how they do business.

Take Airbnb, which began as a service platform that allows users to rent a couch or spare room and evolved into a trusted source of hospitality and meaningful experiences. Social distancing mandates around the world forced the company to pivot to online experiences—to truly become an experience platform.

Pine spoke with three leaders about how their strategies and models have pivoted since the pandemic.

First Tube Media Andrew Beranbom is founder and CEO of First Tube Media, a platform that offers brands a combination of management services and hosting technology.

He designed a proven model to use live media for business results, but now everything has moved online and new models were needed quickly. “Streaming is a new frontier for branded marketing,” Beranbom said. “The emphasis is on experiences that will draw attention for our brands in an authentic, scalable way.”

Side Door Laura Simpson co-founded the platform Side Door, a virtual marketplace that offers booking for performance venues, ticketing, and finding live audiences. “We collaborate, vet vendors, and pull together the people necessary to make a great online show,” said Simpson.

When the lockdowns began, Side Door shifted to online streaming concerts—and completed nearly 200 shows from March to September. Simpson is also exploring ways to create value with online experiences, such as artist interviews or building online communities using recommendation engines and personalization.

Seats2meet.com Ronald van den Hoff is co-founder of Seats2meet.com, an online platform that matches free agent workers with work spaces.

Even before the pandemic, van den Hoff had migrated his business from an online reservation system to a full- service platform that uses AI to allow users to chat, search for jobs, and share ideas. “We realized we could use the data and expertise of co-workers to enhance the experience of guests coming to the meeting rooms,” he said.

What are van den Hoff’s plans post-pandemic? He predicts that virtual meeting spaces will be available even as physical locations reopen, creating a hybrid business with physical and virtual components.

Streaming concerts, online engagement, and virtual co-working are here to stay.

Despite the pandemic, the show must go on

8 / Experience Platforms

Joseph Pine Co-Founder, Strategic Horizons LLP

Scott Cook is no stranger to the turbulence of platform markets.

As founder and former CEO of Intuit, Cook was an early advocate and innovator in platform models. Founded in 1983, the $7 billion corporation has nearly 10,000 employees and is the maker of popular financial software, including Mint, Quicken, TurboTax, and QuickBooks.

Despite Intuit’s success, Cook noted that the early years were often bumpy—and he shared advice for companies entering the market today.

One of the struggles many successful platforms face is objections. Cook said that corporations have the equivalent of antibodies that show up when they try to do something radically different.

“The core part of the business says not to do that silly new thing,” he said. “It’s little, it won’t work. Instead, give the resources to us in the core business. Therefore, leaders have to ring-fence, and either hide or rigorously defend new things to keep the natural corporate antibodies from consuming it.”

The gift—or perhaps the madness—of great entrepreneurs, he added, is the ability to take what seems like a fool’s mission, transform it into a fully developed vision, and stay with it.

“For example, we were originally told that our concept of Quicken was a crazy idea—that it had been done before and that our product was inferior because we had very few features.”

“Also, QuickBooks is a tremendous product and we wanted to turn it into a platform, but

Co-founder and former CEO of Intuit, Scott Cook, shares his wisdom on taking risks and building platforms.

Tales from a platformpioneer

Scott Cook Founder and Chairman of the Executive Committee, Intuit

9 / Fireside Chat

The gift—or perhaps the madness—of great entrepreneurs is the ability to take what seems like a fool’s mission, transform it into a fully developed vision, and stay with it. Scott Cook Co-founder, Intuit

we experienced huge opposition within our company,” said Cook. “Our payroll group didn’t want to open QuickBooks to competitors and we finally had to declare that we wanted customers to have a choice—ours or competitors.”

When two Intuit engineers created a marketplace for tax advice that anyone could contribute to, tax experts bristled. “ ‘Only a tax expert or certified professional can answer those questions,’ they said. ‘Wrong answers will ruin our reputation, our brand, and consumer trust in our business.’ ”

The division GM and Cook defended the right of the team to run the test. “I was pretty convinced it would fail, but I wanted us to learn. Then, it actually worked. Customers started answering about 50 percent of the questions and we had our own people answering the other half. If an answer wasn’t right, it got corrected by other users—kind of

a Wikipedia effect.” With that success, the concept expanded into the rest of TurboTax.

Persistence and perseverance are needed, said Cook. In the area of small business lending there were many false starts and setbacks. “Our lending system now is purely digital. For example, it takes a business applying for a PPP loan about six to eight minutes to apply. Fully 83 percent of the applications are approved in 10 minutes, and then we fund it that night.”

Cooks said that without a champion or a protector, the corporate system will grind down and eliminate your ability to do something bold such as becoming a platform company.

His advice: “Surround yourself with people who have vision and stick-to-itiveness, people who have the ability to see a vision that’s different than what the corporation has traditionally seen.”

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Content Paula Klein

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Key takeaways and trends to watch from the 2020 MIT IDE Platform Strategy Summit.

Super apps and experience platforms are on the rise

Three key trends

Industrial firms are adapting business models to become orchestrators of platform ecosystems

Policy issues regarding data and information ownership will intensify as platforms become engines of value creation

Five requirements for platform success

1 Be willing to test and fail.

2 Take B2B partnerships seriously.

3 Get corporate buy-in and protections from senior management; get champions, or go it alone.

Hire and train entrepreneurial staff to carry out the vision.

4

5 Consider a federated or collaborative platform to build out ecosystems. Use network effects and partners to create value for other partners.