Collaborative Innovation in the Platform Economy

I recently came across an interesting blog published by Brad Smith, President of Microsoft, titled: A new IP strategy for a new era of shared innovation. I was simultaneously elated and also concerned with this new shared innovation initiative by Microsoft. The following excerpt from this blogpost caught my attention, and I thought the implications of this initiative are much wider and deserve some careful thought:

“Every company today is becoming in part a software company…… whether it’s auto manufacturers, retailers, health care providers or financial services firms, our customers are not only transforming their own business operations with our software, but collaborating …. to create new digital products and services that run on our platform”

Collaborative innovation and platform economy

I fully agree and endorse Brad Smith’s (and Microsoft’s) perspective that every company is becoming a software company. This is something that I not only noticed from broad industry trends, but also personally witnessed first-hand within my own customer ecosystem (exclusively ISVs), and I feel gratified that an industry giant has reached a similar conclusion. A few years back, at a conference of European ISVs, I made a presentation titled: Every company is a software company, and at that time my proposition was received with some scepticism, as most ISVs felt that creating software is their exclusive domain, which can’t be replicated easily by enterprises (i.e. non-ISVs). On the other hand, enterprises weren’t too receptive either, as they didn’t fully comprehend contours of the still evolving digital landscape. The basic premise of my proposition was as following:

• A slew of exponential technologies such as IoT, AI, ML, AR, VR, Robotics, Autonomous Vehicles etc. are creating unprecedented technology disruption, and giving rise to a new digital and connected landscape.

• Virtually all facets of a business are impacted by digital disruption, and is forcing every business to transform into a digital business.

• Platform-based business models and strategies are emerging as the key drivers for the digital economy, and every software product (and by extension every digital business) is on a trajectory to become part of a platform ecosystem.

“The emergence of GE’s Predix, John Deere’s FarmSight, and Bosch’s IoT platforms – all of which are enterprises that are traditionally not known for their software prowess, is a sure-fire sign that this is indeed an accelerating trend that will be the norm, and not an exception.”

In my own customer landscape, I see ISVs from diverse domains such as insurance, logistics, education, accounting, facilities management, and fleet management, seeking to transform their business models, modernize their legacy applications, develop new digital products and services, and become part of the emerging platform economy.

In a fast changing landscape, as no single business can master both technology and business model disruption, they will have to build partnerships and collaborate with a wide range of technology, service, and business partners. But, obviously this is where potential problems can arise, if there is no clear-cut vision and understanding of the roles, responsibilities, and rights of each partner in the platform landscape.

Software IP as business model driver

Every company is becoming a software company, not only in the sense that their operational excellence is heavily dependent on software, but also from the perspective that new business models, even of non-software companies are increasingly software-driven (such as FedEx’s SenseAware, and Ford SYNC).

With the realization and awareness that software IP is a core business model driver, one must be careful in evaluating Microsoft’s shared innovation initiative, whose avowed goal is:

“to strike a healthy balance that will both help our customers grow their business through technology and enable Microsoft to continue to improve its platform products.”

To be fair to Microsoft, their shared innovation initiative makes an explicit assurance that customer will own new patents and design rights on any new technology created together, and makes a further commitment to support Open Source, if the customer chooses to. But, after spending a lifetime in building ERP systems for global businesses and witnessing first-hand the complexity and risks that come with long-term and expensive lock-ins, I am justifiably wary of proprietary technology platforms.

Future proofing your core IP

One of the dominant emerging trends of the platform economy and digital landscape is the fact that new technologies are fundamentally disrupting and transforming even long-established and entrenched business models. Unicorns such as Uber, Netflix, AirBnB etc. are great examples of the power of platforms, as well as technology and business model disruption. The key takeaway here is that business models will certainly change over time, and if anything, the pace of change is becoming faster than ever before.

Thanks to the power of the platform economy, it is not only feasible, but a near certainty that an ISV or digital business can be part of multiple business models and multiple platforms. For example, imagine that your software application is deployed as a mobile app, which can be part of the App store on Apple, Android, or Windows platforms. In such a scenario, it is no longer a choice, but a business imperative to not only ensure that your software is compatible and deployable on all these currently leading platforms, but also designed in such a way that it could be a part of any new or emerging technology or business platforms.

As software IP will be the cornerstone of any ISV or digital business, to ensure that core IP is future proof, I would encourage using the following guidelines to formulate an appropriate strategy:

• Embrace proven open source technologies wherever possible

• Avoid long-term lock ins with proprietary technology platforms

• Ensure that your core software IP is developed using open standards with flexible and scalable architecture, so that it can be part of multiple platforms and business models

• Collaborate with trusted partners to create own IP, but retain all rights to your core IP

• Beware of the risk that your collaborator or vendor could become your competitor

Collaborative innovation is both a business and technology need in the platform economy, but ISVs and digital businesses must retain strategic control over core IP, as it is a key, competitive differentiator.