Platforms, a business model

Platform scale

Platform Scale (n): Business scale powered by the ability to leverage and orchestrate a global connected ecosystem of producers and consumers toward efficient value creation and exchange.

The new hype on business models is around platforms. Well, this is not new, a decade ago David Evans wrote Catalyst Code but its impact was limited. Now "Platform scale" and "Platform revolution" are the two required business books. If you want to understand the economic foundations go to "Platform Economics".
The topic requires more elaboration than a post in a blog. How this trend affects health care in practice remains to be seen.

The Platform Manifesto
1. The ecosystem is the new warehouse
2. The ecosystem is also the new supply chain
3. The network effect is the new driver for scale
4. Data is the new dollar
5. Community management is the new human resources management
6. Liquidity management is the new inventory control
7. Curation and reputation are the new quality control
8. User journeys are the new sales funnels
9. Distribution is the new destination
10. Behavior design is the new loyalty program
11. Data science is the new business process optimization
12. Social feedback is the new sales commission
13. Algorithms are the new decision makers
14. Real-time customization is the new market research
15. Plug-and-play is the new business development
16. The invisible hand is the new iron fist

 The book

Platforms, a business model (2)

A long long time ago Michael Porter wrote Competitive Strategy a book that has been used as the bible of strategy.

Porter’s model identifies five forces that affect the strategic position of a particular business: the threat of new entrants to the market, the threat of substitute products or services, the bargaining power of customers, the bargaining power of suppliers, and the intensity of competitive rivalry in the industry. The goal of strategy is to control these five forces in such a way as to build a moat around the business and thereby render it unassailable.
Thus, when a firm can erect barriers to entry, it can keep competitors out, and entrants with substitute products cannot storm the castle. When a firm can subjugate suppliers, competition among them weakens their bargaining power so the firm can keep its costs low. When a firm can subjugate buyers by keeping them relatively small, disunited, and powerless, the firm can keep its prices high.
In this model, the firm maximizes profits by avoiding ruinous competition for itself but encouraging it for everyone else in the value chain. Advantage is found in industry structures that create a protective moat—one that enables the firm to segment markets, differentiate products, control resources, avoid price wars, and defend its profit margins.
For decades, companies have studied the five forces model and used it to guide their decisions about which markets to enter and exit, what mergers or acquisitions to consider, what sorts of product innovation to pursue, and what supply chain strategies to employ.

Now platforms add a new perspective,

Enter platforms. Many of the insights embodied in the five forces, resource-based, and hypercompetition models remain valid, but two new realities are now shaking up the world of strategy.
First, firms that understand how platforms work can now intentionally manipulate network effects to remake markets, not just respond to them. The implicit assumption in traditional business strategy that competition is a zero-sum game is far less applicable in the world of platforms. Rather than re-dividing a pie of more-or-less static size, platform businesses often grow the pie (as, for example, Amazon has done by innovating new models, such as self-publishing and publishing on demand, within the traditional book industry) or create an alternative pie that taps new markets and sources of supply (as Airbnb and Uber have done alongside the traditional hotel and taxi industries). Actively managing network effects changes the shape of markets rather than taking them as fixed.
Second, platforms turn businesses inside out, moving managerial influence from inside to outside the firm’s boundaries. Thus, a firm no longer needs to seize every new opportunity on its own; instead, it can pursue only the best opportunities while helping ecosystem partners seize the others, with all partners sharing the value they jointly create.13
These two new realities add a dramatic layer of complexity to business competition. Platform strategy resembles traditional strategy much the way three-dimensional chess resembles the traditional game.14 Within the ecosystem, the lead firm negotiates dynamic tradeoffs involving competition at three levels: platform against platform, platform against partner, and partner against partner.

These are excerpts from the book "Platform revolution" a must read if you want to understand what's going on in value creation in a connected world. In chapter 12 you'll find some comments on health sector, very succint and general.

Multisided platforms as monopolists

MODERN MONOPOLIES: What It Takes to Dominate the 21st-Century Economy

Platform business is the hottest topic in organizational economics. Linear business  considered as a traditional value chain is exactly the opposite of the economics of platforms. Two years ago I explained in several posts the emergence of this model. In 2004 Tirole and Rochet defined the network externalities that emerged from multisided platforms. Nowadays it is the hottest topic and a new book explains the consequences.

The secret to tech companies’ success lies not in the tech, but in it’s business model. A platform, by definition, creates value by facilitating an exchange between two or more interdependent groups. So, rather than making things, they simply connect people. The book helps you understand what made these companies so successful, how to tell a good platform from the bad, and how you could build one too

And by definition, platforms are the new modern monopolies different from the ones we have known.

