If further evidence were needed that platform business models are now mainstream in the technology sector, the inaugural EY Platform Economy Transformation Study provides it, with more than 70% of the 1,000 tech enterprises surveyed confirming they have implemented a platform model to some extent — while only 9% have no concrete plans to do so.
The companies in our survey are now reaping an average of 40% of their revenues from platform offerings. When asked why they’re moving to platforms, they highlight closer proximity and engagement with customers (52.9%), higher revenue and profits (51.5%), and scaling at a lower cost of customer acquisition (48.7%) – all adding up to a big competitive edge in the market. The minority holding back are increasingly missing the opportunity.
Looking beyond the pilot
Platforms are rapidly becoming the norm across the tech industry, but a deeper dive shows that progress is uneven. More than half (57.2%) of the companies surveyed are still at the stage of running a pilot or a single-use proof of concept, and only 19.7% currently have a fully implemented platform strategy.
This hesitancy raises some searching questions. Subscription and consumption models are increasingly pervasive in both B2B and B2C markets: Compared with the traditional buy-and-sell model, customers love the benefits that platforms bring, ranging from more flexible purchasing to keener pricing to easier access to product innovation and upgrades. So, why aren’t more companies using platform models across all of their products? Are they unsure whether their customers will buy over a platform? Or do they suspect the products themselves are outdated?
Alex Yung is the EY Asia-Pacific Technology Leader.
Six steps to putting the customer at the center
Answering these questions comes down to better understanding customers and their needs – and then putting those needs at the center of the business. The most effective way to do this in today’s tech industry is by implementing a platform model, through six clear steps.
1. Reach out to customers to gain a clear view of what they want. This inside-out analysis might include customer conversations, focus groups and market research studies. What are your customers buying, and why? What gripes do they have around the buying and product experience? How much repeat buying do they do, and of which offerings? What adjacent product or services are they purchasing, from whom, and under what model?
2. Review the competitor landscape. This outside-in analysis means asking questions like: How directly are others competing with your products? What models are they using? Are they succeeding in stealing your customers – and if so, what are they doing right? And what can you learn from that?
3. Glean feedback from loyal customers and from complaints. In parallel with probing the competition, it is also valuable to seek a warts-and-all view of your business from longstanding customers. What do they like, and what could you do better? You should also engage with customers who complain about your products or services – including via social media – to understand why they’re unhappy.
4. Identify products or services to move into the platform business. The first three steps will confirm whether your customers are receptive to a consumption- or subscription-based model. The next step is to identify products and services best suited to a platform. What products do customers buy regularly? Could these be combined as additional features with other products on a subscription basis to extend their lifecycle? If a product isn’t suited to a platform, can it be replaced or redesigned – perhaps by co-designing a new product with an ecosystem partner? Artificial intelligence (AI) can make a powerful contribution here by analyzing a mass of data in real time to support smarter product design, development and rollout.
5. Rethink your customer interactions and experience end-to-end. As you move your traditional product-based or buy-and-sell model into the subscription- or consumption-based model, it’s important to engage with your customer support and customer success teams to ensure the entire customer experience on the platform is as positive as possible. This might involve designing how you provision products and services, and how you interact with customers.
6. Bring in finance, risk, legal and tax teams. In a platform-based model, revenue recognition and tax treatment are completely different from traditional buy-and-sell. Also, the person using a product is no longer the owner, changing the position on legal liability – and requiring new terms and conditions to protect the company and customer.
Building tomorrow’s business – today
If your tech business has yet to embark on a platform journey, it should start now by launching a pilot. If and when you see some early successes, bring in additional resources – including support from ecosystem partners – to accelerate progress, working in parallel to follow the steps explored here. You’ll find that the underlying technology helps ramp up consumption or subscription sales at amazing speed.
Platforms are the future for the tech sector. It’s time to embrace them – or face playing catch-up with fleeter-footed competitors.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.
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Alex Yung is the EY Asia-Pacific Technology Leader. He has over 25 years of experience in launching and operating high-growth businesses encompassing public cloud business, digital transformation projects, business process outsourcing and consulting.