The last decade has seen platform businesses grow beyond the tech sector into a phenomenon that’s effecting almost every industry, from retail and groceries to B2B distribution, industrial machinery and automobiles.
With this shift we’ve seen an increase in traditional, linear businesses that are exploring platform innovation. The most prominent example in recent days is Walmart, as we’ve written about before. With its $3.3 billion acquisition of Jet.com in 2016, Walmart finally embraced the marketplace approach that had driven much of Amazon’s success.
After the tech acquisition, Walmart has finally emerged as a serious threat to Amazon in ecommerce. That’s why earlier this year, Walmart doubled down on platform innovation with a $16 billion acquisition of Flipkart, the number-one ecommerce marketplace in India. Amazon, of course, is number two.
While these are the most prominent examples, Walmart is by no means alone. A number of traditional businesses have successfully embraced platform innovation recently. In fact, this shift toward platform businesses has accelerated to such a degree in the last five years that it’s becoming a serious trend in M&A activity.
Of course, acquisitions are expensive. In most cases its cheaper and more efficient to build a platform if you can. But in many industries, rival platforms are far enough along that an acquisition can be the best, or only, route to success.
Below is an infographic highlighting major examples of traditional enterprises that have made platform acquisitions in recent years.
These companies come from a variety of industries, including retail, agriculture, TV and print media. And they represent several different approaches to leveraging the platform model. Some of these acquisitions are strictly complimentary to the existing core business, such as Sotheby’s acquisition of Viyet, a consignment furniture marketplace. Viyet’s online marketplace doesn’t overlap much with Sotheby’s core business, and it enables Sotheby’s to extend its reach into the vintage furniture space.
Another example is the Golf Channel’s acquisition of golf tee-time marketplace, GolfNow, The Golf Channel’s huge audience enables it to successfully cross-promote its GolfNow acquisition to its viewers. And GolfNow’s business model doesn’t compete with the Golf Channel’s.
Other examples, like Target’s acquisition of delivery marketplace Shipt, are potentially disruptive to the parent company’s core business. After the acquisition, Shipt handles delivery for most Target stores, but it also serves major Target competitors like Pubilx. Similarly, Monsanto’s Climate Corp provides a digital agricultural platform that help farmers maximize yields. That means that Climate Corp will also recommend to farmers products that come from Monsanto’s competitors.
In the complementary scenario, it often helps to integrate the acquisition closely with the core business, as Sotheby’s is doing with Viyet. However, when the acquisition is potentially disruptive to the core business, keeping separation between the two businesses is key, as Target has done with Shipt.
Failure to separate a disruptive platform from the core business will almost always lead the platform’s growth being stifled. This was the case with Walmart’s original Walmart Marketplace that launched in 2009, which as we covered in a recent whitepaper, experienced very slow growth due to Walmart making it extremely onerous for third-party sellers to join.
Where can we expect future platform acquisitions? The media industry has focused largely on consolidating linear businesses so far, but focusing instead on platform acquisitions seem like the only way that any of the major media companies will ever compete with Facebook or Google.
Another industry facing platform disruption is B2B distribution. Amazon Business is still at an early stage in B2B, but a recent estimate by Modern Distribution Management placed Amazon’s B2B marketplace at as much as 30% penetration among sellers in B2B industries. Industries similarly faced with disruption include industrial machinery, healthcare and finance. Over the next few years, these industries are all areas to watch for platform M&A activity.
Platform InnovationRead more
Platform InnovationRead more