How Three Old-School Companies Became Digital Platform Players

Computerworld

How three old-school companies became digital platform players

The 180-year-old publisher is now a digital platform player, thanks to an open API strategy.

IT is a key driver when product-centric companies move to a new platform model. Here's how to make customers and supplies part of your business ecosystem.

By Beth Stackpole

Follow

Computerworld | Dec 17, 2015 3:30 AM PT

For more than 120 years, McCormick & Co. seasoned its growth by adding new products, slowly simmering its spices, sauces and packaged foods into a $4.2 billion global business.

Now, in its latest venture, McCormick is following a more modern recipe for expansion. Aiming to leverage connected customers in an increasingly digital landscape, McCormick cooked up FlavorPrint, an online recipe and flavor-recommendation engine.

McCormick joins a growing roster of traditional companies pushing into the "platform economy," tapping consumers' appetite for online community into a new economic model where the platform, not the product, is the engine for business growth.

According to Interbrand, 13 of the 30 most highly valued global companies are platform ventures, pushing aside product-centered industry giants that have commanded top spots for decades. Under this new business model, Apple, Amazon and Google are on the rise; Coca Cola and Exxon, not so much.

Moving forward, the platform will trump the product in almost any instance where there is head-to-head competition between companies with like offerings, contends Marshall Van Alstyne, research scientist for MIT's Initiative on the Digital Economy and professor of information economics at Boston University.

Platform players are better positioned to capitalize on the power of user communities and ecosystems to expand their reach and influence to other like-minded users and developers, Van Alstyne says. The upside of being easily able to reach other like-minded users and developers? Greater revenue and increased market share, he says.

When you introduce a platform, you have to change [your] mindset to fostering and managing a community. Marshall Van Alstyne, MIT Initiative on the Digital Economy

Van Alstyne uses BlackBerry and Apple as a study in contrasts. In 2009, BlackBerry (called Research in Motion at the time), owned nearly half the smartphone market, according to IDC, while today, it commands a paltry 2.1% share in comparison to Apple's approximate 44% share of the U.S. market. Van Alstyne says BlackBerry's standing took a nosedive in a large part due to its focus on evolving its product while competitor Apple focused equally on cultivating products and an ecosystem of apps and services.

"It's a different way of thinking," Van Alstyne says. "When we think of products, we tend to think of features -- what are the new capabilities we can add that people will pay for? When you introduce a platform, you have to change the mindset to fostering and managing a community." That community, he points out, comprises not just customers, but other developers trying to serve the same customer base.

A platform-based business model will ultimately drive more revenue than a linear, product-based model, Van Alystne argues, because innovation can come from outside of the firm, resulting in more products and services to monetize. Moreover, an engaged community is primed to buy complementary goods and services over time as opposed to making a one-off purchase.

The transition won't be easy, but it's a mandate Van Alstyne and other market experts say traditional businesses need to take seriously to ensure continued success. "One of the key problems for traditional businesses is they can't create value fast enough," he explains. A platform play addresses that constraint by opening up innovation and courting resources from outside players, enabling greater and faster scale and tightening the engagement with consumers.

One of the key technologies driving the platform business model and third-party engagement are Application Programming Interfaces (APIs). Adopting an open API strategy allows third parties -- developers, business partners or even customers themselves -- to build complementary products and services that increase user engagement and market share for all entities.

What's the CIO's role in all of this? IT leaders should serve as visionaries and strategists, Van Alstyne says -- showing companies what's possible and how to get there. In some cases -- as with McCormick's FlavorPrint platform -- the CIO can ultimately become master chef. Jerry Wolfe, who held McCormick's CIO spot for 15 years, is now CEO of Vivanda, home to the FlavorPrint business, which was spun off from the parent company in 2014.

"Historically, a good CIO was very involved in the operating strategy of the business. Today, because of these trends, the role of a CIO is to be a catalyst in the growth strategy," explains Wolfe. "Today, every company is a software company, and data is the new oil. The CIO's role is to get the different functional areas that are typically focused on execution to be able to come together to understand what's possible."

Ready to play that role in your company? Follow the lead of Wolfe and two other IT executives -- Brook Colangelo of Houghton Mifflin Harcourt and Christopher Caruso of PPG Architectural Coatings -- who are successfully steering their traditional product-oriented companies toward platform-based business models.

Houghton Mifflin Harcourt tells a new story with APIs

Traditional business model: You can't get any more traditional than Houghton Mifflin Harcourt (HMH), the 180-year-old book publisher that counts the Curious George series, Henry David Thoreau and Henry Wadsworth Longfellow among its prized literary assets. That's not to say HMH hadn't evolved with the times -- the firm branched out from books first into educational materials and eventually into online learning products serving educators, students and parents in the K-12 education space.

The platform vision: HMH's platform play grew somewhat organically as the firm transitioned over the years from print textbooks into a series of online portals that delivered content for its various customer segments -- primarily teaching materials for teachers and study aids and testing systems for students.

Though the portals developed as separate and unique brands, HMH began to see opportunity in building a consolidated platform that would provide a more unified user experience while attracting third-party developers to its ecosystem of 16 - 17 million active users. "We basically are consolidating the user experience to unify people, solidify our brand and help people get access to stuff much easier," says Brook Colangelo, CTO at HMH.

The HMH Marketplace, currently in beta and slated to launch in early 2016, is being designed to serve as a one-stop resource for educators, with third-party-developed applications, digital learning tools, games and original content all in one place, Colangelo says.

Video Top of Form

@

Bottom of Form

Top of Form

Bottom of Form

To seed the marketplace, HMH released a developer portal, including a series of APIs that allows developers -- as well as schoolteachers -- to build supplementary products in a sandbox environment that can be directly integrated into the HMH platform. In that way, HMH can provide its user base with access to products and services it might not otherwise offer. "We have a duty and an honor to deliver solutions to our customers that match their needs, but not all those solutions need to be built by us," Colangelo explains.

