As a year, the two most prominent themes in 2018 were (1) the dark side of platforms and regulation of big tech and (2) the increasing importance of platform strategy in geopolitics. We also saw the growth in importance of B2B platforms as more industrial sectors started to get transformed in the platform economy.
This final roundup collection of the year consists of two sections:
Big ideas in my work on platforms in 2018
What to watch out for in 2019
Big ideas in 2018
1. The future of creative industries in the platform economy
Platforms are changing the economics of the creative industries. We’ve seen three distinct ways in which platforms have upended the creative industries:
Reintermediation: Amazon’s impact on publishing, as a marketplace with huge negotiating power. The entire publishing industry in the US was forced to consolidate as a result of Amazon’s margin pressures.
Technical lock-in: Amazon, again, has created huge technical lock-in by making the Kindle format proprietary. This concentrates even more of the market in its direction.
Value chain migration: Netflix moved from distribution into creation and we may very soon see Spotify launching its own label for independent artists as well.
The third point, in particular, is hugely compelling. Movies and music are high risk, high investment sectors and both Netflix and Spotify have been learning from consumer data while letting studios and labels take the risk of funding content. Now that they’ve learnt enough, they can themselves enter the studio and label game while taking more informed risks.
As more work gets intermediated by platforms, it will be important to understand which platforms empower workers and which ones exploit workers. This has been a big theme with the UN’s International Labor Organization (ILO) this year and I was commissioned to work on an exhaustive research on this topic. The full report is long but juicy with detail. Worth reading, in particular, are Section 7 (how platforms like Uber exploit workers) and Section 8.3 (how to regulate platforms).
By far, the most far-reaching idea this year was the idea of country-as-a-platform. I first proposed this in February, taking Singapore as an example, but have since extended it to explain India’s strategy with the India stack and China’s strategy with the Belt and Road initiative as well (Video awaited from the European Platform Economy Summit).
This will become an increasingly important theme in the coming year from two perspectives. First, more countries will begin to apply the country-as-a-platform strategy. I already see this beginning to take hold in the EU. Asian giants – China and India – as well as smaller countries like Singapore will continue to lead the charge. Second, beyond geopolitics, this will become the new framework for public-private cooperation. In country-as-a-platform strategies, the private sector plugs into the country platform but continues to maintain its unique control points.
What to watch out for in 2019
China’s growing impact and overall strategy
One of the most interesting themes to follow at the moment, China is pursuing a multi-dimensional strategy to increase its influence globally but platform strategy is one of the key pillars involved. Companies like Alibaba are very strategically putting together the pieces for a global platform for trade and payments, by focusing on markets that lack a traditional financial stack. Worth reading: Chinese fintech planning a global coup
But this is much larger than this. Over the last year, most of the discussion in the EU has shifted from “How do we think about GAFA?” to “How do we think about Alibaba and WeChat?”
China’s experiments with social credit systems will also be worth watching. While I’m not a fan of data-driven reputation systems that punish users or inhibit their access, I do believe there’s a lot of value to be created by increasing access for reputable users without punishing the others.
2. Unintended consequences of BigTech’s advertising business models
Advertising – and making users click – continues to be the dominant model of funding the bigtech firms. And 2018 was the year when a lot of the unintended consequences of optimizing ad revenue came to the fore. We’ve already seen how Facebook and YouTube increasingly polarise users through their efforts to increase clicks. Worth reading: YouTube’s dark side As investigations increase, we’ll see more of this coming up.
If you’re really keen on the larger impact of BigTech, two reports I’d highly recommend for your Holiday reading:
Finally, we’ll see even more of B2B platforms in logistics, manufacturing, heavy engineering etc. Over the years, I’ve been asked by executives whether platforms are a consumer phenomenon only. Those questions have markedly decreased over the last few months with many execs in traditional industries realising the value of platforms to organise their industry ecosystems. Many companies will move beyond basic digitization and sensor-network installations to platform business models. Blockchain and DLT based initiatives will be an important starting point to creating interoperability in traditional industries and over the coming years, we will see new platforms coming up around these initiatives.
