How companies can transform from product to platform ecosystem

Abstract

The industrial revolution led to great innovations in machinery, methods and techniques for producing goods at a large scale. In order to compete and maximize their profits, companies primarily deployed a twofold strategy: generate high demand for the product being sold by spending heavily on marketing and optimize the production of goods to improve efficiency and reduce costs. This approach is often referred to as the linear product development business model. A big limitation with this linear business model is that over time, market for the product gets saturated and further optimization of already efficient processes gives diminishing returns. With the advent of internet in the early 21st century, companies with new business models evolved that leveraged the power of connectivity and ease of distribution to look beyond the traditional linear product development model. These new internet based companies were able to target multi-sided market, where instead of being producers of a product, they provided infrastructure for the producers and consumers to interact with each other and do transactions using their infrastructure. Such businesses are often referred as being platform business models. A big advantage with the platform based business model is that they are able to grow exponentially. The more producers and consumers they attract, the greater is their appeal to other potential customers and producers. Most present-day product companies, especially in the physical hardware space, are still following the traditional linear product development business model and are not fully taking the advantage of the widespread availability of internet. The primary goal of this thesis is to demonstrate how traditional product companies can leverage the power of digital economy and platform business models to transform themselves into a hybrid solution of product platforms or ecosystems.