With almost every industry innovator, disruptor, and unicorn we’ve seen to date, there’s usually one common thread to their stories: a digital platform. Facebook, Netflix, Uber, Amazon, the list goes on. According to Gartner, a digital platform can “range from high-level platforms that enable a platform business model to low-level platforms that provide a collection of business and/or technology capabilities that other products or services consume to deliver their own business capabilities.”
A recent McKinsey Quarterly article looks at how digital platforms have enabled digital native companies to generate billions in revenue, as well as what incumbent players are doing to compete in a world where “platforms beat products.” McKinsey specifically looked at how new and incumbent companies design winning strategies for digital platforms. The firm surveyed 1,600 C-Suite executives across a range of industries and geographies, looking at both digital platforms and ecosystem approaches.
There’s good news for incumbent players. While there’s little debate that digital platforms are a core part of many businesses today, the survey results show that the types of digital platforms in use vary, including build-your-own, third-party platforms, and industry-specific platforms. With more choices, incumbent players have an easier and faster path to harnessing digital platforms to transform their business. While traditional players like Nike and Unilever have launched their own digital platforms, the McKinsey survey found that incumbents are half as likely to build their own compared to digital natives. Rather, sixty-one percent of incumbent companies said they take advantage of third-party platforms.
When it comes to the reasons why enterprises are embracing digital platforms—whether digital native or incumbent—survey respondents cited “network and scale effects, in tandem with the desire to secure end-to-end digital services.” In fact, the number one reason that companies deploy digital platforms is to bring together individual services into a full-service offering, and the number two reason is the ability to reach more customers across a broader base.
McKinsey’s research also found that performance gains were a key outcome of digital platforms—whether build-your-own or using a third party. According to the article, “Companies with (digital) platforms had an annual boost in earnings before interest and taxes (EBIT) of 1.4 percent, compared with the 0.3 percent gains of non-players.”
Finally, it may surprise you that the McKinsey research found that digital platforms were changing the nature of competition with incumbent players more likely to cooperate with each other and participate in global platforms to advance their business or industries. This is being helped by the increasing use of open-source platforms, and “cooperative” data sharing.
To get more strategic guidance on digital platforms and the right approach for your company, see the complete McKinsey Quarterly article.