Dario Maisto - The Digital Platforms Handbook: How to transform any business into a digital platform and thrive in the digital age

For the last thirty years more and more companies have made huge investments to start and sustain their digital transformations. For all this time Artificial Intelligence (AI) and Machine Learning (ML) technologies have been implemented at companies to lower costs and increase efficiency, in what we call a first wave of digitization. As time went by, companies started taking advantage of digital tools to increase their sales through better customer experiences and improved customer satisfaction, a process that we call digitalization. In this book we will analyze how digitalization processes have enabled the rise of platform-based businesses and how companies based on this new business model are outpacing companies operating with a traditional business model (this latter is referred to as pipeline model). The book is divided into three logical parts: introduction to the digital platforms business, deep dive into the characteristics of competition in the digital age and what digital platforms mean for the industry.

In the first part we will analyze the strengths and main characteristics of a digital platform business model, both internally (how the platform is structured and works) and externally (how the platform interfaces with actors in the surrounding network ecosystem). We will explore the world of platforms inside-out and outside-in, discovering how certain internal characteristics enable these businesses to create the so-called network effects, that are in the end the true differentiator of a digital platform business model. The focus of this part as well of the entire book is not on an as-is description of the digital platforms world, but rather on how a digital platform business model can be used by established companies to strengthen their competitive positioning and leverage the potential of the possibilities offered by the digital age to outpace competition.

In the second part of the book we will describe how competition works in the digital age and how the competitive field has changed in the last twenty years with the advent of the digital revolution and of digital platforms. This second part will complete the view on the digital age in two ways: on the one hand, it will give a broader theoretical point of view on strategy and competition in the digital age; on the other hand it will focus on some real life cases of traditional and natively digital companies that either thrived thanks to a digital business model or died because of their inability to adapt to change.

The third part will build on the concepts presented in the two previous parts and show how pipeline companies, meaning firms born and grown in the pre-digital era, can leverage their traditional product and service offerings as well as their client base to establish a digital network ecosystem and keep competing successfully in the digital age.

If the focus of the first two parts is on pipeline companies that operate in fields that are being taken over by platform-based competitors such as Amazon for retail, Airbnb for lodging and Uber for mobility, the third part of the book assumes the opposite perspective: we will start from businesses that have not yet been entirely disrupted by digital competitors (banking, insurance, healthcare) and will see what these businesses can learn from previous experiences and disrupt their own industries before being crowded out of the market by the next digital-native and platform-based competitor.

The bottom line of the lessons learned by pipeline companies during the last twenty to thirty years is that the platform revolution is here and is happening right now. The superior business model offered by digital platforms endangers companies that have been thriving for more than a century till the advent of the digital age. The competitive scenario has changed to the point that the biggest companies by market cap nowadays are all platform-based. Facebook, Amazon, Google, Apple, and Microsoft have transformed the paradigm of what firms stand for and how they can grow in the digital age. Luckily enough for our readers, apart from a few exceptions like Airbnb for example, most of major digital platforms did start as product or service companies in the pre-platform economy and then evolved their business model to take advantage of the possibilities offered by a digital platform model in terms of growth and network effects. If we think about it for a moment, we may acknowledge that Amazon started its business by selling books, Apple by producing laptops and smartphones and Microsoft by developing software. What made the difference for these companies was that, at a certain point in their history, they evolved their business model into a digital platform, meaning that they put themselves at the center of a network ecosystem where producers and consumers of digital services could meet to match supply and demand of certain products and services. Producers, for example, would exploit the digital platform to offer their own products: developers would use the Software Development Kits from Apple to produce applications for the smartphone and the Apple store to sell them straight to customers; manufacturers could use the Amazon marketplace to offer their products to the Amazons customer base by leveraging the advantages that the e-retailer could offer in terms of delivery and rating mechanisms; Microsoft enabled an open architecture to allow external developers to build their adds-on for its own software products.

With an open and flexible business model, digital platforms enable third parties to develop and sell their own solutions to certain consumers needs that the company itself could not even think of when first creating its offerings. In this way, for example, third party contributors can establish their own cleaning or photo-shooting services on top on the Airbnb platform and sell them to hosts who cannot take care of cleaning services themselves or want better pictures for their posts of their location on the lodging platform. Much with the same logic third parties from all over the world are enabled to offer their applications to smartphones users through the Googles Play store or the Apples Appstore.

Beyond helping companies in taking advantage of third party contributions for their offerings, a digital platform business model also allows users collaboration for users own benefit: Facebook, Instagram and even YouTube in their original configurations were platforms where users could post their contents and look at other peoples contents without getting any economic advantage. The business success of these companies was then driven by the exploitation of the customer networks that they were able to create which, in the end, constitute the true strength of a digital platform business model.

In the following pages we will discover together how these dynamics were made possible by the digital revolution and how pipeline companies can benefit from new technologies and new business models to keep competing successfully in the digital age.