The Platform Phenomenon

The Correlation Between Business Models and

Technology

UNITY AG

By Christoph Plass
and Prof. Dr.-Ing. Jürgen Gausemeier

June 7, 2017

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The Platform Phenomenon
The Correlation Between Business Models and Technology

By Christoph Plass und Prof. Dr.-Ing. Jürgen Gausemeier

The consumer market has already been transformed – successful platform companies such as
Amazon, Facebook or Google have changed the traditional market and unsettled well-established
companies. We have studied the platform phenomenon intensively and asked ourselves to what
extent this will now become relevant for the industry after the consumer market. In discussions with
various experts, we quickly discovered that two different dimensions of the term are always
considered: Some look at platforms from a business point of view, others look at platforms from a
technical point of view [SSW2015]. However, business models and technologies cannot be
discussed separately for obvious reasons. We have investigated this and have ultimately developed
the Business Model – Technology Portfolio Matrix (Fig.1, Gausemeier/Plass), which illustrates the
correlation of both dimensions [EPR2017].

Figure 1: The Business Model – Technology Portfolio Matrix by Gausemeier/Plass, UNITY

A Brief Description: The Business Model – Technology Portfolio Matrix

The business model dimension – with the distinction between product and service related business
models – is shown on the X axis. Product related business models are often characterized by
physical assets (products or solutions). There is a direct relationship between suppliers and
customers in a traditional sense. In service related business models, new data-based business
models can be developed to create networks.
The technology dimension is displayed on the Y-axis. Here we distinguish between the following
development stages: In the traditional world, there is a clear distinction between information
technology on the office floor (Information Technology, IT) and on the shop floor (Operational
Technology, OT). In the next stage, these systems – triggered by Industrie 4.0 – are now merging

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(IT/OT). This enables networking of the individual company levels as well as cross-company
networking with suppliers and customers, so that for the first time, this stage of development is
referred to as vertical and horizontal integration in the automation pyramid [Pla2016]. The next
development stage is platform technologies. Infrastructure as a Service (IaaS), networked systems
(Cyber-physical Systems, CPS), software-defined platforms (Platform as a Service, PaaS) and
services form the basis for IoT (Internet of Things) platforms.
These two dimensions lead to four fields:
In the field Traditional Business (Industry), infrastructures, IT, processes, and forms of
organization are used according to the automation pyramid. The business model is product- (also in
the sense of service products) or solution-oriented. These are the well-known and well-established
business models that use conventional technologies. In terms of digitalization and automation, all
optimizations are related to value chains and products.
The field Service Provider is assigned to companies that have been offering data-driven services
from existing technologies for years and exhibit certain competences in this field. An example from
this field is the company Datev that offers software solutions and IT services for accountants,
auditors, lawyers and businesses. In addition, there are service providers that have been taking on
tasks in process maintenance of the process industry through analogue technologies for years. They
use data for optimization and offer services that build upon data.
Infrastructure providers that provide data center services with storage capacities can be found in the
field Platform Technology Providers, such as Amazon Web Services (AWS), the leading
international provider of cloud computing. In addition, this includes those Industrie 4.0 technology
providers that enable networked products and systems (CPS). Rapid growth is marked by
companies that develop and offer individual functions for software-defined platforms, e.g. solution
providers for security, payment, reporting, etc. None of these companies creates their own services;
rather they only supply the technologies that are required for those services.
Platform Companies are those that offer services based on IoT technologies and data-driven
business models. An example of this trend can be found in the automotive industry: „Connected
Drive“ from BMW, “car2go” as Daimler’s car-sharing service, the mobility service app “Moovel” and
ultimately the taxi app “Uber” prove the trend from physical assets to data assets. [EPR2017]
Intermediaries are positioned between customers and suppliers/supplier ecosystems. They operate
data platforms and evaluate data in order to develop new business from that data. If intermediaries
are able to achieve data integrity and complete access to end customers, an oligopoly will emerge
first, and then a monopoly. Intermediaries change the competitive arena by moving between
established companies. They determine the rules now and disrupt their competitors’ traditional
business models that will become replaceable. Experience has already shown that platform
companies can further expand their already enormous market power by purchasing assets in
traditional business (e.g. by buying Amazon warehouses) and suppressing other market participants.
Leaps of Innovation in Technologies and Business Models – The S-curve Concept is
Applicable
With continuously developing technology, eventually limits are reached in technical performance.
Figure 2 shows that "the performance of mature technologies cannot be significantly increased by
additional R&D investments. Therefore, changing to an alternative technology should be
considered." [GP2014]. This phenomenon is known as the S-curve concept from technology
development.