Although monopolies get a bad rap, they’re not always a bad thing. In the short term, modern monopolies are often a boon to consumers. They bring valuable new inventions to market, and, in the case of platforms, they build new communities and markets that would not exist otherwise. The downside comes much later, as the monopolist ages and starts to crowd out potential new competitors without delivering new value.

Today Amazon is the most valuable company in the world. That's it. Let's wait for the downside. It may be too late to react. Regulators should read today Jean Tirole and apply his recommendations.

PS. Go to the conclusion and you'll find this statement:

So where should you be looking to next? Well, there are a few industries where the three factors are starting to converge
The first industry is health care, which we’ve touched on at several points in this book. Here you have platforms connecting doctors and patients in new ways, like Doctor on Demand, Teladoc, and ZocDoc. However, these platforms are just going after the low-hanging fruit. There’s still a tremendous amount of waste and inefficiency in the healthcare sector, especially in the United States. And wherever there’s waste and inefficiency, there’s a platform opportunity. For instance, although they’re relatively popular with casual consumers, wearable health devices are just starting to make their way into formal health care. These devices offer tremendous potential for improving patient wellness. But in order for them to be useful, a platform will need to build a unified network of doctors and patients. Despite the recent entrance of Silicon Valley heavyweights Apple and Google, this market is still wide open.

PS. Four additional useful books on the same topic:

Evans and Schmalensee are the best authors on this subject and this is the recommended book for economists.

A historical perspective on platforms.

A book that connects platforms with other topics of interest.

A management perspective on platforms.

Is there room for healthcare in blockchain? (2)

THE BUSINESS BLOCKCHAIN: Promise, Practice and Application of the Next Internet Technology

Last month I was saying that business strategy à la Porter required a new perspective, the platform view. Beyond that, blockchain represents a potential disruption of current business and information and communication technologies as of today.
My suggestion is to have a look at the crucial book by Mougayar on The Business Blockchain. You'll get a clear understanding that a deep transformation is in process.

Some key concepts from the book:

• How to think holistically about the blockchain as a meta technology, a business model disruptor, and legal/regulatory policies challenger.
• The 10 properties exhibited by the blockchain (beyond its most popular one, as a distributed ledger)
• Blockchains as a new Internet layer, comprised of the new breed of decentralized applications.
• The unbundling of trust and how a new form of trust inserts itself between peer-to-peer relationships, and brings a new level of transparency, trust and truth.
• The rise of New Intermediaries. Just as the Internet replaced some intermediaries, now the blockchain is replacing other intermediaries, while simultaneously creating new ones.
• Industry cases in healthcare, energy and government, including an in-depth review of financial services.
• Practical recommendations for implementing the blockchain within the enterprise.
• The blockchain as the operating system that enables decentralization, and its technological, political and societal implications.
• The birth of a crypto economy that creates its own wealth via new business models, and peer-to-peer transactional relationships between producers and consumers.
• A new flow of value, with the blockchain acting as the digital leveler that moves value across a new variety of markets.
• 47 blockchain predictions about a not-so-distant future, when blockchain technology permeates our world and creates new companies and new services.

Promising contributions to healthcare:

The theory is attractive: publish your medical record safely on the blockchain and be assured that you or an authorized person can access it anywhere in the world. That is what the government of Estonia has done—a good case of blockchain technology in healthcare. Using Guardtime’s large scale keyless data authentication, in combination with a distributed ledger, citizens carry their ID credentials which unlock access to their healthcare records in real-time. From that point forward, the blockchain ensures a clear chain of custody, and it keeps a register of anyone who touches these records, while ensuring that compliance process is maintained.

Other healthcare usages might include:

• Using a combination of multisignature processes and QR codes, we can grant specific access of our medical record or parts of it, to authorized healthcare providers.
• Sharing our patient data in the aggregate, while anonymizing it to ensure privacy is maintained. This is helpful in research, and for comparing similar cases against one another.
• Recording and time-stamping delivery of medical procedures or events, in order to reduce insurance fraud, facilitate compliance and verification of services being rendered.
• Recording the maintenance history of critical pieces of medical equipment, for example, an MRI scanner, providing a permanent audit trail.
• Carrying a secure wallet with our full electronic medical record in it, or our stored DNA, and allowing its access, in case of emergency.
• Verifying provenance on medications, to eliminate illegal drug manufacturing.
• “CaseCoins:” originating specific altcoins that create a cryptocurrency market around solving a particular disease, such as FoldingCoin, a project where participants share their processing power to help cure a disease, and get rewarded with a token asset.

