Evolving Business Models from Pipeline to the Platform

Alexander Osterwalder developed a canvas to decode business model of a firm. The simplicity and linearity in terms of its organization, made it convenient and popular to shape and comprehend the business models being operationalized at the firm level. The canvas grounded on the rectilinear business and thus the assumption behind pipeline nature of the underlying firm value chain. A representative canvas is illustrated below

Source: the image is borrowed from Wikipedia for a mere illustration of the model. 

At the core of the business model, is the value proposition which the firm offer to its customers. In absence of clarity on value proposition, the firm is bound to agonise in terms of its business sustenance.  The key driver of the pipeline business model is the assumed flow from producers to the customers, the association being the value proposition. To any firm, there has to be a clarity of its key activities. The key activities delineate its business presence.  For a bank, its activity is to act as parking space for excess savings with households and offer lend money to those deficient in funds. Similarly for an automobile firm, it is production of cars as the key activity. For a smooth running of the key activities, firms entail use of resources like labour, land, financial capital, physical capital, technology. In absence of these resources, the firm might find it impossible to proceed with its activities.  . In delivering these resources and activities to the customers, there exists numerous stakeholders on the producer sides. These vendors through supplying components, engaged in maintenance etc. act as key partners. Since each of these activities incur costs, the cost structure has to be indicated for the firm.

The firms maps up the customer segments situating the same to the requirements of the firm and the industry. There is of course the task of reaching out to the customers demanding the edifice of customer channels. Undoubtedly, the crux of customer retention compels the firm map out the mechanism of managing customer relationships. These operational mechanisms differ across firms even within the same industry. The customer relationship and sustenance enable revenue flows to the firm, in turn smoothing it to reinforce the producer side functions.

The advent of digital platforms which intrinsically are multi-sided have bought to the fore the limitations of the linear business models. Consequently, adaptations of the business model canvas to its digital counterparts is inevitable. A Dutch consultancy firm ICSB has come out with its digital platform canvas that seeks to address the linear confines of the Osterwalder model. An illustration of the digital platform canvas is given below

Source: http://icsb.nl/artikelen/new-business-model-canvas-for-digital-platforms/

The platform postulates the presence of multi-sided markets. A customer will join the platform only in the presence of multiple producers and vice versa is equally true. Customers will begin to use a credit card only when more and more merchants begin to accept the same as do the banks. The merchants will adopt the credit cards only when both banks and customer begin doing so. The banks permit the credit cards only when it finds enough business from households and merchants. Implied is the need for value proposition for each player in the segment. Rather than a firm offering a value proposition to a customer, firms like Uber will have to pitch a strong value proposition to both customers and drivers to survive and prosper.  To Amazon, value proposition is not merely for customers but to numerous third party merchants that offer their ware over the platform.  Therefore, canvas assumes the existence of both producer value proposition (supply side) and customer value proposition (demand side).

The canvas theorises the role of the platform is facilitating core interactions between the consumers and producers. It might be observed that many platforms might be an outcome of multi-players and as such the value propositions would also be multi-sided. The interactions might be between producers and customers, among customers, among producers, and their interaction with third parties and banks and financial agents, transport and logistic providers etc.  The platforms conceptualizes and develops the filter machinery to enable avoidance of adverse selection. Instances of the same include customer and producer reviews.  In outlining the rules of interface between multiple players operating on the platform accompanied by offer of the tools and services for the same, the platforms emerge as the core partners for all the players in the market.

In enabling the erection of both producer and customer segments, the important role is retention of producers and customers cannot be brushed aside. Distinct from the linear centred affiliation structures, digital platform canvas visualizes producer and customer journeys. It is not a single transaction on Swiggy or Uber or Amazon etc. but series of journeys planned and executed over a lifetime. The lifecycle of a producer or consumer mutating into a circular loop rather than discrete events becomes a defining point of the platform. A Facebook or YouTube user is not a single time user but the platforms become a partner of sorts in fulfilling certain social needs through their lives.

As platforms emerge dominant, they in all likelihood will define the economic life of an individual either as producer or consumer. To any prospective or existing platform, defining these relationships among multiple players is critical. Hence an adaptation of the pipeline business models to the loops that emerge in the producer-customer equations becomes indispensable.  ICSB model is perchance an attempt to resolve the potential kerbs. As the platforms evolve to maturity, new models will emerge with suitable adaptations. Likewise, the learning curve will feasibly drive us towards an integrated looped multi-sided platform canvas. In deconstructing Porter Value chain, each element in itself becomes a mini business model canvas offering a platform perspective to multiple players in the markets.