Country-level platforms will determine winners in future trade wars and create a new model for public-private partnership. Share this
Netflix and Spotify demonstrate how tech firms can migrate up the value chain with relatively lower risk capital. Share this
Work is moving to platforms and we need to identify which ones empower workers and which ones exploit them. Share this
The platform economy today is poised at an interesting point. We have seen the rise of massive consumer platforms, built on information discovery, communication, commerce, and work exchange. But much of the industrial economy, and most business-to-business interactions, continue to work on the traditional industrial model, and haven’t really seen widespread impact of platforms.
All that is about to change.
Over the last four years, a range of technologies have come together to move business-to-business interactions and asset-intensive industries towards the platform economy. This has primarily been driven by the digitization of two things in particular: the digitization of machine performance and the digitization of business workflows.
First, the promise of improved efficiency management and predictive maintenance have driven the digitization of machine performance. Machines getting sensor-enabled allows the creation of a digital twin mirroring the machine performance.
Second, business workflows are increasingly getting digitized as more of enterprise communication and coordination functions move from in-house systems to cloud-hosted applications. As these workflows move to the cloud, they are increasingly digitized and can interact with other such digitized workflows.
In addition to these two forces of digitization, improvements in technologies like additive manufacturing are creating entirely new manufacturing models.
Going beyond machine performance to process performance: The initial driver for the digitization of heavy industry was machine performance. This is interesting in itself because it allows constant monitoring and predictive maintenance of machines. But the larger opportunity is to connect these digitized machines across a manufacturing process, to digitize the overall process performance and uptime. As more machines get digitized, digitizing machine performance will get increasingly commoditized, and the value will move towards digitizing and managing process performance by connecting the data output of all machines to create one single view of the process.
Moving from marketplaces to interacting ecosystems: Many parts of the industrial economy already apply the marketplace model. For example, different parts of the logistics chain, ranging from trucking fleets to container ships have built platforms to match spare capacity with demand, in an Uber-like system for heavy industry logistics. However, these systems are only partially effective because they still need to plug into a traditional supply chain. With increasing digitization, a digitized manufacturing process could interact with a digitized logistics system, lending itself to greater coordination across the end-to-end supply chain. This is when large-scale network effects can be unlocked on B2B platforms.
The myth of the maker revolution: One of the most common misconceptions around the rise of additive manufacturing and 3D printing is that these technologies will democratize manufacturing, much as desktop publishing tools democratize 2D printing. What these predictions often miss, is that much of industrial manufacturing still benefits from standardization and oversight. In particular, products and materials that require testing to alleviate risk lend themselves poorly to mass customization. As a result, the biggest benefactors of additive manufacturing are ironically likely to be the large industrial firms that own the testing capabilities, not the independent makers. Additive manufacturing will change what gets produced where but the manufacturing function will still largely be controlled by companies that can best manage the assembly and testing capabilities required to take products to market.
Rearchitecture of the supply chain: The larger opportunity, as a result, lies not in democratisation of making, but in the rearchitecture of supply chains. I have written about this extensively while talking about the platform economy’s impact on global trade. The rearchitecture of supply chains will also require new systems for managing B2B workflows and coordination. This will lead to a range of opportunities for companies to provide cloud hosted components for managing these workflows. Think of how the rise of consumer marketplaces and platforms required companies like Twilio to provide the components for managing communication. Similar component providers will need to come up to enable B2B workflows and coordination as well.
Opportunities for the digital laggards: Finally, while much of the progress on platforms so far has been spearheaded by a few companies out of Silicon Valley and a few more out of China, the opportunity for building industrial platforms can just as likely be captured by relative platform laggards like the EU and countries like Japan. This is a common issue I see in a lot of my work advising governments and planning boards. While much of the consumer platform dominance of the US has emerged outside government involvement, governments are likely to play a much more active role in the industrial platform economy.
We are still early in this move towards B2B platforms. But the companies that really capitalise on these opportunities will be the ones that think beyond applying simple point technologies that digitize specific parts of the existing system and move to rethinking the very architecture of these industrial systems.
Industry 4.0: The maker revolution is a myth, more power will move to large industrials. Share this
Digitization of machine performance and business workflows will drive the Industry 4.0. Share this
Industry 4.0 is less about sensors and predictive maintenance and more about the rearchitecting of supply chains. Share this
Two conflicting forces are shaping the future of global trade. On one hand, protectionism, largely exemplified by moves like Brexit and the United States’ withdrawal from the Trans-Pacific Partnership (TPP), is constraining the free movement of global value flows. On the other hand, digital technologies are blurring national boundaries and fostering greater cross-country flows.
