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Ideas Made to Matter
What’s next for business-to-business platforms in 4 markets
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When Geoffrey Parker co-wrote “Platform Revolution” in 2016, nearly every example of a transformative digital platform was one that facilitated business-to-consumer connections. Those platforms still dominate the conversation five years later — but now they’ve been joined by a growing range of business-to-business platforms.
Established firms have read the tea leaves and seen the benefit of building B2B platforms to connect customers, technology partners, and other key stakeholders while maintaining normal business operations, said Parker, a research fellow and visiting scholar at the MIT Initiative on the Digital Economy.
Investing in marketplace platforms left these firms better positioned to respond to supply and demand disruptions over the last 18 months than companies that had simply invested in point solutions, he noted.
But enterprises in the early stages of developing a marketplace platform must recognize that “it gets worse before it gets better,” Parker said.
Before firms can have a platform, they need an open architecture that platform participants can plug into. As a result, they need to prepare for a negative impact on business operations as well as return on investment before the marketplace is up and running: “There’s a little bit of positive benefit, and then there’s a trough of negative returns,” he said.
At the 2021 MIT Platform Strategy Summit, Parker and other speakers highlighted the impact of increased platform activity in the financial, health care, heavy industry, and e-commerce sectors.
Heavy industry: Enabling business model transformation
Platforms are enabling growth for firms in markets that have traditionally eschewed digital transformation, noted Peter Evans, managing partner of the Platform Strategy Institute. One example is Oren, a B2B marketplace co-developed by Shell and IBM for the mining industry. The platform provides Shell’s customers with software and services to support mining operations, such as analytics, supply chain management, asset management, and safety.
Open application programming interfaces, or APIs, are the plumbing behind these marketplaces. Open APIs give software developers access to specific data sets, services, or functions within an application without the need to hand-code custom integrations.
Enterprises may develop APIs to connect internal applications, or to establish B2B or B2C platforms. Research from Marshall Van Alstyne, a co-author of “Platform Revolution” and visiting scholar at the MIT Initiative on the Digital Economy, suggests that APIs built for B2B platforms bring the best return on investment — revenue gains of 66% and net income growth of 38%, compared to revenue gains of just 4% and net income gains of less than 1% for APIs built for B2C platforms.
“There are economic benefits to doing this. The gains are enormous,” Van Alstyne said. “There are huge advantages to using these APIs.”
Finance: Unbundled from banks, re-bundled by fintech, challenged by big tech
One of the major drivers of recent B2B platform growth has been a lower barrier of entry for startups in heavily regulated markets such as finance and health care, said Pinar Ozcan, a professor at Oxford University’s Said Business School.
When financial data resided with individual institutions, consumers couldn’t share their own data, Ozcan said. Regulatory changes, beginning with the Dodd-Frank Act in 2010, have given consumers greater access to their financial data.
That led to “open banking,” in which consumers can share data with third-party applications using open APIs. Initially, these applications focused on a single service, such as setting up a savings account or obtaining a business loan, credit card, or mortgage, with a lower fee than traditional financial transactions.
“Single-service fintech” can only go so far, Ozcan said, as customer trust can be hard to establish in data-sensitive industries. That sparked two trends. One is the formation of business-to-business-to-consumer (B2B2C) fintech platforms, such as Even Financial and Mexico’s Credijusto, which offer a range of integrations with financial service providers.
“They’ve been unbundled from banks and re-bundled by fintech,” she said.
The second trend is the entrance of technology incumbents into various areas of fintech: Apple and credit cards, Amazon and small business loans, and Google and checking accounts.
“There will be an interesting battle, not just in terms of building the platform but between big tech and digital banks,” Ozcan said.
Health care: A power shift due to “digital colonization”
In Ozcan’s view, health care may face a similar battle. The sector is a clear example of what she described as “digital colonization.”
The big tech vendors started off as IT providers for various health care market segments, including research, insurance, medical devices, biotechnology, and pharmacies. This relationship provided Google, Microsoft, Apple, Amazon, and Facebook with an incredible amount of data.
“Once they have that data, they can attack the ecosystem from different places,” Ozcan said. “The primary services providers aren’t changing, but the power is shifting.”
One example is providing an app that applies machine learning to diagnostic, clinical outcomes, and insurance claims datasets to recommend preventive care services. This will help individual consumers spend less out of their own pocket, she said.
But it could cause rifts throughout health care, whether it’s the types of services a hospital offers, what therapies a pharma company puts in its pipeline, or how an insurer reimburses for those services and therapies.
E-commerce: The rise of “super apps” — just not in the U.S.
Just as fintech platforms have bundled previously standalone financial services, e-commerce platforms are bringing together a range of similar services.
Grab started as a ride-hailing app but now includes food delivery, streaming entertainment, and financial services. And the Singapore-based company isn’t alone in Southeast Asia: Indonesia’s GoTo and Singapore’s Sea have grown using a similar model. Each of the three firms has been valued at more than $40 billion, with Sea approaching $150 billion.
“There’s a nascent battle brewing,” the Platform Strategy Institute's Evans said. “Will this spill over and become a broader battle? This super app model is getting a lot of attention, and we’re likely to see efforts by others around the world to follow this path.”
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Nowhere is this more evident than China, which Kai-Fu Lee, chairman and CEO of Sinovation Ventures, described as a “gladiatorial” environment.
“In the U.S., you have Groupon and Yelp and OpenTable and DoorDash, and the competition ends when they each win. In China, the coliseum is much bigger. Only one survives, and it’s a super app with all those features,” he said.
For Lee, that app is Tencent’s WeChat, where he estimated he spends 80% of his time. WeChat serves as a social network but also a news source, a peer-to-peer payment service, and a COVID-19 vaccine passport, he said.
Super apps would undoubtedly draw the attention of U.S. officials, who are considering regulations to restrict the further growth of Amazon, Facebook, and Google — or even break them up. Van Alstyne argued that this is a bad idea because it fails to address the network effects that enabled these platforms to grow in the first place.
“It would just create mini-monopolies,” Van Alstyne said.
Regulatory framework aside, Lee said super apps developed in China — whether from Tencent, the Alibaba Group, or the competitors who ultimately defeat them — are unlikely to make their way to the United States.
“For the Chinese entrepreneur, the first priority is to develop locally, and it’s a huge market,” he said.