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Figure 2: S-curve for technology development according to McKinsey [GP2014]

If we take a look at the development of business models – from products to service, from physical
assets to data assets, from value chains to value networks – it is clear that parallels can be made to
the S-curve concept in technology development. Taking the automotive industry as an example,
companies that attempt to optimize cars through further digitalization efforts in the value chain, or
attempt to make them more efficient, develop and manufacture them less expensively or with
increased performance, or equip cars with more digital functions – will never be capable of creating
a business model similar to Uber. Uber has positioned itself as an intermediary between supplier
and customer, thus changing the competitive arena through its market model. This means that while
solutions and services can still be developed incrementally from products, platform-based business
models can be found on a new S-curve. Even after undertaking tremendous effort to optimize an
“old world” business model, it will not attain the performance level of a platform-based business
model. This finding is essential in order to understand the significance of digital platforms for industry.
When applied to our portfolio (Fig. 1), this means that companies cannot move directly from the
traditional business to the platform company, but they can develop there via the intermediate steps
"service providers" or "platform technology providers."

Strategic Approaches for Companies

We see three strategic approaches for companies in the platform economy (Abb. 3). [EPR2017]

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Figure 3: Three typical strategic paths – located in the Business Model -Technology Portfolio Matrix
A) From traditional business (industry) to service provider to platform company: a service and
knowledge-dominant approach
This path can be understood when looking at AXOOM as an example of a business platform for
TRUMPF in the manufacturing industry. The company has opted for the path using the service
provider field. It is exemplary of many other manufacturing companies that have developed
specialized knowledge in certain areas over a long period and have thus become leaders in their
particular sector. This knowledge is essential for maintaining a market advantage and cannot be lost
to platform technology providers. In practice, this means that companies have to use, in particular,
data analytics, machine learning, artificial intelligence etc. Potentials can be leveraged here by
generating and analyzing data in protected environments. It is important to develop know-how in
core technologies for data generation, transmission and storage.
B) From traditional business to platform technology provider to platform company: platform &
technology dominant approach
The examples of Siemens MindSphere and SAP S/4HANA illustrate the path using the platform
technology providers field. If a company has developed competences to master IoT technologies,
there is a foundation for generating, transferring and storing data streams in trusted environments.
Sensors are used to capture these data, transfer it into the cloud to develop new services based on
the data. Leading platform providers are in a position to transfer and store data very quickly due to
their market volume and standardized data transmission, making the development of data-driven
business models more attractive.
C) Change in the Market Model: Disruption
Companies that master both platform technologies and knowledge-based services will be able to
become platform companies and thus disrupt other market players as intermediaries. Initially, the
disruption may not be noticeable, but it can spread quickly due to the technological scaling made
possible by network effects and can lead to a dominant position. In keeping with our regulatory
system of the social market economy, it is also important to ask which players will become
systemically relevant and for whom the risk of abuse exists. The German Monopolies Commission
approves many cooperations now, as it has recognized that synergies have to be exploited. This is
illustrated by Nokia’s map service "Here," that was purchased by Audi, BMW and Daimler [Fas2015].

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Conclusion: Understand the Correlations and Act Quickly
The Business Model - Technology Portfolio Matrix enables companies to understand correlations in
platform economics, and develop suitable strategies based on this model in order to remain
successful in the future, and not be disrupted by competitors themselves. Companies must ask to
what extent this change in the market model is relevant to them and assess the danger. The impetus
should be to achieve such a market position. The extent to which a company is able to develop the
necessary competences alone, at the required speed is also to be assessed individually. Through
cooperation with other partners, a new ecosystem can be created enabling a platform to be
developed quickly and established in the market.
Literature
[SSW2015] acatech: Smart Service Welt – Umsetzungsempfehlungen für das Zukunftsprojekt Internetbasierte
Dienste für die Wirtschaft – Abschlussbericht (Langversion), p.71
[EPR2017] Engels, G.; Plass, C.; Rammig, F.-J. (ed.): acatech DISKUSSION „IT-Plattformen für die Smart
Service Welt“. Munich 2017. p. 40
[Pla2016] Plass, C.: OPPORTUNITY „Digital Business Processes and Models are Changing the Workplace“
2016. p. 12
[GP2014]: Gausemeier, J.; Plass, C.: Zukunftsorientierte Unternehmensgestaltung, 2nd Edition, p. 133
[Fas2015]: Fasse, M.: „Ein bisschen wie Google werden - Audi, BMW und Daimler kaufen Nokia Here“,
Handelsblatt.com, 2015-08-03; http://www.handelsblatt.com/unternehmen/industrie/audi-bmw-und-daimler-
kaufen-nokia-here-ein-bisschen-wie-google-werden/12138032.html retrieved on 2017-04-12

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