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Platform Economics

Platform Economics: 10 Opportunities and Risks for Manufacturers

An increase in revenue or a decrease in customer access? New markets or disruption? What platform experts expect in the production industry.

07 Sep. 2017

The internet of things, big data and AI are the enablers of platform economics. Platform economics is reinventing business models within the production sector. Digital platforms make smart service-based business models possible, which in the future, will replace product-oriented business.

The National Academy of Science and Engineering (acatech) conducted a study in which it asked experts of IT platforms for the Smart Service World about the opportunities and risks of platform economics. We present the ten most important industry expectations.

Platform Economics Chancen und Risiken

Platform Economics in Industrie 4.0: The Five Greatest Risks

GAFA is the abbreviation for the collective power of Google, Apple, Facebook and Amazon. Using these businesses as an example, manufacturing companies can learn what they must consider when using a platform model for Industrie 4.0.

1. Loss of customer access: Digital platforms may weaken the ties between customers and manufacturers, as the technology facilitates completely new value-adding structures. New market players, who may also be new to the industry, act as intermediaries by positioning themselves between manufacturers and their customers in the market. This is done by using data platforms on which hardware and smart services can be provided, such as predictive maintenance.

2. Monopolization: As a result of the industry network becoming ever bigger, we are faced with the network effect. This means that an increasing amount of users of an IT platform increases its appeal – something that in turn creates more users. The digital business model of the intermediaries is therefore growing rapidly. When critical mass is reached, the IT platform can establish itself as the de-facto standard in the market, examples being Facebook or WhatsApp.

3. Disruption: If intermediaries succeed in gaining full sovereignty over data and access to end customers, this may cause disruption in conventional markets. At present, successful platform enterprises already possess this type of market power. Some even acquire assets through conventional business. For example, Amazon is now actively involved in parcel shipping.

4. Exchangeability: If an IT platform is the central point of exchange between providers of hardware solutions and their customers, the services of hardware manufacturers can be compared more transparently and easily. For consumers, production companies become replaceable.

5. Decrease in margins: An additional risk for hardware manufacturers is a decrease in margins. Operators of an IT platform can participate in each transaction and consequently retain a share of the profit.

In a nutshell, the core problem is: by using platforms, intermediaries can shift between conventional players and still abide by the rules. Therefore, a new market model is created that puts immense pressure on the existing business models that companies use. They become replaceable exporters and, in the worst case scenario, are driven out.

Platform Economy in Industrie 4.0: The Five Biggest Opportunities

But, even with all of the risks that come with the advancement of platform economics in the production industry, experts believe that the positive predictions from the acatech study will prevail.

1. Revenue increase: IT platforms enable a higher level of scalability for smart services and consequently a rapid growth in revenue.

2. Market access: Using IT platforms, businesses gain access to markets in which they are not yet physically represented. This is an opportunity for SMEs in particular.

3. New market services: IT platforms provide customers with the possibility of new market services, for example, services relating to an existing product, such as a remote maintenance assistant.

4. Focus: When a company offers its own product over a corresponding IT platform, this product can be passed to a partner by services. Just like in an app store for smartphones. Companies can therefore focus on their core business.

5. Understanding of customers: Digital platforms allow data to be gathered and, as a result, customer activity can be analyzed. This makes it possible to understand their needs. This is only achievable when the intermediary does not have sovereignty over this data.

Platform economics promises many benefits. But one message

stressed by the authors of the acatech study is clear: the realization of these benefits lies in the hands of enterprises. They must actively pursue this. Whoever does not act will need to catch up and may find that those who acted first have a level of control over them.

Learn about the digital future at the leading trade fair Digital Factory at HANNOVER MESSE and develop ideas with experts regarding platform strategies for manufacturing companies

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