December 12, 2016
“Platform beats product every time,” said Prof. Marshall Van Alstyne of Boston University, in his keynote address at the recent North America 3DEXPERIENCE (3DX) Forum, hosted by Dassault Systemes.
As a MIT Digital Fellow, Van Alstyne studies and teaches information economics. Who has access to what information, when, and at what price? These are critical questions for modern businesses in IoT commerce. That's part of Van Alstyne's research.
A year-to-year breakdown of the largest companies by market capital from Visual Capitalist reinforces Van Alstyne's point. Between 2001 to 2011, firms like GE, Exxon, Total, and Shell claimed the top positions in the chart. By 2016, they have been replaced by the likes of Apple, Facebook, Microsoft, and Amazon.
“The oil barons have been replaced by the whiz kids of Silicon Valley,” quips Visual Capitalist editors.
In manufacturing, the shift from product to platform happens through IoT infusion. “[Manufacturers] are adding data and sensors in order to create ecosystems around their products. They add community and data to the product to build an ecosystem ... Users creating values for users [resulting in] the network effect,” said Van Alstyne.
Manufacturers like Nike had to reengineer its products and business strategies to become part of the new economy. It takes a major undertaking like Nike+, complete with apps, special event invitations, and activity tracking, to transform running shoes into lifestyle accessories.
With products like social networks, their value grows exponentially when a large number of users adopt them.
As a one-to-one communication medium, Facebook doesn't offer much value. But with 1.7 billion users, the platform gives each user the ability to broadcast to an audience the size of the population of China (1.3 billion in 2016). That's part the network effect.
A similar value proposition has to be present in the platform economy. Van Alstyne observed, “Users creating values for users—that's the network effect. The product is more valuable through use. Users create value for users, so more users join.”
For Dassault Systemes and others who cater to manufacturing clients, the challenge is to keep up with the evolving business practices of their clients. Their customers are expected to add more sensors and data-collection devices into their products—a standard approach to powering apps. The core expertise of most CAD and PLM vendors is in defining the geometry—the shape—of the product. The development of data-driven products is a new territory. So is software development, an essential part of connected devices augmented with mobile apps.
Another significant change to engineers—internal experts must seek input and incorporate ideas from the public realm.
The community and ecosystem built around a merchandise is a rich pool of ideas for new products, new features, and additional services.
“You need to tap into the expertise of people outside the organization,” said Van Alstyne.
That adds a new layer of complexity to the collaborative tools. They must somehow ensure IP protection, but also accommodate contributions from nameless, anonymous collaborators.
Many of the essential ingredients in the platform economy, like community development and app-based revenue streams, are second nature to social networks. For CAD and PLM vendors, they represent both risk and opportunities. These are not their core strength. Yet, tools are sorely needed in these areas.