How AI Accelerates Five Fundamental Business Shifts
We have witnessed digital disruption in the tech, retail, travel, and media sectors in the past decades. During 2024, this will accelerate and extend into other sectors, largely because of the exponential growth in AI capabilities. It will force us to rethink the organization as we know it.
Most companies are still based on the Product pipeline model, which originated about a hundred years back when Henry Ford introduced assembly lines, functional decomposition, and distribution. These companies follow a slow linear process of creating, marketing, selling, and delivering their products or services to customers. Their propositions are articulated in terms of features, functions, and price. Control and efficiency of the value chain and optimization of sales transactions drive performance.
At the other end of the spectrum, there are Platform companies that create value by connecting users and service providers and facilitating meaningful interactions among them. They put the (lifetime) value of the services for the user at the forefront. They orchestrate networks in an ecosystem rather than controlling a specific value chain. AI is critical in these models, as it enables continuous feedback and allows experimentation to dynamically optimize the flow, user experience, and value propositions. Seven out of the top ten companies measured in market capitalization are platform companies (Meta, Alpha, Amazon, Microsoft, Tesla, NVDIA).
The shift from a product pipeline to a platform model involves a fundamental change in how a company operates, delivers value, and interacts with its customers and partners. As we peel back the layers, we uncover shifts that are as fundamental as they are revolutionary. This blog explores each shift, providing insight and examples to help illuminate the path forward for businesses ready to embrace the inevitable forces of change.
1. From Products to Platforms: Building Engaging Ecosystems
Platforms like Apple's iOS and Google's Android have transformed how we think about products. They don't just sell a device; they offer a gateway to an ecosystem of apps and services. These platforms become more valuable as more users and producers (developers) join the network, creating a virtuous cycle of growth and innovation.
Amazon's evolution from an online bookstore to a platform that hosts a vast marketplace is a classic example. By offering adjacent services such as AWS and Prime Video, Amazon has become indispensable to customers and businesses, creating a platform that scales horizontally across sectors and markets. Over fifty percent of all purchases on Amazon are based on recommendations generated by its AI algorithms, which connect customers, products, purchases, events, and places—and their relationships.
2. From Zero-sum to Abundance: Capitalizing on Infinite Opportunities
Product pipeline companies satisfy existing (implicit or explicit) user needs worth fulfilling. Therefore, they believe they are operating in a finite market. “Either I serve the customer, or someone else will.” Business is, therefore, a zero-sum game. It is about control and competition – win or lose. Success comes from controlling a market with the best product. This also explains why war metaphors, like “rallying the troops to beat competition” are so popular.
This differs from Cloud-based services and data, which can be endlessly shared at very low distribution cost. Platform companies live under the opposite premise: when data and consumer insights accumulate exponentially, there must be an abundance of new, emerging needs and value propositions waiting for us to discover, implying an infinite game. Here, the rules are about more than competing with peers to satisfy a need. It is about finding and collaborating with the best to capitalize on these opportunities. Generative AI capabilities that boost productivity are becoming abundant and will enable deeper connections.
Salesforce exemplifies this shift with its CRM platform. By constantly adding new features and integrating AI to anticipate customer needs, Salesforce demonstrates that the key to success is not controlling a finite market but capitalizing on the digital landscape's infinite possibilities. Notion was one of the first to integrate ChatGPT, and it’s on its way to becoming “the organize everything for everyone” tool. Tesla's over-the-air updates illustrate how a company can continue to add value after the sale, ensuring that their vehicles improve with time (largely by better algorithms), leading to a perception of abundance and added value over the product's lifetime.
These shifts are not mere changes in strategy. They represent a tectonic movement on the foundations upon which businesses are built.
3. From Hardware to Software: The Intangible Edge with Software at the core.
Hardware product companies come from the mechanical world. They typically apply software to create features that sell more hardware. In contrast, Platform companies believe that data is critical for insights so that customer needs can be understood, influenced, and evolved. These needs are seen as infinite, and the fastest way to create the most extensive data platform and personalized services is through easy-to-access-and-consume software services (SaaS). The ‘perpetuum mobile’ that generates service opportunities of ever-increasing data sets and ever-evolving insights has an insatiable hunger for collecting and creating new data and insights. Hardware is considered a gateway to new data, and software is the primary means to deliver new functionality and engage through personalized services that create value for users and producers alike. Hardware becomes an enclosure for software and data, and AI will be the engine for new functionality.
