Riding the future: How legacy companies can switch to platform business model
Today's digitally interconnected world has its own set of rules.
And the first one you learn is that the traditional business models we were accustomed to a couple of decades ago have been significantly challenged.
Table of contents
The era we live in, the era of rapid digital transformation, has brought an almost seismic shift toward the platform business model I touched upon in my previous blog post.
Embrace the benefits of digital transformation
This business framework focuses on developing a powerful business ecosystem and unlocking previously unseen levels of growth. Unlike conventional models, where the focus is on improving internal operations – the platform model harnesses the power of interactions and connectivity as the primary mode of driving value creation.
Even though this model has already proven successful, for legacy companies deeply rooted in the traditional "way we do things", pivoting to a platform may seem daunting. And, of course - it is! Legacy companies are often strained with cultures resisting to change, operational processes, and complex systems… unlike startups, they don't have the liberty of starting fresh – they need to navigate these digital complexities carefully, all with ensuring their operational efficiency.
Therefore, in this second part of the platform model blog posts, I will discuss the necessity for this pivotal shift, the challenges some legacy companies might and will encounter, best practices from well-established businesses, and how software vendors can lend a hand during this transformative journey.
Why should a business transition to a platform business model?
First, let's explore some of the main reasons why legacy companies can reap benefits by transferring to a platform business model:
Disruption and competitive pressure
Technology is advancing so relentlessly that it's easy for legacy companies to fall behind and face the threat of becoming – extinct. Shifting to or implementing some of the approaches of the platform business models can equip legacy companies with the agility to stay competitive and ward off threats from companies in the same field but with a digital-first approach.
Scalability and potential growth
When you start switching to a platform business model, you will discover it's remarkably scalable and has enormous growth potential. As the network of users keeps expanding, the interactions will influence the network effect and allow the company to scale its business operations and market reach faster.
Enhanced customer engagement
Platform models enable direct contact with the customer, fostering a stronger relationship and positively impacting long-term loyalty. Suppose the company also starts to harness customers' preferences and feedback. In that case, it can continually refine its offering and tailor customers' experience, thus ensuring long-term customer satisfaction and continuous engagement with the business.
New revenue streams
Besides core offers you put, the platform model can also help you diversify your revenue streams. For example, companies can provide premium services, facilitate transactions, monetize data, and explore how the model can further contribute to robust finances.
The platform business model fosters a dynamic digital ecosystem where numerous previously unconnected businesses can contribute to and benefit from the network. Suppose you are a legacy company looking into this model. In that case, you can tap into it and – engage with suppliers, developers, and competitors to create values that will fuel collective growth.
Improved operational efficiency
Platform businesses use advanced technologies to enhance operational efficiency and streamline processes. When a legacy company adopts these technologies, it can optimize often weak areas like supply chain management and customer support and improve data analytics. All this contributes to reduced costs and improved service.
Access to talent and innovation
Platform models attract some of the brightest minds among innovators, entrepreneurs, and developers. Legacy companies can access this talent pool, infusing them with fresh ideas and perspectives and positively impacting their business. It's always advisable to stay at the forefront of industry trends!
Adaptation to changing consumer behavior
Consumers use platform businesses daily and are the ones moving the needle. If they want to survive, legacy companies will need to adapt to these shifts – and the model allows companies to align with customers' expectations.
Risks of ignoring the platform business model
You might feel overwhelmed or even think, "We cannot transition; it's impossible", or "We're too resilient; we'll be fine", however, remember that by completely ignoring the platform model, you might carry a substantial risk if you are a legacy company.
- You will experience disruption and erosion of your market share. Digital disruptors, that innovation I touched upon briefly, are rewriting every industry's rules and leveraging platform models to deliver more convenient customer experiences. If you continue to stick to the traditional model, your company might risk losing relevance and market share to these more agile and digitally oriented companies. And in the long term, the once stable share will erode to just a few fractions.
- You will miss revenue opportunities. The platform model creates new venues for revenues beyond the core product or service you are offering. These new streams might come from the things I mentioned, and companies who ignore the platform shift might miss those and limit their growth and financial resilience.
- You are facing involves the lack of data-driven insights. What once was oil - today is data - and platforms generate enormous volumes of those, offering valuable insights into consumer behavior, efficiency, and market trends. If you decide to skip the transition to the platform model, you might struggle to capture those. This will prevent you from optimizing your operations and, in the long term, hinder your strategic-making processes.
- Legacy companies might be a risk of reputational damage. In a world where innovation is highly valued, companies that resist change may be labeled outdated. So, ignoring the transition to platform business could have far-reaching and detrimental effects on legacy companies. You might think the platform model is not for your business, but let's explore how several legacy companies have successfully shifted to this model and have used it to drive innovation and growth.
Who turned theory into practice? Successful transitions to the platform business model
General Electric (GE)
General Electric is one of the oldest traditional industrial companies. They have launched GE Digital to transition into a digital industrial platform and developed Predix – and industrial IoT (Internet of Things). By doing that, GE connected industrial machiners and can collect data and provide predictive maintenance. As a result, they have enhanced their operational efficiency and delivered better results to their customer.
On the other side, LEGO is a long-standing toy manufacturer worldwide. They have launched LEGO Ideas, an online platform that encourages LEGO customers and enthusiasts to share their unique designs that might proceed with potential production. By harnessing the power of community, LEGO evaluated those ideas, engaged the community, and broadened its product offering by choosing which designs to make.
The future is platform: How platform business model is shaping the new era of business
With AI moving into the public sphere, we stand at the precipice of countless digital transformations. What can we expect? Change is the only constant, and we are witnessing daily changes in our new brave digital age - not only on a personal level but also on a professional one - business concept models have drastically shifted in the last decade.Read more
You have also probably noticed amazing results Nike, an iconic sportswear brand, is achieving with its NikePlus members program. The program is transformed into a platform where NikePlus offers personalized services and exclusive products. They also partner with third-party fitness devices and apps and have successfully created a lifestyle ecosystem, all while enhancing customer loyalty.
General Motors (GM)
General Motors (GM) has also explored a platform business model with its connected car platform – OnStar. This amazing platform provides in-car connectivity and emergency services and allows third-party developers to create applications for the platform. This is a shining example of how GM opened new revenue streams.
Find a proven partner in digital transformation
So, you can see that some strong legacy companies have successfully transitioned to a platform business model and have leveraged it to drive innovation, growth, and customer engagement.
And as legacy companies try to transition to a platform business model, it is paramount that they find a reliable and experienced partner.
Vega IT has a strong track record in fostering digital innovation and the necessary skills, expertise, and dedication to help the internal teams accelerate this transition. However, this journey is often sturdy as it requires careful planning, technical expertise, and strategic thinking.
Hopefully, this article has shed some light on why dropping outdated business models is important. It's a risk and a patch to obsolescence because the future belongs to those who can leverage through transformation - the platform models. When you start to ride the wave of these ecosystems of value creation, innovation, and adaptability, you will enter a prosperous and digitally empowered future.
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