Definitely, this is a key book to understand blockchain and again, there is room for healthcare. Wether the promise will become a reality, it's uncertain today.

Healthcare built around you?

Bezonomics
How Amazon Is Changing Our Lives, and What the World's Companies Are Learning from It

Amazon Care

Atul Gawande departure from Haven, the alliance between Amazon, JP Morgan and Berkshire for developing health services for their workers has created uncertainty about what is really Amazon going to do.
Anyway, if you look at the web you can check what is already doing for their employees: Amazon Care. Here you'll find the FAQS. Up to now everybody was thinking about health goods and businesses that Amazon could provide (details in this report). Right now they have started a pilot of health system that may be developed anywhere. A platform business, that starts slowly with and app and a physicians group.
If you want to undestand what Amazon really means for the economy (and for healthcare) than a new book can provide you some answers: Bezonomics.

The global business world will eventually divide into two camps—those who adopt their own version of Bezonomics, and those who don’t. Alphabet, Facebook, Netflix, Alibaba, JD.com, and Tencent have built huge, powerful businesses based on their ability to collect and analyze data, and keep applying those learnings to make their businesses smarter and their offerings to customers more attractive. In their pursuit of AI-driven technologies such as voice and facial recognition, the Internet of Things, and robotics, they’re creating automated business models that will crush traditional businesses that fail to adapt to this new world. And the emergence of 5G technology, which will replace our current digital networks, will only widen the gap. Experts predict that this next generation of Internet connectivity will be as much as a hundred times faster than today’s web.

The impact that Bezonomics is having on society is just as profound. Some of the big tech companies are sowing discord with fake news, interfering with elections, and violating personal privacy. As Apple CEO Tim Cook put it: “If you’ve built a chaos factory, you can’t dodge responsibility for the chaos.” The global wealth gap has become so out of kilter that politicians in America and Europe have singled out Amazon and other big tech companies for blame. These wealth-creation machines have become so efficient at creating riches for their top employees and shareholders that they’re likely to engender more public outrage and become easy targets for regulators—perhaps in some cases even be broken up.

A must read. In my opinion, what really brings Bezonomics to healthcare is the largest expression of commercialism. In other words, healthcare built around excedent appropriation, not around the patient. If this is so (and Atul Gawande departure is a signal) then we all have to stand up against this model and create value and platforms based on professionalism.

Platforms, a business model (7)

 Platform Business Models. Frameworks, Concepts and Design

Platforms, a business model (4)

 The Digital Platforms Handbook. How to transform any business into a digital platform and thrive in the digital age

Platforms, a business model (3)

 HBR's 10 Must Reads on Platforms and Ecosystems

Previous posts on platforms.

Mazzucato on platforms

This collection of articles includes "Pipelines, Platforms, and the New Rules of Strategy," by Marshall W. Van Alstyne, Geoffrey G. Parker, and Sangeet Paul Choudary; "Strategies for Two-Sided Markets," Thomas R. Eisenmann, Geoffrey Parker, and Marshall W. Van Alstyne; "Finding the Platform in Your Product," by Andrei Hagiu and Elizabeth Altman; "What's Your Google Strategy?," by Andrei Hagiu and David B. Yoffie; "In the Ecosystem Economy, What's Your Strategy? ," by Michael G. Jacobides; "Right Tech, Wrong Time," by Ron Adner and Rahul Kapoor; "Managing Our Hub Economy," by Marco Iansiti and Karim R. Lakhani; "Why Some Platforms Thrive and Others Don't," by Feng Zhu and Marco Iansiti; "Spontaneous Deregulation," by Benjamin Edelman and Damien Geradin; "Alibaba and the Future of Business," by Ming Zeng; and "Fixing Discrimination in Online Marketplaces," by Ray Fisman and Michael Luca.

Why we must not let the tech and drug industry forge the future alone

On the tech industry by Martin Wolf in FT

Selected statements on 7 reasons

What are the economics of these extraordinary valuations? The answer must be monopoly. As of September 30, the book value of Apple’s equity was $134bn, while its market valuation was close to $900bn. The difference has to reflect the expectation of enduring “super-normal” profits. This may not be the product of malign behaviour, but of innovation and economies of scale and scope, including the network externalities that lock in customers. Yet only monopoly could deliver such super-normal profits

How should we think about competition policy for businesses that benefit from such powerful monopoly positions? A question is whether these positions are temporary — as the great Austrian economist, Joseph Schumpeter, with his idea of “creative destruction”, would argue — or lasting. This suggests a host of responses, but one at least seems straightforward. Schumpeter would argue that new entries are a necessary condition for eroding such temporary monopolies. If so, the technology giants should be strongly deterred from buying up their potential competitors. That must be anti-competitive

Yet these enormously profitable businesses are parasitic on the investments in collecting information made by others. At the limit, they will become highly efficient disseminators of non-information. This links to a further point: they can, as we now know, be used by people of ill will for the deliberate dissemination of dangerous falsehoods. These facts raise huge issues.

