The platform economy describes a central phenomenon of digitalization, according to which companies with platform business models successfully position themselves between suppliers and consumers of goods, thereby significantly reducing transaction costs. Platform companies therefore do not have their own product, but merely organize the exchange of goods or information. However, they control the customer interface and therefore have enormous market power and the potential to generate high profits. A key finding of the platform economy, which is also of great importance in the market for machines and systems, is that the value of information is not highest where it is created (live data of a machine at the operator), but where it can be linked with other information (e.g. comparison of the live data of many machines on a platform to identify error patterns).

Although the topic of IT platforms has basically arrived in companies, the associated need to think in terms of ecosystems has not yet. Companies often still think too much in terms of the product and therefore in terms of conventional business models with a product-centric value proposition. In addition, the term platform itself is used inconsistently and frequently. The following points characterize service platforms:

• Characterization of innovative business models for smart services;
• Collaboration environment in which users have the opportunity to find, purchase and use smart services.

Service platforms are usually operated by

• Machine/plant manufacturers
• component manufacturers
• Factory operators or
• Intermediaries (third parties)

Figure 1: IoT platforms position themselves as intermediaries between machine manufacturers and customers.

© Wieselhuber & Partner

As the platform paradigm becomes established in B2B markets, manufacturing companies and machine manufacturers run the risk of new value creation structures and market models becoming established in their industries. New market participants (some from outside the industry) with a platform approach are pushing their way in as intermediaries between manufacturers and their existing customers(Fig. 1). This has dramatic consequences for the previously established market players:

• Loss of customer access to the new intermediary
• Loss of the previous market-securing position
• Loss of data resulting from machine/service use to the intermediary
• Reduction to the role of pure supplier
• Strengthening of the new intermediary, which is in a position to further increase the benefits for the customer by adding further partners

In addition, an intermediary can reach more customer groups through a less niche-oriented focus and thus benefit from the network effect in order to permanently expand the value of the ecosystem it controls. However, due to the still extremely different requirements of the individual industry segments, it cannot be assumed that industry platforms are defined purely by the number of users. The formation of numerous smaller, segment-oriented platforms is more likely. In these, it is important to reach the majority of players in order to achieve a dominant position.

Connection between technology and business models

Figure 2: In the technology business model portfolio, platforms such as Axxom or Adamos can be found at the top left. These are new companies that are trying to disrupt the market on the basis of data-driven assets.

© Dr. Wieselhuber & Partner (based on Acatech 2017)

New technologies and new business models are the two main areas of change and cannot be considered separately. The technology business model portfolio(Figure 2) shows which strategic approaches and developments exist for companies and which fundamental changes they are facing.

The quadrant at the bottom left stands for classic, product-related business models with a direct relationship between suppliers and buyers of machines. Product-related innovations make the machines both better and more productive and are the obligation of every product manufacturer in order to secure their participation in the market. However, it is not possible to develop the business into another quadrant through such product innovations. Only with service-related innovations and an expansion of the value proposition with hybrid product-service bundles is it possible to develop into a service provider (bottom right quadrant).

In the upper half of the portfolio, the disciplines of IT and machines (production systems) are merging into a networked world (vertical and horizontal integration of the automation pyramid). The top left quadrant stands for platform technology providers such as Amazon Web Services or Siemens Mindsphere with their 'platform as a service offerings'. It also includes companies that offer solutions for software-defined platforms such as payment systems or analytics. They do not offer a service in the machine manufacturer market, but merely the technologies for it. The top right quadrant represents platform companies that generally operate multi-sided platforms and offer new services based on IoT technologies and data-driven business models. The shift from physical assets to data assets is most evident here and at the same time the customer benefit is significantly increased compared to 'old business models'.

Existing platform companies such as Axoom (Trumpf) or Adamos (DMG/Dürr) are already building up and expanding their positioning in the top right segment. It is typical for players in this segment that they are not the established companies in the industry (with physical assets), but new companies that are trying to disrupt the market on the basis of data-driven assets.

A platform company in the role of an intermediary is in a much better starting position to really help the factory operator achieve the greatest possible benefit. Such exploitation of potential by an intermediary can have dramatic consequences for the incumbent suppliers in the market segment.

However, domain-specific niche knowledge can offer protection. The manufacturing industry is highly complex with around 250 different manufacturing processes. Many comparatively small niche players are world market leaders thanks to the specialized knowledge they have accumulated over the years. In view of this position, machine manufacturers cannot be pushed into the second row overnight.

Data sovereignty must remain with the manufacturer

In order for manufacturing companies to recognize the dangers of the unstoppable 'platformization' of the manufacturing industry at an early stage and to be able to react appropriately, a combination of

• technical knowledge and skills on the subject of IT platforms,
• business knowledge and skills relating to platform business models and the platform economy as well as
• domain-specific industry knowledge as a basis for effectively differentiating smart services offered by manufacturers from third-party providers

In addition to the latter point, it is essential that data sovereignty and customer access remain with the machine or component manufacturer. In terms of implementation, this means that the data may well be located in a third-party data center in the cloud; however, the machine or component manufacturer must have full control at the service platform layer level.

However, the question is how this can be achieved if, on the one hand, it is assumed that it is not possible to do everything yourself and that it is therefore right and sensible to use partners. On the other hand, however, you should not blindly entrust yourself to a third-party platform provider - especially not with regard to your own data. What's more, it is completely unpredictable today how the race for dominant platforms in different market segments will turn out.

In principle, it is advisable for companies with a traditional product/solution business to position themselves in defined niches with hybrid service bundles consisting of physical products (such as a machine) and digital smart services with innovative business models. This enables a secure market position in which the customer not only receives a high-quality machine, but also digital smart services that provide additional benefits. If a resilient, business-relevant positioning is achieved in this way, the company's own digital customer interface cannot be so easily substituted by a newly emerging platform.

In addition, expertise in analyzing customer usage data for smart products must be developed. This enables mechanical and plant engineering companies to increase their digital knowledge of their products and, in particular, their use by customers and to continuously expand their own advantage.

In principle, however, it is advisable to really penetrate the question of the disruption potential of digitalization in one's own market segment and in the market segment of today's customers. The real opportunities and risks for your own company can be derived from the knowledge gained in this way. Once there is clarity in this regard, the aim must be to quickly launch initial solutions on the market. After all, the topic is not only relatively new for most machine manufacturers, but also for their customers, many of whom first have to reorient themselves.

Author:
Dr. Mathias Döbele is Head of Mechanical and Plant Engineering at Dr. Wieselhuber & Partner.