Platforms as Enterprise part 2

The “Advertising Platform” stands front and center in the minds of most individuals because of its ability to “mine” the data of the users without compensation and to monetize that information in the form of selling access for marketing purposes, sale of goods or services, and the ability to influence decisions in the social and political arenas. At the present time, that business model for the platforms such as Facebook, and the abuse of the information in areas such as politics are close coupled in that the ability to curtail the misuse potentially impacts on both the bottom line and the value of the platform itself as an investment.

With the increasing capabilities of artificial intelligence and the increasing size of the database, there is discussion around the possibilities that selectively extracting and analyzing may not curb the abuse. The issues here have yet to be fully plumbed from a number of social/cultural, legal and application perspectives. What remains problematic, as noted previously, is that such accumulation of data from a variety of sources, including the increasing ability to “infer” connections, currently, can increase the complexity of the issues now on the table.

These issues bleed into the other types of platforms perhaps of greater interest to industrial, commercial and government sectors. Product platforms focus on the consumer and business sectors. Originally, they were used to market goods if we think Amazon, which started with books. Amazon then expanded as a platform for marketing “store fronts” for almost all commodities and services to those on advertising platforms. Alibaba, a China based product platform has a major focus on commercial/industrial products and services. It is clear that these platforms also are able to extract user data from those who visit these sites in a manner similar to the advertising platforms with potentially similar consequences.

The other, perhaps, more critical impact of product platforms is the shift from sale of products as commodities to products as service. One of the oft-cited examples is the aircraft engine. With advanced sensors, manufacturers are able to monitor these engines under operating conditions and to add other data such the plethora of information captured in the “black boxes” on commercial aircraft. Tracking performance and maintenance information, the manufacturers now sell performance to the airlines as a service rather than selling the engines in a one time marginal sale. The actual the aircraft comes in for routine service and leaves, perhaps with a tuned or even replaced engine with the performance warrantied by the manufacturer.

This is a program now being provided to consumers of automobiles. Rather than buying a vehicle or leasing, the consumer pays for the performance of the entire system, from the dashboard to the power train. Often the consumer has options when to upgrade or exchange for a different model.

Whether these are “big ticket” and complex items such as aircraft or low cost items such as computers or even software (consider Microsoft’s operating system), for manufacturers it creates a reliable, subscription type of income. The latter is more familiar when one understands that Google partnered with Samsung on the development and roll out of the Android operating system for smart phones, including the “play store” designed to counter Apple’s “iPhone” and applications store. Microsoft was late to the market because of its focus on hardware and missed the shift to the computer in the pocket, the smart phone.

From the end user, whether it is thrust and engine performance or continually upgraded and serviced software, the need to worry about asset depreciation, new or outdated equipment and software is minimized; it’s a convenience. But, as with the advertising platforms, there are downsides.

These subscriptions create what has been termed “lock-ins” for the end users. The inertia required to untangle the relationship with an end-to-end provider can rise with the complexity of the product/service agreement. The profitability to the manufacturer is higher with the addition of the service component in providing the convenience to the consumer. Switching, whether it’s an engine, a car or computer to another manufacturer may be more complex.

Built into these costs is what is now being termed “financialization”, an increasing portion of the income of corporations and a line item in the GDP of countries. Basically, it’s making money on money and is one of the reasons that highly profitable companies, many in the “tech” industry, have substantial financial assets siting in global investment accounts bringing a greater return than investment in new products.

Lean platforms are another example where the enterprise is designed to eliminate either owning or marketing physical assets. Amazon’s “Mechanical Turk” (AMT) brokers talent to solve problems for clients, much like the traditional employment agency where they take a portion of the revenue earned for the service provided.

What is interesting here is that international rules and regulations have allowed for free flow of capital across geo/political boundaries but cross boarder migration of labor to be restricted by country policies. With systems such as AMT knowledge and talent flows similar to capital. With the rise of technology such as 3D printing, factory production could similarly be worker controlled virtually. With AI/VR operation of vehicles, as we see with the use of drones, much that had required a physical presence becomes virtual.

Amazon’s business model involves all the basic platforms, from cloud computing with AWS, Amazon Web Service, to product and lean platforms. What remains unclear is Amazon’s re-entry into the operation of fixed assets as we see with its opening of a bookstore, purchase of Whole Foods, the creation of Amazon Go and acquiring its own fleet of planes and vehicles to deliver products. It is also of interest to understand its creation of a second campus or what it, with partners, plans to provide in its proposed venture in health care services.

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