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August 12, 2014

Business Platforms Fueled By The Internet of Things

Posted by Suryaprakash K. (View Profile | View All Posts) at 5:42 AM

Marshall Van Alstyne at Emerce eDay  [Source: https://www.youtube.com/watch?v=BBf1OorPg3Y]

Ask yourself why a product like the iPhone has been such a commercial success. Since its introduction, Apple has produced millions of them. Is it the sleek, minimalist design? Is its success because of the ability to get them in different colors or even sizes? Maybe its because they're just trendy.

Well, if your response to these questions is "none of the above," then you're thinking like a true innovator. And I suspect you're going to be quite comfortable in the global economy that will exist in, say, five or 10 years from now. The answer I'm looking for is that the iPhone has been wildly successful because it created its own platform economy.

I was recently reading about a brilliant economist who is making the distinction between traditional "product" companies and innovative "platform" companies. The latter are good at facilitating networks that use an item for any number of innovative uses. This particular economist pointed out that when Apple introduced the iPhone, the company wasn't doing so with the sole intention of allowing millions of people to develop really neat apps for it. But the company did allow that platform to evolve - and now it receives a nice income from those apps in its apps store.

Other companies that produce nice, easy-to-use products should emulate what a company like Apple has done; that is, be thinking of ways of creating communities around their products. That's why the Internet of Things is going to be so huge. It's not just the fact that "stuff" will be connected to other "stuff" via the Internet. It's what people - or, more precisely, communities or networks of people - decide how to leverage that stuff.

Think of it this way: About a century ago, a man named Henry Ford produced a reasonably priced, well-built automobile when just about everyone in society was walking or riding around on horseback. There were some networks of people who knew the car's engine ran on a derivative of oil. Others realized that the car would do better on paved roads than dirt paths. Still other communities - bankers - designed financial products called car loans. And don't forget the insurance companies who rightly predicted that accidents would happen when enough cars started taking to the roads.

Those networks not only made the automobile wildly popular, but they created incredibly lucrative businesses that utilized the horseless carriage. Had none of those communities sprung up around the product, there would be no platform. I gather we'd all still be riding around on horses. Without a steady supply of fuel, a huge network of fueling stations, and paved roads, you can't get very far with a car.

The same goes for what's happening today with the Internet of Things. Product companies need to begin thinking of themselves as platform companies. This is some of the innovative thinking coming from Prof. Marshall Van Alstyne, who is on a one-man mission to urge product companies to be open to the different possibilities of how their products can exist in an ultra-connected world. He mentioned a fascinating example of a lighting company that is implementing application programming interfaces (APIs) to their high-tech LED lighting. The idea is that you can create apps that make mood lighting or that track the time of day. It might be an app as simple as making a set of lights brighter if clouds roll in.

The point here is that the applications are endless. This lighting company is rightly anticipating that to be successful in a new economy that's governed by the Internet of Things, it has to do more than just manufacture and sell light bulbs. It must foster platforms on which other people and businesses can connect and create value.

We talk a lot about the business of creating value. When every gadget connects to the Internet, how will enterprises that create those gadgets be creating value? I can assure you that value will not come from the quality of the gadget alone. It will come from how those companies and connected enterprises create networks of value. Uber adds value by connecting drivers with nice, clean cars to people nearby who need a ride. It's a nice app, but the value is in how it makes connections.

Is it any wonder why the innovative online retailer based in China, Alibaba, has bought a stake in Lyft, a car service not unlike Uber? Alibaba sees value in creating yet another community: not of people who need a ride home but people who have just ordered something from its online store and want that item delivered quickly. How exciting it is to watch these networks play out. Suppose you take the same principle of drivers in available cars and apply it to people who need to get to a hospital. The health condition might not merit an ambulance, but maybe that person is elderly and/or doesn't want to get behind the wheel of his own car to get to a doctor.

Of course, I'm just thinking aloud. Maybe healthcare connectivity is going to develop in a radically different way. My point is that the possibilities of the business networks created by the IoT are endless.

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