Platform business models for German SMEs: Interview with Svenja Falk

What should SMEs consider, when they try to build their own platform? “Key focus should be on the ability to create value through joining the platform economy”, says Svenja Falk, Managing Director at Accenture in the interview with HIIG researcher Philip Meier.

Svenja Falk is Managing Director at Accenture, a fellow at Hertie School of Governance in Berlin and an honorary professor at Justus-Liebig Universität Giessen. She designs global strategies and research programs in areas such as the future of work, digital transformation, and public management. Professor Falk also leads the workgroup on digital business models under the umbrella of the Platform Industrie 4.0 to develop actionable policy recommendations for governments. In our interview, we draw on Professor Falk’s wealth of knowledge and experience on digital platforms in Germany, especially in the German SME sector.

PM: How do you describe the concept of digital platforms as part of your workgroup on digital business models?

SF: Platforms are designed to orchestrate an ecosystem of resources and players and function as catalysts for business adaption and scalable growth. The driving forces underlying scalable platform growth are network effects – the mutually reinforcing interaction of different types of platform participants in which any additional user of a product/ service directly enhances the value of said product/service to others. The “multi-sidedness” of market interactions between platform owners and different types of end-users sets successful platforms apart from more traditional “one-sided” business models that neglect the power of network effects and are hence limited to linear growth.

PM: The research literature describes three approaches to participate in platform ecosystems, namely “make” (development of an own platform), “buy” (acquisition of or investment in an existing platform) and “join” (participation in an existing platform as user or supplier). What obstacles, opportunities, and risks do the individual approaches hold for German SMEs?

SF: Developing and running a platform requires financial resources, technical know how and human resources. A company should investigate which of the approaches mentioned makes the most sense. Key focus should be on the ability to create value through joining the platform economy. This includes strategies for monetization, competitiveness and customer value.  A fourth option could be to build consortia.

PM: Can you give concrete examples of SMEs or best practices for the named approaches (make, buy, join)? What are the most important aspects in particular?

SF: ADAMOS (Adaptive Manufacturing Open Solutions), is an industrial IoT platform for the mechanical and plant-engineering industry. A group of industrial and software companies created ADAMOS in 2017 as a neutral, open, nonproprietary platform. These companies had a history of working in a fragmented market, where they tried to establish their own closed platforms and aggressively guarded their intellectual property. But with ADAMOS, they embraced openness and collaboration in a common platform, seeing the value of sharing resources and technological knowledge so everyone benefits.

PM: What role does Germany as a location play in the development and implementation of digital platforms for and by SMEs with regard to, for example, regulation or know-how?

SF: Seven out of the 10 most highly valued companies are based on a platform business model—five from the US and two from China.  Most of them are B2C platforms that place themselves at the intersection of demand and supply and in doing so build powerful monopolies. Eric Schmidt, former CEO of Google, warned recently about a “bifurcation of the internet”.  Especially European Governments and companies need to understand and occupy their space in this changing economic world order to avoid of being “stuck in the middle”. Europe needs to change its competitive positioning from a focus on product quality and price. In the foreseeable future, the Chinese industry will produce equivalent excellence in products and systems while having clear advantages due to its large domestic market.

Key Takeaways

Cooperation is key

It becomes evident that SMEs often lack the resources and the know how to build their own platforms. Some of them also don’t realise yet, in what tremendous pace platforms are transforming traditional sectors and business models. This makes cooperations between SMEs all the more important. SMEs could also cooperate with start-ups or the scientific community to extend their capabilities in the digital world. Furthermore, cooperation is the only way to gain scaling effects which make platforms attractive for customers in the first place.

Special focus necessary

The large American platforms already have a quasi monopoly for many B2C applications, but since German SMEs are well positioned especially in the B2B sector, platform collaborations offers great opportunities for them on this field. German SMEs are well advised to look where their special strengths are lying and should not simply copy other successful models. A platform makes only sense, when it addresses customer’s needs and creates additional value added for them.

European platform economy

Facing the growing competition from China and the US, European companies and policy makers should find a unique European way of platform economy.  For example, they should focus on special niches to establish successful platform models. If  companies ignore the current economic transformation they run danger to end up in dependencies to the existing platforms.