The rise of today’s fastest-growing global brands would have seemed improbable, perhaps even impossible, to anyone following the Fortune 500 just 15 years ago. Virtually overnight, Facebook and Amazon invaded and conquered established industries with a small fraction of the resources once deemed essential for survival. What’s the secret to their success? The answer lies in the power of their disruptive new business model—the platform.
In contrast to traditional pipelines businesses, with producers at one end and consumers at the other, platform businesses use technology to facilitate the exchange of goods, services and social currency in a more-or-less open ecosystem. In doing so, the platform lets users themselves create value for a firm.
As author and consultant Tom Goodwin observed back in 2015: “Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening.”
What’s interesting is that platforms live or die by their ability to ignite powerful network effects, gaining value as more and more people use them. Smartphones neatly illustrate this phenomenon: notice how the value of an iPhone increases or decreases in proportion to the number of people who use and develop apps for them. Positive network effects help explain the explosive, non-linear growth of today’s leading platform businesses.
Now, much has been said about the rise and power of platforms to transform consumer-facing industries (“Platform Revolution,” by Geoffrey Parker, Marshall Van Alstyne, and Sangeet Choudary is essential reading for anyone interested in the topic). But what about B2B businesses? Are they susceptible to the sort of platform disruption book publishers, hotels, taxi companies and retailers are facing? If so, what can B2B enterprises learn from the platform model to remain competitive in the future?
The reality is any pipeline business today is susceptible to disruption. But here are four factors that put them at risk of bursting right open.
You’re in an information-intensive industry
Wherever information is a core source of value for customers, software has the potential to create new platforms that overwhelm traditional gatekeepers of information. It’s no wonder media and telecom are already facing platform-driven disruption, but healthcare procurement certainly isn’t immune to change either.
T-dental.com, a marketplace of dental products, including everything from drills to fluoride, allows dentists to search a catalogue of more than 5,000 product lines. The pay-as-you-go service not only generates revenue through the sale of these supplies, but through subscriptions to publications, add-on services like accounting and legal, and advertising fees paid for by vendors.
T-dental was built in just seven weeks by the owners of a CRM (Customer Relationship Management) software company. If information is the primary source of value for your business, take heed, because those with expertise in sales technology and digital marketing are ready to move quickly.
Your gatekeepers aren’t scalable
Industries with non-scalable gatekeepers are already being disrupted by new platforms. In 2012, LinkedIn’s recruiting services grew by 136 per cent to $84.9 million, making it the fastest growing provider of corporate recruiting solutions anywhere. Self-publishing websites like Etsy, Lulu and Blurb, are displacing publishers by giving authors and artisans affordable access to an audience of millions along with real-time user data they can use to refine their products.
B2B commerce is about to undergo a similar revolution, putting buyer and inventory managers at risk. Consider Amazon, which recently put machines in charge of ordering and inventory decisions at its warehouses. How long before buying decisions at small and medium-sized enterprises are outsourced to a handful of marketplace data scientists and their algorithms?
Your industry is highly fragmented
Platforms are superb at aggregating information and making shopping and product comparison easier for consumers. Well-designed marketplaces help users search and filter through thousands of local products and services based on their specific needs in just a few clicks.
In the B2B space, licensed freight brokers like Uber Freight and Convoy are going up against established transportation giants like Coyote (acquired by UPS for $1.8 billion in 2015). These new shipping apps put transportation logistics in businesses’ hands, allowing them to more easily manage far-flung brokers, negotiate prices, and schedule deliveries. They’re even helping companies cut down on empty truckloads by improving logistics along hard-to-coordinate routes.
Access to information is asymmetrical
Markets in which a few organizations have greater access to data than others are at increased risk of platform disruption.
Startup activity in the business insurance market, for example, is already underway. Insureon, which partners with A-rated insurance companies, raised $31 million in 2015 to grow its business insurance comparison platform. Then there’s Bunker, which focuses on the freelancer market; Indio, which targets B2B startups; and RiskMatch, which is creating a commercial insurance marketplace and portfolio management platform.
Even companies in highly regulated industries, although more resistant than others to disruption, will be forced to consider new models that level out information asymmetries and help businesses save time and money.
If these four factors apply to your B2B business, it might be time to consider replacing or at least complementing your existing business with a platform model. Of course, this won’t be easy, but there are two steps you can take to begin the transition.
The first is to delink ownership of physical assets from the value those assets create. Consider how magnetic resonance imaging (MRI) machines can be put to more efficient use if not restricted to a single owner. What if a hospital that uses just 40 per cent of its MRI capacity created a marketplace for smaller hospitals and clinics to use their equipment? Boston firm Cohealo is doing just that, with the goal of becoming the Airbnb of hospital equipment.
Focusing on market aggregation is the second step B2B businesses at risk of disruption should consider. Yelp and TripAdvisor created a new industry based on user-driven feedback and certification. Is there a similar opportunity to certify the quality of products, people and services in a fragmented B2B marketplace? Service platforms like Upwork, for example, already make it easy for companies to evaluate thousands of skilled professionals in one place.
Platform disruption is well underway, with banking, education and healthcare sure to follow on the heels of media and telecom industries. But incumbents can fight back against platform-driven startups by thinking more like them; less like pipelines and more like the open marketplaces that are erasing old barriers and attracting new, often unexpected, competitors. Will established B2B brands take notice—and act—before it’s too late?