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As Elon Musk posted on X: “The Tesla software team is excellent even when compared to the best software companies. This is a big deal, as cars are very much computers on wheels.” Microsoft's pivot from selling software licenses to offering cloud-based subscriptions via Office 365 exemplifies this shift. The focus on cloud software allows for rapid innovation, personalization, and cross-platform functionality, making the tangible aspects of technology (the hardware) less significant than the services it enables. Adobe's transition from selling boxed software to providing its Creative Suite via a subscription model demonstrates the power of software as a service. This model ensures a constant and predictable revenue stream while providing users with the latest updates and features.
4. From Transactions to Interactions: Creating Customer Journeys
The shift from one-off transactions to ongoing interactions is about building relationships. For example, subscription models for software (Microsoft, Notion, Salesforce), media (Netflix, Youtube), and consumer goods (Amazon Prime) show that continuous engagement leads to greater lifetime value than singular product sales. AI will allow these companies to better understand and address the evolving needs of their users.
Netflix's recommendation engine is an example of leveraging user interactions. By analyzing viewing habits, Netflix improves the user experience and gains valuable insights into content production and acquisition strategies.
5. From Supply Chains to Collaborative Ecosystems: The Power of Synergy
A product company aims to control the value chain from raw materials to products and channels, ensuring maximum value capture in the zero-sum world. Building supply chains that you can control and allow you to reach as many customers as possible ensures maximum transaction volume and profit. Automotive companies have very complex supply chains with thousands of suppliers, managed with inflexible arrangements.
Platform companies don’t need to control the supply chain, as products and transactions are not the essence of their success. They want to control user engagement, the data, and the service delivery platform. They orchestrate supply and optimize the stack. That drives their economic model, and therefore, other companies are not the ‘enemy’ fighting for the same dime but potential partners in addressing unique user needs. The more and the better the partners that feed into the platform, the more compelling the user engagement. The more data, the more new partners, the higher the value for the user. AI will be key in connecting ecosystem participants by better matching demand and supply, automated integration, and flow optimization.
Apple's App Store is a clear representation of this shift. By creating a platform that allows developers to contribute and benefit from the ecosystem, Apple has built a thriving community that continually enhances the value of its core product offering. The rise of open-source software platforms like GitHub showcases how collaboration can lead to robust ecosystems. Microsoft’s acquisition of GitHub aligns with its strategy to support and integrate into a larger community of developers, thus driving innovation. This has gone into overdrive with copilot, allowing for dramatic productivity improvement of software development, testing, and maintenance.
Conclusion: The Leadership Challenge
These shifts are not mere changes in strategy. They represent a tectonic movement on the foundations upon which businesses are built. Leaders must now look beyond traditional management practices and redefine what success means in a world that favors networks over hierarchies, speed over analysis, collaboration over control, and ecosystems over silos.
The journey to this new business frontier is fraught with challenges but rich with opportunity. Those willing to embrace these shifts and transform accordingly will find themselves at the forefront of a new era of innovation and customer delight. More on the leadership challenge in my next blog.
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Fascinating Jeroen Tas! Thanks. I do wonder though if traditional firms can make the shift from product to platform thinking and approach because investors expect short term optimization and results from product run firms vs more growth from platform players?! Your thoughts?
strategisch adviseur wonen at Gemeente Leeuwarden | stadmaker | gastdocent | urbanism | city lover | redacteur Rooilijn.nl
10moFrank Suurenbroek
partner/consultant Newways.dev, CGO TechEazed
10moPeter Groothuis Almir Kulla Anxhela Kosta, PhD(c)
Voorzitter digitale zorg VVD, Zorginnovator Chipsoft HIX Obst/Gyn, Early Adopter, Social Influencer, Medisch generalist (Gynaecoloog & Obstetricus), Liberaal 🇪🇺
10moJeroen Tas Thank you for an insightful presentation today. In healthcare, with artificial intelligence a complete alteration of care and cure will be taken place. Old dogma’s will be overrun and responsibility for quality of care will be reshuffled. Where computers and robotics will be taking over, the most important thing will be the judiciary responsibilities. But with these exiting changes great possibilities of new and better therapies and prevention options will be up a head! Digitization will help be better for more people
Coach for business excellence and growth | SW & HW | Systems | Cyber | Platform | Enterprise
10moPlatform = industry & market . . . . ... its sad that EU has no actions nor focus on accelerating sovereign market & industry evolution. EU fails big time at annual outsourcing cost of over 1000 miljard euros while lacking predictive platform and cyber capabilities. AI is yet on other tiny sexy feature on top of massive infrastructure. Take a look where the tech industry is really focusing ...