Looking to stay relevant, big enterprises embrace the platform

How hot are digital platforms? Very: The five most valuable companies on the planet right now — Microsoft, Amazon, Apple, Alphabet, and Facebook — are platform companies, and “myriad startups and smaller companies are thriving as well,” according to Erik Brynjolfsson, director of the MIT Initiative on the Digital Economy.

With both the “behemoths of the digital economy,” as Brynjolfsson called them, and startups reaping the benefits of these digital ecosystems, the pressure is on incumbent organizations to join the platform economy.

But while building an ecosystem of partners and customers may be a relatively light lift for companies that are digital natives, it’s a significant pivot for a centuries-old financial institution like UK-based Barclays Bank or a venerated grocery store chain like Albertsons Co, headquartered in Boise, Idaho.

These firms and enterprises like them find themselves both competing against platforms — Facebook has proposed its own digital currency, a worry for Barclays, while Amazon now sells groceries, a concern for Albertsons — while simultaneously seeking to implement platform strategies themselves.

How to begin? At the recent 2019 Platform Strategy Summit, hosted by the MIT Initiative on the Digital Economy, presenters identified three key hurdles established enterprises must clear as they move to adopt platform strategies:

• First, executives must fully understand and embrace the value proposition that platforms offer to their organization.
• Then they have to disrupt business mindsets and practices internally — not always easily done in older companies that can be territorial and slow-moving.
• Finally, executives have to identify their firm’s strengths and where these might stand out in a broad ecosystem of competitors and partners.

Here’s how that process played out at Barclays and Albertsons — and might play out in other enterprises as they begin their platform pivot.  

Barclays: Connecting with competitors via API

Barclays Bank is a 328-year-old financial giant that recorded 2018 revenue of $26 billion, yet CEO Jes Staley sees disruption on all sides. “Today’s pace of change is bewildering. We’ve always been an innovation leader, but in 40 years I haven’t been as concerned by what I don’t know about banking as I am today,” Staley said.

On his short list of things to keep on his radar: “We continue to look at traditional competitors such as Lloyds UK and JPMorgan Chase, but now we also pay an enormous amount of attention to what's going on with Amazon and Stripe,” an online payment processor, he said.

In response, the Barclays executive team has pivoted toward transformation, Staley said, and now views “scale and scope as our biggest assets.” At the center of the strategy is Barclays mobile banking app, the most widely used one in the UK, which has 8 million customers and gains 80,000 new users every month.

“Five years ago, our value proposition was to get a young person as a customer and manage their accounts, mainly in branches, for life. Now, less than 1% of transactions are done in branches, so the proposition is to drive them to our mobile banking app,” Staley said.

And thanks to what Staley called “a total reversal and change — from fearing competition to embracing it,” Barclays now offers APIs that allow it to connect with its competitors to build a bigger network. “With our two APIs you can go onto your Barclays mobile app and make a payment from your Lloyd's account. We don’t care where you are, as long as you’re on our app.”  

That shift in mindset from competitor to cooperation is crucial for enterprises that were traditionally territorial. Marshall Van Alstyne, professor of management at Boston University and a co-chair of the summit, explained, “Platforms are driven by network effects, not by products. The biggest performance boosts come as partners create value for each other, and when firms expand into adjacent markets and expand their ecosystems.”

Albertsons Cos: The customer drives the platform

Albertsons Cos. is taking that edict to heart, expanding the variety of products it’s able to offer its customers by building a platform that brings various business partners under one tent.

For its customers, Albertsons Marketplace is designed to serve as an “endless aisle,” a platform that offers more than what any store can stock in its inventory. “Most shoppers seek one special thing that they can't find at their store that they'd like to get on a shopping trip,” said Jon Fahrner, head of marketplace for the company, which maintains 21 grocery brands across the country, including Albertsons, Safeway, Jewel-Osco, and Vons, for a total of 2,500 stores, as well as Plated, a meal-kit company based in New York.

“Organizationally, we operate very much like a startup within a huge company, with small teams that can move fast,” said Fahrner. The teams’ number one priority is customer satisfaction. “At Albertsons, I want a big business that satisfies all of our customers and makes them want to tell 10 people about us. The theme here is a platform can form around an awesome customer experience; without that customer experience, a platform alone is not going to do much.”

In steering the new strategy at Albertsons, Fahrner said he takes inspiration from one of the digital age’s earliest platforms. “eBay started with collectibles, like Beanie Babies. They owned that niche, and then they went to the next niche, and then the next,” he said.

The lesson for any company, startup or legacy, shifting to a platform model: “You can't be everything to everyone, especially not at first,” Fahrner said. “Every marketplace has to find out what their Beanie Baby is.”