It seems that in the ever-changing world of technology, a new buzz-phrase does the rounds every 5 seconds. Whether it be ‘Big Data’ or ‘Digital Transformation’, these themes have their moment in the spotlight at various industry events, and are then systematically stored away alongside those blueprints for the garden shed and that dream of sorting your sock drawer as ‘nice ideas’, and we return to business as usual.
From what I’m seeing in the market, this year’s hot topic could well be ‘Platforms and Ecosystems’. I want to start with the premise that – unlike many other technology hypes – these ideas are not only here to stay, but are in fact essential for businesses to consider if they are going to survive in an increasingly competitive market place. I hope that as I explain my rationale, you might be persuaded to agree with me.
Let me start with a question: what do Amazon, Uber, AirBnB, Apple and Salesforce all have in common? Once we look past their status as technological giants, there is a more subtle but perhaps more useful similarity which is symptomatic of the rapidly changing business landscape; they all operate the same core business model.
This initially seems counter-intuitive: aren’t the sources of revenue for Uber (taxi rides) completely different to AirBnB (accommodation bookings)? Well actually, no. These companies in essence generate their revenue in the exact same way – they operate as a marketplace, bringing producers and consumers together. They don’t own the assets, they own the environment in which other agent’s assets are exchanged; this is known as the Platform Business Model.
The Platform Business Model in theory
The Platform Business Model is nothing new; it’s been around for as long as businesses have existed. Think of the land owner who rents out their land to market traders and creates paths and walkways for pedestrians to access. This is a platform – an environment that brings together producers and consumers to exchange value.
Consider the diagram:
The Platform Owner’s role is merely to provide the ‘lego bricks’ upon which Producers can create offerings and distribute them to their Consumers.
If you consider Apple as the Platform Owner and the iOS operating system is the Platform upon which Producers (software developers) can create apps and distribute them to Consumers (phone users), via the mobile phone interface which is created by the Providers: in this case, Apple’s phone manufacturing unit.
Platform Owners make their money by facilitating value exchanging interactions between economic agents and charging a usage fee to some or all of these participants. When you buy an app from the app store, a percentage of this fee will be paid to Apple. As is often the case, the access for one side of the exchange is subsidised by the other – it is free to set up an Apple account and begin purchasing apps.
The Network Effect
Sectors where Platforms are prominent tend to have a runaway leader, often operating as a monopoly. For example, Alibaba, a Chinese e-commerce platform, facilitates 75% of Chinese internet purchases whilst Google accounts for 94% of mobile searches globally.
This trend occurs because of a phenomenon known as ‘The Network Effect’. Platforms experience demand-side economies of scale; that is that as the number of participants in a network grows, the greater the value of being part of said ecosystem, because the matches between supply and demand increase. If we consider our Apple App Store example again, as more app developers access the platform there becomes a wider breadth of applications for consumers to choose from. This then encourages more consumers to become part of the network which in turn increases the demand for apps and thus encourages more app developers to enter the network in order to access the expanding pool of consumers. And on and on the upward spiral goes. As such, it is perfectly conceivable that in any given market there might only be one winner.
Businesses cannot simply enter a Platform-dominated market and expect to compete on an asset vs asset basis. It is not a matter of ‘who has the best platform?’ No, success is dependent upon who has the largest network. This makes entry into a market incredibly difficult, as the disruptor would need to displace an incumbent whose value is in the size of the network that, by definition, the newcomer does not possess.
Interestingly, what we are seeing is those that have an existing Platform Ecosystem moving into other markets that are currently dominated by one Platform. Think of Apple entering the music streaming market; they are leveraging their existing network in order to compete with Spotify. The same with Amazon looking to displace Netflix.
Platforms in business?
Whilst this is all very interesting (or at least I think it is!), how does this apply to businesses? Most of the examples I’ve highlighted are B2C companies. It is perhaps harder to imagine how platforms can thrive in the B2B world; but I am convinced that they can.
