Three Lessons From Germany’s Platform Economy

Platform markets are suddenly all the rage with B2B companies. And for good reason.

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An MIT SMR initiative exploring how technology is reshaping the practice of management.
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The rise of disruptive platforms like Alibaba, Airbnb, and Uber — coupled with Beijing’s Made in China 2025 plan to transform its manufacturing sector into a global high-tech leader — has forced industrial companies to rethink longstanding business models. In B2B markets across the world, companies are now looking beyond just selling products and are building platforms that enable others — including their customers, suppliers, and partners — to create value.

This shift in strategic thinking is significant, especially for companies with 100-year legacies making a product and then controlling the pipeline that delivers that product. But as B2B offerings become ever more commoditized, platforms offer a way to diversify and avoid becoming obsolete. Platforms can generate new revenue streams even after a product is sold, in the form of data-fueled “smart” services.

To better understand this new competitive reality for B2B companies and discover best practices, we studied one geographic market with leading global B2B companies — Germany. We looked at the top 370 companies in that country, by revenue, and found that more than half are taking advantage of platform business models. The bulk of those business models have either a B2B focus or a dual B2B/B2C focus, with many centered on the industrial internet of things (IoT).

These initial findings seemed impressive at first glance. But upon closer inspection, we discovered that many companies are actually discounting the power of network effects — the theory that the more platform participants, the greater the value produced. In fact, only 16% of the platforms we studied in Germany are being run as open, networked ecosystems that connect multiple players. The rest are either one-sided — that is, serving only one user category, such as a mobile app-powered network of electric-vehicle charging stations that only serve electric-vehicle drivers — or closed, meaning, walled off from third-party software developers; some are both.

Platforms that are one-sided or closed greatly limit their network effects. Take Amazon — the tech giant started off as one-sided (selling its own products to customers) and closed (developing its own software), but has become an open, multisided platform. Amazon now connects buyers with third-party sellers while also permitting third-party developers. This is a classic case of maximizing network effects: Platforms become more useful as other people also use the platform.

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Topics

Frontiers

An MIT SMR initiative exploring how technology is reshaping the practice of management.
See All Articles in This Section

Acknowledgments

Special thanks to Dave Light, Paul Barbagallo, Christopher Sampson, and Shiva Adari for their contributions to this article.

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Comment (1)
Armand Syeed
For progressives, the narrative on the digital economy should be clear: they must embrace digital technology to boost growth, increase productivity and employment and change labor law and social protection rules where necessary. But taking a look across the European political landscape shows that in most countries the center-left mostly offers rhetoric, not reality, and often not even that. In particular, on the issues of labor law and social protection, one of the natural habitats of the left, there are hardly any answers on the table as to how some of the most dynamic and innovative but at the same time disruptive businesses can be integrated with Europe’s economic and social structure.