Why You Should Care About Platformization

Trends / Why You Should Care About Platformization
oil ship at sea on the horizon

Summary: Suppliers either can’t afford or are reticent to buy industry-leading PLM  software. But with SaaS platforms, they can get all advantages of best-in-class products at a fraction of the cost.

What is platformization?

web platform structure

Platformization is when you create a marketplace/environment as your service,  then charge people to use it. And to keep people around, you add value through transaction facilitation, user experience, and integration.

This is easiest to understand with an example.

Imagine that there’s a village market. All the farmers come along with their turnips and peas to sell.

The farmers and customers are marketplace participants. They participate in the market and make money from their products (or, get goods from the farmers).

In this case, the platform would be whoever owns the village square. Say they charge $1 for each farmer to set up their stall in the square.

They own the environment that facilitates transactions between farmers and customers but they don’t actually produce any fruit and vegetables themselves.

Software platforms work the same way. There are producers and customers, who need an environment to make their transactions easier. A platform builder creates a software platform that lets them do that, and charges them to use it.

When it comes to B2B platforms, businesses usually add value by creating a system that lots of different software can plug into, allowing data and information to flow easily to facilitate business decisions.

They add value not through networking effects or speedy and secure transactions, but more through the number of integrations they offer. The more things they integrate with, the more efficiencies their clients can achieve. Zapier is an integration engine and a great example of this. They offer integrations with tons of computer software like Gmail and Salesforce, automating processes that would traditionally be completed manually.

Generally speaking, software platforms are positioned as subscription-based software as a service (SaaS) businesses, facilitating recurring revenues for the producer that enables significant future product development and investment. And for clients:

  • Platforms create integration that makes sharing data across systems faster and easier
  • The more data that is shared, the better off everyone is (this is called a networking effect and it’s a whole other story).

3 reason SMEs should platform-ize ASAP

1. They can save buckets of money

Platform products, while they can exist on-prem or in a hybrid format, are usually cloud-based. This means that:

  • Implementation costs are lower
  • There are no high up-front fees
  • SMEs don’t have to invest in expensive hardware
  • SMEs don’t have to maintain any hardware.

The result is an implementation that might run you $1,000 total, rather than the $10,000 the IBMs of the world need just to get out of bed in the morning.

2. Platforms provide data sharing without the pricey product bundle

A recurring problem for SMEs is that they’re unable to use the best-in-class software because it’s bundled up in extremely robust but extremely expensive software products. SAP, IBM, Oracle, PLC, Siemens — they all have brilliant solutions. They’re just priced out of reach for lots of SMEs.

The fact is, major enterprises are going to continue to use the software they use. IBM, despite years of declining revenue, isn’t going anywhere.

Smaller organizations have to deal with that. But there are staggering benefits to sharing information with end-sellers (e.g. the consumer brands we all know, like Ford, Apple, or Boeing) as well as getting information back from end-users to design and production processes further up the value chain.

Cloud-based platforms let SMEs use best-in-class technology and completely integrate their processes both up and down the supply chain, without costly IT bills.

Information facilitatation empowers suppliers to:

  • Iterate and innovate faster
  • Reduce time to market
  • Troubleshoot and solve design challenges quicker
  • Reduce production bottlenecks.

What’s more, investing in a platform that’s only as useful as it’s latest integration future-proofs SMEs against new innovations by partnering with a company that’s incentivized to stay on top of industry changes.

For instance, imagine that you were in the auto supply chain, and a major car manufacturer and client decided to switch CAD systems. If you’ve just invested $10,000 in a software system that doesn’t work with the new CAD, you’re scuppered.

But if you’re using a platform, the platform providers have every incentive to work with this new file format, and will probably push an update to guarantee compatibility so you could continue to work uninterrupted.

3. Platforms enable stakeholder engagement

Easy access to data helps auxiliary business areas like sales and marketing, product iteration, procurement, inventory, and warehousing to contribute to core business practices without taking precious engineering or designers’ time to include them. And because software platforms regularly work on a SaaS model, each additional license is cheap. It means that the sales team can have a license and thus, far better access to business data.

For instance, imagine you make the metal casing for cell phones, and you’ve got the contract to build the latest iPhone case. Your sales team might want to demonstrate that fact to new leads and ask you for screenshots they can put in their deck. Without an integrated platform, they either:

  1. Need an expensive CAD license that they only use for taking screenshots, or
  2. Need to bug some engineer to help them. Engineers that bill out at $42 p/hour on average.

A platform means they can get this information themselves, making data more accessible to all areas of a business and speeding up processes for significant savings over time.

Bullet point summary

  • Platformization is when a company builds the marketplace where transactions happen. Software platformization is when a company builds a tool that lets lots of other software communicate and share data across systems and up and down a value chain.
  • Because platforms rely on fast and easy integrations, they’re usually cloud-based and based on Software-as-a-Service business models,  which means that they have a number of advantages over traditional, expensive software deployments.
  • SMEs can achieve significant cost savings by opting for platform products due to low implementation costs, low user costs, and continuous updates.
  • Platforms guarantee best-in-class software while future-proofing SMEs against new technological advancement.
  • Platforms provide primary and auxiliary users insight into technical product files for an extremely low cost.

Image credit:  Offshore oil rig at dusk via Photoeverywhere.