Accelerate your deals and improve your win rates with ‘Platform M&A‘
The frontier overlooks a dilemma where one side is leaning to The Platform Approach and the other to The Product Approach. With Google, Apple and Microsoft we have seen the advantages platforms have brought in terms of size, scale and value, which products are scuffling to compete.
- Simplifies and Standardises
- Derive and Drive Value
- Elevating Value Creation
- Identifies Synergy and Early Risks
- Captures Value
Platforms enable automating the entire M&A process and bring about necessary systematization which is essential in bringing about transparency and control. It also fabricates continuous knowledge gain which can be capitalized upon.
Nithin Kumar feels that platforms are misunderstood given their nascency and industry comfort level with the product. Drawing comparatives on any group platforms are seen to win over product, they have brought such ease into our lives in so many ways. Platforms serve us in so many ways, as Digital resellers like Netflix and Amazon Prime, as Aggregators like Amazon & Ring and SAP & Callidus Cloud, as Infrastructures’ like AWS and Azure, as Organic frameworks like Paypal etc.
Traditionally in the 90s, serial acquirers drove economies by consolidating and bringing up capabilities, leading to diversification in terms of revenue synergies where everything was new – New Market, New Synergy, New Channels, New Customers and finally cost synergies.
Novelty brings new challenges which have to be tackled slightly differently. Platforms are altering structural barriers, providing opportunities, changing industry forces, bringing macro-economic advantages, protecting information and enhancing experience. Functional Integration breaks down here and Revenue Synergy generation begins.
How do you optimise Revenue Synergy to Adapt to the Market?
Identify value drivers and configure IMO’s, as they set cross-functional targets which result in assets. Facebook, for example, acquired WhatsApp and Instagram, this step exponentially increased the monetization factor, synergy and value both created. Finally syncing Sales, Market, Product, Customer Experience in unison.
Several cases of Public Write-offs in the sphere of Product-Centric M&As. The famous Microsoft vs Apple saw Microsoft’s victory only because it was a platform. And they ensured aggregation, upon their latest acquisitions of LinkedIn and GitHub. Salesforce and Mulesoft was a platform-platform deal that went very well. What is the objective here? You may wonder. Network Effect.
Network Effect is simply unlocking value, by channelling value-drivers with the platform. Uber as mentioned earlier, has a simple logic- More Drivers: More Users:: More Users: More Drivers, i.e, one side drives the other exponentially. Landscape changes are a result of a change in approach, The Way you look at customers from the platform perspective. Uber Eats gives the user the flexibility to be a Driver, User and Eater at the same time, the last time this happened was with Atoms in the double-slit-experiment.
Traditionally, the focus was on Product and R&D, and Supply Economics of Scale. Most of the work was inside the firm,i.e, inside. Novelty is more towards Demand Economics of Scale, and platform focuses on R&D and open innovations outside the firm. This follows a circular value system which is outside. Firm value is driven by assets inside and community assets drive value, employees are human resources inside the product. Open innovations outside is a different way of thinking.
Openness is a driver if you want to drive adoption you could open the product and API, but this will result in low monetization. Openness interferes, regulates, enhances and protects the target.
- How much of your firm is inverted = How much value is created outside?
The Level of Inversion is important! What you would like to control and what you would not?
When the level of inversion increases the opportunities to decrease.
Due-Diligence happens around financial, legal, commercial, operational phase etc. Technical Due Diligence is very important in the platform. To be clear about the platform, whether it is a pre-seller, aggregator, what does it do to the existing business model?
People acquire assets to enhance the other side of the business, current offerings, scalability, openness, opportunity and ecosystem, and if these mentioned factors are in tandem or conflicting.
- Interaction model
Curation period and quality control are important and enforce the governance patterns and the features of the deal. Curated mix and match, to drive positive value will subsidize & monetize data, consider Privacy implications and orchestrated attributes of data. Moving them to a transactional model, and whether it can be subsidized. The transactional and Business Model needs to clear to the audience inside. Potential adjacency and why the acquisition happened needs to be clear. From here a recruiting mechanism would aid training.
- Existing Business Model
Configuration of Integration Manager changes from functional to cross-functional during M&A, as integration efforts should be on structural way more than functional way. The managing aspect of the governance of integration is a key value driver. Governance affects and enforces thing not going well in the network effect. Airbnb has a duration algorithm to govern and keep toxic players on both sides out and has a rating system on both sides, much like Uber. At this point developing an ecosystem that contributes to API
- Strategic Steps for Value Creation:
- Strategic Rationale
- Product to platform transition
- Configure IMO
- Make the network effect real
- Innovative thinking: What is the intent and what value does it bring?
“Pivot to value creation from a platform, drive shareholder value – Nitin Kumar