Business model innovation: Experimenting with open and platform models
Enterprises reassess business model innovation all the time. In particular, CIOs seek many different alternative models that have the potential to take their businesses to the next level. In a recent study entitled “Redefining Boundaries: Insights from the Global C-suite Study,” commissioned by the IBM Institute for Business Value, it was revealed that 81 percent of CxOs are reassessing their company’s portfolio of products and services. “They’re concentrating primarily on the ‘open’ and ‘platform’ variants,” according to the report. “Both models are particularly conducive to collaboration, within and across industries. Both also offer a lot of flexibility, which is essential for coping with sudden external changes.” Here’s an overview on the capabilities and functionalities that each variant possesses.
The open business model
According to the report, companies that consider business model innovation with an open model in mind are known to regularly and consistently partner with outside agencies, other companies, consortiums and other external entities to create new value for customers and for themselves. A frequently cited example of an open business model is Procter & Gamble, which actually sources around half of its ideas and inventions from outside of itself. It also captures value through its own product by licensing its existing technology and intellectual property, and entering into joint ventures with others, including competitors. Essentially, an open business model involves being open to all opportunities, regardless of their source. These types of models allow for the development process or commercialization process to be completed faster and at a lower cost. In addition, they create an opportunity to share and distribute risks with other actors, learn from experts or users and create greater value propositions overall.
The platform business model
According to the report, businesses with a platform model at their core create a marketplace or a community inside of which customers can buy and sell their own products or resell others’ products. Meanwhile, the business itself takes a piece of the value of each transaction as a kind of listing fee, commission or revenue-sharing payment.
When you think of this kind of business model innovation, sites such as eBay, Craigslist and Amazon may come to mind. These types of businesses have developed a platform, marketplace or community. They create value by attracting groups of customers that have items or services to sell and those with the money to purchase them.
Platforms have the ability to expand in different industries and niches, and they have superb growth potential by adding categories and funneling new customers into the appropriate spots. Given that there is no need to carry inventory or have an asset- or capital-intensive balance sheet, such businesses can be highly profitable. In fact, outside of the infrastructure required to service the community, the largest cost is the marketing spend necessary to create and attract new customers into the marketplace.
What does this mean for mobile? According to the study, “Torchbearers [those at the front of the pack] are braver about investing in emerging technologies with high risks and returns, and more aware of the need to preserve their competitive advantage and scale their expertise. They back their best ideas to the hilt because they know the biggest slice of the economic pie will go to just a handful of enterprises.” So looking forward and investing in mobile and other technology advances is an important part of utilizing any new business model effectively.
Of course, the challenge is creating a valuable marketplace that attracts the sort of transactions that will profit your enterprise. After all, a platform business without an audience will fail quickly.