The shift from pipelines to platforms has been a focus of my work in recent years. Pipelines are the linear value-creation and delivery models that we’ve inherited from the industrial era. As the world becomes more connected, platform business models create a central infrastructure that enables interactions between producers and consumers. This more open, networked flow of value is affecting globalisation in three main ways.
The changing face of globalisation
First, the power of pipelines in driving global flows is reducing. Advanced digital manufacturing systems lower production costs, favouring locally concentrated supply chains. This is reshaping the trade flows that had emerged between the West and the East in the era of outsourcing. Adidas, for example, announced that it is moving some of its production from China back to Germany owing to the lower costs of robotic manufacturing in Germany. Firms around the world are considering multi-local manufacturing as an alternative to outsourcing.
On a similar note, increased consumption in emerging markets also drives a need for regional manufacturing. The East no longer merely supplies the West – another factor contracting supply chains and leading to the decline of the pipeline-based model of global trade.
Second, the mix of trade is changing in a digital world: Even as goods trade slows down, there is an increase in services trade and cross-border data flows. Digital technologies allow products-based business models to morph into services-based ones. For example, companies like GE and Siemens are increasingly switching from selling equipment to delivering data services, including predictive equipment maintenance and usage-based leasing.
Third, and most importantly, platforms enable much smaller enterprises to participate in global trade without investing in their own supply chains. Alibaba, for example, enables a significant portion of SME trade and has now moved to financing these SMEs in China. Amazon and WeChat have similar ambitions. As these platforms get bigger and benefit from winner-take-all scenarios, we may see control points over trade shifting from political countries to digital platforms.
These three factors together are driving the shift in global trade from pipeline-based globalisation to platform-based globalisation.
Why is this shift important?
First, platforms will become increasingly powerful. Platforms that control social or economic transactions capture data used for wider decision making. For example, data captured by commerce platforms like Alibaba now serves as a financial credit rating system. Data captured by Facebook and other social platforms already provision identity verification and access management capabilities on third-party platforms. Supply-chain actors across industries can use data captured by AI platforms like IBM’s Watson and Salesforce’ Einstein to make increasingly sophisticated decisions. Platforms that facilitate interactions and capture data will have an increasingly larger role to play in the future of global trade.
Second, every company operating a global supply chain today will need to develop a strategy for the platform economy. Which parts of the supply chain will get automated? Which ones will get opened up for external participation? With the rise of supplier management platforms like Tradeshift, the cost of managing external suppliers goes down, allowing firms to outsource more of their activities.
A related strategic question is: Will the digitisation of supply chain flows improve governance and sustainability? Digitisation allows firms to determine the quality and reputation of their suppliers. Platforms that manage supply chain transactions capture data about supplier reliability and performance, allowing firms to make better decisions. These platforms can also track and trace inputs across the supply chain and create more responsible and sustainable supply chains. These factors could very well determine the competitiveness of companies in a digital economy.
Third, platforms will directly impact, and even compete with, countries. For example, freelancing platforms that centralise revenue capture take away tax dollars from countries like Bangladesh and the Philippines with a high concentration of freelancers. But more importantly, platforms like Alibaba can drive SME growth and financial inclusion for a third-party country and have direct bearing on its development. This gives these platforms incredible negotiating power. It also raises geopolitical concerns, especially when the platforms are closely monitored by the home-country government.
Finally, countries themselves will have to think like platforms. I have previously outlined a platform-strategy framework for countries, taking Singapore as an example. Any country that wishes to participate in this new global trade order should think about attracting trade flows from around the world. Singapore is considering the merits of establishing a free data port for this purpose. India, similarly, has built the India Stack platform around the Aadhaar identity system and is considering taking this platform to other countries in a bid to attract data flows. In both cases, the bet is that participating countries will share their data flows to benefit from the unique IP these countries have built.
Make no mistake: The rise of platform-led trade is one of the defining shifts of our times.
Global trade is moving from pipelines to platforms.Share this
Platforms like Alibaba have the potential to directly compete with countries in their ability to enable SMEs. Share this
As supply chains contract and platforms become bigger, platforms like Alibaba and Amazon will have greater negotiating power in global trade.Share this