Looking at telecommunication companies (telcos) as an example they have historically thrived on vertical integration, yielding substantial profits. However, their reluctance to transition into platform-based models has resulted in missed opportunities in the realms of the internet and, more critically, digital media. The prevailing culture within telcos still tends to favour vertically integrated solutions, even as external forces are compelling them to undergo structural separation. Their own evolution toward a platform-oriented approach is occurring, albeit at a gradual pace.
I would argue that AI will be a further death knell to vertically integrated business models.
Platform-based models
A platform-based business model is a strategic approach where a company creates and facilitates an ecosystem, often in the form of a digital platform, that connects multiple groups of users, enabling them to interact and transact with each other. Instead of solely producing and selling products or services, the company acts as an intermediary, providing a foundation for others to exchange value. The company becomes in that way a platform that can be used by staff, customers and stakeholders, of course based on strategies controlled by the company. Companies that have been collecting vast amounts of data are well placed to offer platform-based services and are set to benefit significantly of new developments in AI.
As AI is built upon machines learning from huge sums of data, platform companies are in prime position to create new value from this data using AI.
Key characteristics of a platform-based business model include:
- Two-Sided or Multi-Sided Markets: Platforms cater to different user groups, often referred to as “sides.” These sides can include buyers and sellers, service providers and consumers, or any other combination of user types. The platform facilitates interactions between these groups.
- Network Effects: The value of the platform increases as more users join and participate. Network effects create a positive feedback loop where the more users a platform attracts, the more valuable it becomes, attracting even more users.
- Facilitation of Transactions: Platforms enable transactions, whether they involve buying and selling goods, sharing information, or providing and accessing services. The platform often serves as a matchmaker, connecting users based on their needs.
- User-Generated Content or Services: Users actively contribute to the platform by creating content, offering services, or providing feedback. This user-generated content enhances the overall value of the platform.
- Openness and Accessibility: Successful platforms are often open and accessible, allowing third-party developers to create complementary products or services through APIs (Application Programming Interfaces). This expands the platform’s capabilities and offerings.
While the Big Techs have been very successful in creating these platforms. Their platforms are not open systems. If we can create many more platforms across economies we move away from a monopolistic structure to a far more democratic and market driven environment.
Platform-based business models can be highly scalable and adaptable, allowing companies to leverage the network effects and innovations from their ecosystem of users.
These models are also ideally suited to embrace new technologies such as Artificial Intelligence, Mixed Reality, Cloud and Quantum Computing.
Integrating AI into these platform models provides a golden opportunity to explore the feasibility of offering a platform to specific customer segments. By integrating these customers into their business model, they can provide access to their (tailormade industry specific) AI and data systems as a service (Platform as a Service -PaaS), allowing clients to leverage these technologies for their individual needs.
An illustrative example is ReportLinker, the company that recently acquired the research arm of my company, they implemented a platform gathering publicly available data from entities such as the World Bank and the EU. This data was then presented as datasets accessible to customers, enabling them to construct models and generate reports. Considering the advancements in AI since then, the potential opportunities abound.
However, navigating these opportunities requires a well-defined strategic stance, and choosing the right business model becomes paramount. Telcos, in their indecision, find themselves meandering amidst various structures. Notably, vertically integrated structures always remain vulnerable to those advocating disintegration, as evidenced by the successes of tech giants like Google, Facebook, and Amazon.
Vertically integrated companies spend huge amounts of money and effort protecting each layer – however, platforms aim to connect users more directly and eliminate/replace the middlemen, thus disintegrating the vertical layers.
Contrary to telcos, service-oriented companies such as my previous research company appear to be in a different position. Nevertheless, the advent of AI introduces novel business prospects that were previously inconceivable. Looking ahead, the convergence of AI with quantum computing and Mixed Reality (MR), holds immense potential for transformative developments beyond the current horizon. To harness these prospects effectively, a proactive approach to decision-making is crucial, ensuring that companies not only embrace innovation but also clearly define their strategic positioning in an ever-evolving landscape.
Paul Budde
Postscript: Yes, as with any innovation humans have made over the last 100,000 years, these technologies can be used for good or evil. However, through , we have been able to progress mainly on the ‘good’ side. I see these new developments as humans working with technologies, not as us against them (or them against us). A good example is that we don’t call aviation ‘artificial flight’ but simply ‘aviation,’ whereby technology serves us. Of course, we have to be vigilant to ensure that technology is developed for the common good and not for the profits a handful of Big Tech companies.