Innovation during Uncertain Times
From Global Disruption to Innovation
The coronavirus crisis is changing our world.
Interestingly, we are seeing that even though the economy is tanking from the impact of the coronavirus and many businesses are battling for survival, there are also winners, those who thrive
Those winners are the Big Tech companies. Amazon said it was hiring 100,000 warehouse workers to meet surging demand. Mark Zuckerberg said traffic for video calling and messaging had exploded. Microsoft reported the numbers using its software for online collaboration had climbed nearly 40 percent in a week.
Companies were already replacing their own data centers with rental computing from Amazon, Microsoft and Google. That shift will speed up as millions of employees are forced to work from home, putting a strain on corporate technology infrastructures.
What all those winners have in common is a very robust business model; namely the platform business model (a platform).
A Platform is not a system or a technology; it’s a business model, which means it’s the way an organization creates, delivers and captures - value.
Platforms aggregate and facilitate supply and demand. Platforms are characterized by their distributed approach to creating value. That means platforms can be either matchmakers or marketplaces, but still come in many shapes and forms. They typically generate revenue by either taking a commission of the transactions, or by charging the supply side for the value-added services they provide.
Platforms are the favoured operating model for 7 of the world’s 12 largest corporations. We’re all familiar with the examples: Amazon, YouTube, Airbnb, Uber, Alibaba, the App Store, and the list goes on.
According to McKinsey, platforms will “account for $60 trillion in revenues by 2025, or roughly 30 percent of all global revenues.”
Why are Platforms Better Equipped to Deal with Coronavirus Crisis?
Platform businesses are better set up to deal with the crisis and the growing change in consumer demands compared with traditional (incumbent) businesses.
There are three key factors in play here.
1. Scale Fast
Platforms are able to scale much faster than traditional businesses, because they rely on an ecosystem of suppliers as opposed to the sum of their own parts.
Platforms are digital ecosystems, so whenever there is increased demand from their customers (for specific products), they’re able to scale up operations very quickly and leverage their large network of suppliers to fulfill their customers’ needs, unlike brick and mortar stores.
Observing changing consumer behavior and needs, especially in light of our new reality of lockdown restrictions, mean brands need to change scale very quickly to even survive. Therefore, brands that are platforms are better suited to address some of the challenges and changing behaviors.
2. Create Network Effects
Another key factor is the network effect which is the driver of the platform economy.
If you look at an ecosystem like Amazon marketplace for example, as more users go to Amazon to shop more products it will naturally attract more sellers to come and sell to those customers.
Amazon is experiencing a dramatic increase in the number of 3rd party sellers that are applying to sell on their platform to address the increased demand. That’s positive network effects in motion, which help the business scale tremendously.
The pandemic is playing to Amazon’s (marketplace) platform strengths. Amazon stands to emerge from the pandemic stronger than many of its competitors. One key advantage is its e-commerce platform, which clearly became a lifeline for many who are avoiding in-store shopping and other physical retail stores. And, the other is its cloud platform, Amazon Web Services (AWS) which increased its demand as people turn to some of its biggest clients (from Zoom to Netflix) for work and play. Amazon could pull in as much as an additional $4 Billion in revenue this year.
3. Shorten Value Chains
Lastly, we are probably witnessing the most disruption to traditional businesses in the value chain.
Many retailers were required to close shop in order to prevent the spread of the virus, also due to governments’ new regulations. We’re also seeing customers opting to online shopping. And on top of that we see significant change in consumer behavior, most people now focus on practical shopping, such as sanitization products, fitness, and home improvements equipment.
With all the change in channel demand, product demand, all at such a rapid rate, coupled with massive unemployment and redeploying of workers - the result is that many businesses are struggling to adapt and deal with this new, sudden reality.
Disruption in the value chain is going to cause many problems; from sourcing products from suppliers and getting these products to customers.
Purchasing teams have to renegotiate contracts with their existing suppliers regarding stock that they bought in anticipation for the upcoming season, so many products that are now potentially redundant and need to be negotiated out.
When it comes to inventory planning, businesses we'll need to move a lot of their stock from their stores into distribution centers and fulfillment centers, in order to sell it online.
Lastly, warehousing and logistics are not as efficient with their distribution centers adjusting to the government regulations.
Overall, this crisis is causing challenges across this entire value chain.
However, a platform-based business by definition has a big advantage because its value chain is typically shortened.
The work is shared, and a lot of the disrupted tasks are managed by the marketplace seller. That means a retailer that operates the platform won’t need new suppliers, and it will only need to find sellers who are able to sell products through the platform directly to customers.
The key thing here is that retailers that operate platforms can focus on what customers need.
The platform’s advantage is that it’s able to do this at scale, because its entire foundation is built this way to quickly adapt to demand and supply and create the right match.
Anyone who has a more flexible operating model when it comes to adjusting to consumer demand is going to be in a better position than those who have to operate complex processes in value chain to repurpose their business.
Which Businesses are Benefiting from the Platform Advantage?
In China, Alibaba was quick to address new costumers demands through its use of Taobao Live platform, and connected farmers and their fresh produce directly to consumers within urban cities across the country. An estimated 18,000 tons of agricultural products have been sold under this initiative. This is great for the farmers because they were struggling with a lot of their traditional distribution channels shutting down due to the crisis.
Another example comes from the French government identified that there is a huge challenge with getting critical care and products to health centers, frontline businesses, and public services during the COVID-19 crisis.
They decided to digitalize this sourcing process by creating StopCOVID19.fr platform that digitally connects - suppliers of hand sanitizer, gloves, gowns, masks, whatever it is that the frontline operators need in order to fight this disease –to the frontlines.
This was set up and operational within 48 hours. Within three weeks, they were able to generate over a million euros a day in trade through the platform. That’s a great example here of just how quickly a platform can set up, scan and start to deliver value to the people who are using it.
Additionally, many tech companies have cultivated large external software developer platforms as part of their platform innovation strategy. AWS and IBM have launched programs to get developers to tackle pressing problems.
The Data Science platform Kaggle is creating open challenges around ten key questions related to the coronavirus, with the aim to mine scientific literature for insights.
Philanthropies that adopted platform innovation strategies have been able to rapidly pivot and create a whole array of high impact programming. One example is the Global Citizen platform and the TogetherAtHome initiative.
There are many opportunities to innovate and create new value during this crisis. Think about the massive user base under lockdown, being daily conditioned to new behaviors and needs.
All this could be monetized through a platform that aggregates what they need. We are going to see the rise of new consumption habits, shift in bargaining power across the value chain, and eventually the rise of entirely new economy.
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Lital Marom is a thought leader on agile business processes, digital transformation and the future of work. She is an expert at helping organizations unlock the potential of their business by leveraging emerging technologies and new business models. She inspires and guides business leaders to “disrupt themselves” , think BIG and act FAST so that they will push beyond their limitations to future proof their business.