Finally, the activities in which the technology industry is now engaged — what Andrew McAfee and Erik Brynjolfsson call “machine, platform, crowd” — are going to have a huge impact on our labour markets and, if artificial intelligence continues to advance, on our very place in the world.

What are the implications? They are that our futures are too important to be left to the mercies of the technology industry alone. It has done magical things. Yet nobody elected it master of the universe. Policymakers must get an intellectual grip on what is happening. The time to begin such an effort is now

On a particular drug company, in Project Syndicate:  The Opiate of the Bosses

Business ethics are again making headlines. This time, the focus is on the rapidly escalating opioid crisis that is destroying lives across the United States. While there is plenty of blame to go around, the largest share of the guilt belongs squarely on the shoulders of the major drug companies – Big Pharma.

The cynicism with which pharmaceutical firms have encouraged opioid drug use is appalling. Providing far too little analysis and oversight, they distribute opiates widely, alongside misinformation about how addictive the drugs truly are. Then they entice doctors with inducements and giveaways – including trips, toys, fishing hats, and, in one case, a music CD called “Get in the Swing with OxyContin” (one of the most popular opioids) – to prescribe them.

In 2007, several executives of the parent company of Purdue Pharma, which markets OxyContin, pleaded guilty to misleading doctors, regulators, and patients about the risk of addiction associated with the drug. The company was hit with some $600 million in fines and penalties.

On ecosystems

 ECOSYSTEM EDGE.Sustaining Competitiveness in the Face of Disruption

Selected statements from the book:

Each of the four ways in which the development of an ecosystem can unlock new value—through new product bundles, new customer solutions, new platform economies, and spawning new industries—shares a common characteristic: they require a process by which new customer value is discovered. The new value is not just assembled or delivered from existing elements by following a predetermined blueprint; it has to be identified. Business ecosystems come into their own by facilitating the process of discovery.

Discovering new sources of value requires the three key capabilities that ecosystems excel at: a huge potential for rapid, joint learning and innovation; the ability to harness the capabilities of diverse players and channel them toward a common goal through the leadership of an enlightened company; and the flexibility for continuous reconfiguration in the face of an uncertain, fast-changing environment.

Given these demands, what can you do as an ecosystem leader to catalyze and promote the discovery of new value through your ecosystem strategy?

The rise of ecosystems will also rewrite the rules of competition and strategy as we have come to know them, encapsulated in the seminal work of Michael Porter. The classic cost-leadership strategy based on growing the volume of products and services a company produces to reap economies of scale that drive down costs below competitors, will be replaced. In a world of competing ecosystems, cost advantage will come from aggregating the scale of your entire partner network to spread the fixed costs of investments in everything from design and innovation through to production and distribution. Your ability to reap network economies will become decisive.

As competition between ecosystems grows, rewriting the rules of competition in the process, the demands on ecosystem leaders are only set to increase. The pressure to discover new sources of value for customers and to craft unique and attractive offerings will intensify. Partners will evaluate whether joining an ecosystem can deliver benefits, as well as how one ecosystem’s value proposition compares with that of another network. A potential ecosystem leader’s value proposition to partners will need to be top-notch. In the competition between ecosystems, the speed with which a leader kick-starts a virtuous spiral of cooperation and the rate at which it can scale its ecosystem are both critical. Those that get ahead because of network economies will surge forward in what could easily become a winner-take-all game. However, to sustain the ecosystem leader’s competitive position, the amount of learning and innovation generated by the ecosystem, and its ability to capture that learning, will be critical. Ecosystems that are less productive and efficient will be unable to compete. Mastering the strategies and capabilities we described earlier will become even more essential tomorrow than they are today.

This is the only book that finally provides some clear conceptualisation on ecosystems., as far as I know. 

Platforms, a business model (6)

 Advanced Introduction to Platform Economics

Platforms, a business model (5)

 The Platform Delusion. WHO WINS AND WHO LOSES IN THE AGE OF TECH TITANS

Platforms, a business model (6)

 The Platform Paradox. How Digital Businesses Succeed in an Ever-Changing Global Marketplace