Platform and Hybrid Business Model: Future Game changers

Peter Drucker – “A business model is supposed to answer who your customer is, what value you can create/add for the customer and how you can do that at reasonable costs.”

Business model is the heart of a business strategy. Over a period of years, business models have evolved from simple product manufacturing and selling to complex online market places. With the advent of disruptive Fintech players, varying consumer behaviours and technology advances, we are on the verge of shifting from Traditional or Linear Business Models to Platform and Hybrid Business models. The latest additions like the UPI, IMPS payments in India and PSD2 (Payment service directive) to promote Open banking in Europe, clearly indicate that these new models entered banking industry although in a hushed form.

Traditional Business Model

The traditional model where a manufacturer creates the goods, owns and manages the supply chain, and sells the goods, is a very simple way to define the Linear business model. So the cost involved in manufacturing and other selling processes is owned by the company. Any additional revenues would mean additional efforts and additional resources. Anything which comes as an outcome from the company is licensed by it.

Drawing a parallel to banking industry, Banks have been selling their own products and services to the end customer. The scenario is now changing. As the market matured, more and more banks tried differentiating themselves and we have reached a stage where mere product variations may not help attract customers. At this juncture, the entry of FinTech players as well as successful platform players like Amazon, Google, Apple and Facebook, exposed a subtle but a profitable business model taking shape.

Platform Business Model

Platform business model tends to connect different parties who may or may not own any product themselves1. They facilitate building a network, riding on the existing connected technologies and the Internet. For instance, in the older traditional business model, if Company X wants to sell its good, it first invests in manufacturing the goods and then building an online site to put up the goods for the sale. However, in the Platform business model, Company Y just has to get the list of Company X goods on its website and all it needs to do is to acquire new users. This way the cost of building or acquiring companies can be avoided completely. This is the principle behind the 21st century successful players like Uber etc.

Hybrid business Model

Other successful players like Apple and Amazon have clubbed both linear and platform models and come up with Hybrid business models. In this model the company not only invests in its own products but also invest in building the connections. For instance, Apple has opened up and extended its ecosystem to other players through App store and hosted a number of other company apps developed using iOS version.

Drawing a parallel to banking, Banks can make the best of both the worlds by joining hands with other ecosystem players like Fintechs and other banks. The hybrid model, where banks not only provide their own products but should also be able to service their end customers with other banks / partner products, can be a game changer. Implementing Open API and being a part of UPI payments model are a replica of the new business models.

Why is it a game changer?

Word of caution:

References:

• https://www.applicoinc.com/blog/platform-vs-linear-business-models-101/