If the “dumb pipes” business model of a transport network is “broken,” the issue for connectivity service provider executives is “what replaces that model?” and “how do we get there?”
Beyond the throwaway platitudes, one possible model is to “become a platform.” But there is much misunderstanding about what a platform is, and what it takes to function as a platform. To the extent that scale is required, a legitimate issue is whether, realistically, every connectivity provider can become a platform.
A platform business model essentially involves becoming an exchange or marketplace, more than remaining a direct supplier of some essential input in the value chain. It is, in short, to function as a matchmaker.
The platform facilitates selling and buying. The platform allows participants in the exchange to find each other.
Platforms are built on resource orchestration; pipes are built on resource control. Value quite often comes from the contributions made by community members rather than ownership or control of scarce inputs vertically integrated by a supplier.
A pipe business focuses more on efficiency in its value chain, where a platform focuses more on orchestrating interactions between members.
A pipes business success metrics revolve around customer value. A platform emphasizes ecosystem value creation.
So “lifetime customer value” is a reasonable metric for a pipes business.
A platform often creates value because of the scale and scope of the interactions between members of the ecosystem, so the range and depth of interactions might be a better metric for a platform. In other words, the platform is easy to join, easy for participants to use and easy to federate.
Effective application program interfaces are one aspect. But effective logistics, settlements, data exchange, payments and information on ecosystem participant behavior might be other important aspects for ecosystem transactions and interactions.
Perhaps the best models are multi-product e-tail firms such as Amazon, Alibaba or eBay; ride hailing companies such as Uber or Lyft; content exchanges such as YouTube; payment services such as PayPal; lodging exchanges such as airBNB; food delivery services such as GrubHub; messaging platforms such as WhatsApp or social networks such as Facebook.
Platform revenue models also are known as multi-sided business models. In traditional usage, multi-sided business models also were those which earned revenue from buyers (users) and sellers. Newspapers which earned revenue from users (subscriptions) and sellers (advertising).
The newspaper was a platform--or multi-sided business model--that connected advertisers with audiences; buyers with sellers. Virtually all ad-supported media also used multi-sided business models. The point here is that the platform business model is technology independent.
As a corollary, just because a business is based on use of technology--such as the internet--does not automatically mean that business is a platform or uses a multi-sided business model.
Also, “digitizing” business processes does not necessarily make an organization a platform, or change its business model. Virtually all businesses use technology and software. That does not make them platforms.
In the pre-internet era, operating systems were platforms. Important caveat: platforms can lose their value over time. Few now believe operating systems are key platforms, or have the power they once had as platforms.
In the internet era, app stores might be considered platforms. What all these business models tend to feature are the ability to match buyers and sellers, rather than direct ownership of some function in the value chain.
There are some analogies to the traditional telecom business, which though a supplier of direct connectivity services to paying customers, also serves as an intermediary to connect end users on the network.
The difference is that the telecom service provider business model is not based on facilitating transactions between end users and then building a revenue model on those transactions. Instead, the traditional “fee for service” telecom model involved supplying the function of communications itself.
“Rather than playing a direct role in the supply chain, companies build digital ecosystems or marketplaces connecting consumers with producers of goods and/or services,” says the TMForum.
Almost as a byproduct, internet-era marketplaces are based on electronic marketplaces.
If not, the further issue is whether being part of somebody else’s platform, and continuing mainly to supply connectivity, is a viable growth model.
The platform business model aggregates consumers and producers through an ecosystem. “The real strategic value of a digital platform is to harness the service offerings from a diverse supplier base, and then to use shared orchestration, monetization and administration tools to offer new service bundles,” says BearingPoint.
For PCCW Global, this evolution means creating a “platform” that connects many trading partners in an ecosystem, and not simply providing connectivity services to other service providers, enterprises, data centers, mobile operators and consumers.
As envisioned by PCCW Global, all suppliers of services to end users would be connected to those users over the platform. So application providers could reach their users and customers using the platform; but also other trading partners.
That would allow for all sorts of innovative solutions to be created, built, modified and supported with something approaching near-real-time provisioning, with automated systems allowing low-cost charging models that essentially allow all sorts of value-generating products to be created, delivered and supported at costs impossible or difficult to support in a manual processes environment.
It will not be especially easy to create such a platform, given the rivalries between hyperscale cloud giants and faster and alternative ways of creating proprietary platforms.
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