Fireworks seen through a crystal ball

Four ways to turbocharge your company’s platform strategy

Companies in the tech sector are transforming their businesses and leading the way in accelerating the platform economy.

In brief

  • Tech companies are embracing platform business models to engage customers, increase revenue and scale offerings at a lower cost of customer acquisition.
  • Platforms are delivering results: Over 40% of tech companies have created new revenue streams with their platform model.
  • Global platform businesses are faced with complex and burdensome tax and regulatory requirements that can be addressed with thoughtful, proactive strategies.

Marquee platform businesses have been generating massive value since the dawn of Web 2.0, but the platform approach has now taken hold across the tech sector, and it is fundamentally transforming the way companies are doing business. Today, companies are racing to get ahead in a rapidly growing and hugely competitive Platform Economy. Their reasoning is clear. When deployed effectively, platform business models allow companies to increase their scale, tap into external capacity, optimize internal investments to accelerate product and service development, and quickly identify and capitalize on market opportunities across sectors.

But what is the right platform approach? There is no one-size-fits-all platform business model. Some platforms connect consumers with products or services provided by individuals or businesses representing the supply side of the platform. Others facilitate B2B ecosystems and networks in which businesses provide complementary services to enable joint value creation. Platforms can extend the reach of existing products or services, or they allow companies to enter into totally new markets. 

This year, EY teams conducted a global survey to help companies make sense of the choices, opportunities and pitfalls they could face as players in the Platform Economy. The Platform Economy Transformation Study 2023 (pdf) drew lessons from platform leaders and new entrants alike and uncovered four key ways that companies can accelerate the value and impact of their platform business model.

1. Up the ambition

Profitable platforms
of revenue generated by respondent companies is associated with their platform offerings

More than 43% of respondents unlocked new revenue streams with their platform model, and on average, 40% of respondent companies’ revenue is associated with their platform offerings. Yet, much of the work to date has been tactical rather than strategic. A platform business model is seen by many advocates and researchers as a mechanism for driving innovation and business transformation. Some companies are pursuing those types of ambitions with their platform strategy, but most companies are prioritizing more traditional and less disruptive objectives.

When asked about their key objectives and value propositions driving their platform models, companies were most likely to highlight increasing proximity to and engagement with customers (52.9%), increased revenue and profits (51.5%), and scaling at a lower cost of customer acquisition (48.7%).

Just over half of companies (50.4%) expect to reduce costs over the next three years due to their platform model. Several of the key value propositions driving platform experimentation are aligned with stated, industry-wide objectives to cut costs, bolster efficiency and optimize productivity strategies in response to macroeconomic headwinds.

While companies are working toward worthy goals and sensible KPIs, there is an opportunity to set loftier ambitions for their platform strategies. A platform business model can enable business transformation and innovation beyond operational efficiency improvements and new touch points with customers. Reimagined profit and loss strategies and new approaches for identifying and responding to shifting needs and expectations from customers and suppliers are just two of the ways platforms could add value in addition to the important yet conservative focus areas currently driving platform experimentation. The platform approach can also be complementary with other emerging strategies, such as subscription- or consumption-based as-a-service solutions.

2. Take a whole-of-business approach

Given cross-business objectives, companies could benefit from establishing a control center comprising decision-makers from across the C-suite to steer their platform strategies. Companies that approach their platform strategy as a whole-of-business concern, not just a tech solution, will likely be better positioned to meet their objectives and maximize the value of their platform investments.

Most companies are seeking to boost profits, improve customer acquisition and scale their offerings with their platform models. At the same time, platform leaders are working toward fundamental business transformation. Yet 71.5% of respondents indicated that the CTO is the primary decision-maker driving the platform strategy at their company. Companies currently planning to switch to a platform model are even more likely to position the CTO as the primary decision-maker for their platform transition (77.8%).

3. Prepare for new and amplified tax and regulatory burdens

More than a third of tech companies (39.4%) indicated that tax and legal challenges are acting as a barrier to value creation for their platform models, and less than half (47.7%) are confident their platform can operate across jurisdictions without tax and legal issues. Data protection and localization policies, new tax laws and fragmented employment policies, among others, are materially affecting platform business models and creating new operational burdens.

These challenges will only become more burdensome when the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two takes effect in 2024. The new global minimum tax regulations will necessitate major updates to companies’ operating models to prepare for new financial reporting and compliance requirements.

Regulatory challenges and uncertainty are exacerbated by increasingly complex, unstable and often volatile political environments. Shifting requirements and expectations can introduce uncertainty into platform companies’ business plans, particularly as they try to scale their offerings across borders. 

Disconnection with regulators
of platform companies have well-established processes for engaging with regulators

Yet, only 35.5% of platform companies have well-established processes for engaging with regulators. Given Europe’s central role in advancing tech policy and regulations with global implications, it is somewhat surprising that just under a third of European companies have well-established policies for engaging with regulators (33.1%), slightly below the global average. US tech companies are more likely to have such policies in place, with 42.6% already using established policies to guide their work with regulators. Just 29.5% of Asia-Pacific companies have established policies for engaging with regulators, less than other regions in the sample.

Companies, even those at the earliest stages of their transition to a platform business model, stand to benefit from a proactive assessment of global tax, law and related geopolitical challenges and requirements. Such an effort could inform platform strategies that expand ROI, prepare for forthcoming requirements and mitigate risks of disruption.

4. Consider the potential ROI of platform partnerships

Only one in five respondents have expanded their network of partners and collaborators thanks to their platform strategy, and only one in four expect to do so over the next few years. Much of the research and theory around creating value with a platform strategy revolve around establishing network effects and virtuous cycles of expansion among actors representing both supply and demand. EY teams’ research into the topic shows how ecosystems can drive stakeholder value and increase both innovation and operational efficiencies.[1] Yet, partnerships and ecosystems were consistently de-prioritized in respondents’ platform strategies.

It is understandable why companies are prioritizing their own operations and customers. Such an approach has a clearer and more direct path to value creation, and formalizing partnerships can be complex and time-consuming. Yet this strategy could introduce risks and lead to missed opportunities for greater platform ROI.

Notably, companies that prioritize partnerships and ecosystem formation could benefit from the acceleration of platform business model adoption in the tech sector and in adjacent industries. Companies in health care, insurance and finance, to name a few, are now embracing platforms to scale their reach and impact. As early movers, tech companies with more mature platform models are positioned to support, enable and derive value from businesses in other sectors that are just beginning their entrance into the platform economy.   

Over the next few years, we expect tech companies to double down on their platform strategies in order to maintain the agility necessary to rapidly industrialize advancing technology, such as generative AI and edge computing, and to stay one step ahead of the ever-shifting geopolitical circumstances and regulatory requirements.

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    Momentum is building in the platform economy as more tech companies embrace business models geared toward establishing multisided market ecosystems. Platforms are already delivering meaningful ROI and creating new revenue streams, for mature platform companies and nascent adopters alike. Companies eager to amplify the value generated through their platform business models can set their sights on more transformational ambitions, bring voices from across the enterprise to the table for strategy formulation and execution, anticipate and clear tax and regulatory hurdles, and explore new partnerships and alliances that could act as platform force multipliers.