Recently I attended an InsTech London event, headlined ‘Emerging Ecosystems and Platforms for Insurance’. A clear example of the Platform Business Model was highlighted by speakers from Salesforce and their industry-related partners. Salesforce offer a CRM-based platform, which provides all of the back-office functions. On top of this core functionality, apps can be built. Low-code tools within the Application Layer allow internal users to create pages and responsive apps by simply dragging and dropping. These apps, data, and business processes can then be extended to external stakeholders via Salesforce’s user interface. Equally, external developers can create industry-specific applications which can then be purchased as Add-ons, extending the capabilities available to the end user.
To put it simply, Salesforce provides a Platform that allows internal and external app developers to deliver their products to users of the Salesforce CRM system, all via a standardised user interface.
SSP is seeing this trend in the insurance market. Clients’ demands are expanding beyond simply a core Policy Administration System. Insurers and brokers need an ecosystem of technology capabilities providing a wealth of capabilities to the user. For example, we are seeing clients combining SSP’s sophisticated pricing tool with third party data sources and another vendor’s user interface to deliver an award-winning customer buying journey.
Gartner “Declining Business Value of the Traditional Insurance Core System Across the Five Eras of Insurance Business Model Evolution”
According to Gartner’s Insurance Core Systems Will Be Reduced to Record Keepers by 2030 report, “recent Gartner research has mapped out the new business models that are likely to emerge in the next 10 to 15 years. In this research, Gartner identified five eras of business models that will become prevalent in the market. With each of these models, the core system has a different role and a business value for the organization. Today (or in the incumbent or industrialized era where most insurers reside), the core system is very important in its support of market success and competitive differentiation. It houses the corporate and customer data, and drives customer experience value through how it executes transactions. However, with social, technological and economic changes set to create a seismic shift in the insurance industry, the business value of current insurance core systems becomes less as insurance progresses through each era. Figure 1 provides a graphical representation of the declining business value of the insurance core system through the five eras.”
According to Gartner, the Invisible Era on the Declining Business Value of the Traditional Insurance Core System Across the Five Eras of Insurance Business Model Evolution model is defined as follows “Invisible (focuses on simplifying the customer experience such that insurance products and services are invisible — and, therefore, automated and embedded — for the customer through partners’ products, the IoT and other strategies). Insurance core systems will be the source of product definitions and regulatory reporting as strategic value is completely moved to new business applications and platforms.”
Source: Gartner “Insurance Core Systems Will Be Reduced to Record Keepers by 2030,” Sham Gill, Kimberly Harris-Ferrante, 4 October 2019
The SSP Model
SSP has been providing insurance technology for over 30 years and over that time we have seen the requirements of insurers change dramatically. We have shifted our focus from being a core insurance system vendor to providing a digital insurance platform, providing the basis upon which an insurer can build their ecosystem of technology capabilities.
The SSP Digital Insurance Platform operates as a platform in two distinct ways. Firstly, the SSP solution is designed to give the business user the power to configure the system to match their bespoke needs. In order to achieve this, SSP has developed a wizard-based interface upon which business users can configure various items including document templates, workflow processes, insurance products, pricing and rating rules and online web journeys. These applications of the system are then made available via a modern user interface to the end users – be they internal staff, brokers or policyholders.
The second way in which the solution acts as a platform results from the network of suppliers included as standard. SSP has specifically chosen a range of pre-integrated, best-of-breed components which provide a wide breadth of capabilities. Functionality made available through this ecosystem of partners includes Policy Administration, Pricing and Underwriting, Document Management, Data Analytics and Digital User Interfaces. By pre-selecting these technology partners and building the platform with open architecture – in order to facilitate integration with other suppliers that the insurer might want to work with – the SSP Digital Insurance Platform forms the foundations upon which an insurance carrier can build up their digital ecosystem over time.
We believe this approach has the power to completely turn the insurance business model on its head. As it did with the taxi industry. And the film rental sector. And the music market.
Are you ready for the Platform revolution?
For more information about anything covered in this article, please click here to contact me and I’d be delighted to chat further.
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