Another big plus: A platform-based ecosystem makes for a stickier user experience, Colangelo says. "It's different from a traditional product where you ask, what's the revenue or the ROI? Opening up our APIs is more about increasing our level of engagement with our customers," he says.

How they made it happen: As part of the consolidation effort, the HMH team focused on user interface -- revamping the customer-facing portals so there was consistency across the platform. There is also ongoing work to create a service-oriented architecture (SOA), identifying 10 to 12 common services -- log-ins, for example, or a monitoring service used to manage analytics -- that are exposed via a set of open APIs. These common services can be tapped by developers to use in their products, so they don't have to build the capabilities on their own, and they will also help HMH brings its own products to market faster and in a more scalable manner, Colangelo says.

The concept we have been looking at is frictionless innovation -- how can we encourage development on the platform, not outside the platform. Brook Colangelo, CTO, Houghton Mifflin Harcourt

"The concept we have been looking at is frictionless innovation -- how can we encourage development on the platform, not outside the platform," Colangelo explains. Say, for example, a teacher has an idea to create an app to coordinate seating-assignment changes in the classroom. "For a company our size, building that kind of app wouldn't make it past the investment review, but someone else could create that and connect it directly to our platform using the APIs," he says.

Where they are today: So far, HMH has released five APIs, and there are plans to release more over time, Colangelo says. In addition to the ongoing work on the platform, the IT team is pursuing different development methodologies, including DevOps, to ensure platform releases are pushed out in a timely manner.

The biggest organizational challenge, according to Colangelo, is the transition away from a product view to that of a platform mindset. "The coordination and constant reprioritization of that effort is time-consuming," he says. "It is a whole different view and mentality to do this."

McCormick spices up revenue with the FlavorPrint platform

Traditional business model: The name McCormick & Co. has been synonymous with spices for as long as anyone can remember. Despite major setbacks dealt by the Great Baltimore fire of 1904 and the financial doldrums of the Great Depression, the company, founded by 25-year-old Willoughby McCormick in a Baltimore basement in 1889, has stuck pretty close to its core, growing its initial business of selling root beer, flavoring extracts and juices into a multi-billion global behemoth, with spices, condiments, packaged specialty foods and international flavoring brands rounding out its product portfolio.

The platform vision: Changing customer patterns and the rise of the connected customer in particular inspired McCormick's transformation. While only 2% of food transactions happen online, the Internet impacts 80% of all food purchases in some manner, according to Wolfe, former CIO at McCormick. Under Wolfe's direction, the company began to explore how it could leverage its 30-year, multi-billion- dollar investment in food and sensory science to inspire consumers to get more creative in their food choices. "If we could get people to experiment with more flavorful food, our business would grow," Wolfe explains.

Vivanda

FlavorPrint's flavor wheel.

Wolfe's team got to work combining algorithms and machine learning capabilities with the company's massive flavoring data set. The result is a profile of different foods, flavors and textures, along with a matching system that employs predictive analytics to create a "flavor fingerprint" for users. Much like the Pandora and Amazon recommendation engines, FlavorPrint serves up flavor suggestions that are mapped to people's flavor profiles. Customers who like hazelnuts, for example, may also like aged Gouda cheese, while those who prefer black coffee might be interested in a recipe for smoked brisket.

Thanks to an API and services approach, the profile can be tapped by third-party companies and retailers -- it's not just limited to McCormick.com. Moreover, the platform strategy ensures users can access their FlavorPrint account and profile from whatever device, wherever they are, Wolfe says. "It's a service that stays behind the scenes ... so it can be plugged in anywhere and taken wherever you shop."

How they made it happen: Wolfe says cross-functional relationships were critical to getting FlavorPrint off the ground. He built a leadership coalition to foster buy-in for the platform concept, making sure to win support early on from top management, including the company board of directors. "We started to see strategic plans from the highest levels of the organization that had a component explicitly tied to the connected consumer -- not buried somewhere as a bullet point, but as one of the pillars of our strategy," Wolfe says.

There were resources in play as well -- a budget upfront to conduct the early product research and development, and later, an investment when McCormick decided to spin off the platform as its own company. "Not only do you need support, you need tangible buy-in, like money, to make it happen," Wolfe says.

Where they are today: While sales of its flavoring products got a boost after the initial release of FlavorPrint, McCormick decided the platform had greater potential beyond the world of McCormick.com. In December of 2014, the firm cast FlavorPrint as its own business, called Vivanda, and named Wolfe CEO.

The company's platform business model has two core pieces: It helps manufacturers promote products through retail partners by making recipe suggestions and product recommendations based on customer flavor profiles, and it also sells data services that food manufacturers can tap for future product development.

FlavorPrint, and the decision to make Vivanda its own entity, is a reflection on how far McCormick has come thinking outside of the box when it comes to traditional business models. "What we did with the connected consumer led us to the realization that we are also a service company," Wolfe says. "It's been a total evolution in our mindset as to who we are and what we do."

PPG digitizes the journey from paint selection to purchase

Traditional business model: Choosing the perfect paint color for a project is a process that hasn't changed all that much over the years, and it's a similar story on the product front. Beyond extending color palettes and tweaking formulations, paint companies like PPG Architectural Coatings, a business unit of PPG Industries, have been doing the same thing for decades, selling paint products through distributors, big box stores and independent retailers.

Paint providers are also one of the few manufacturing segments that have yet to figure out an effective formula for selling products online, says Christopher Caruso, global business IT director for the firm.

The platform vision: With the advent of smartphones and tablets, PPG Architectural Coatings began to see opportunity for significant change. "A smartphone app delivers color to everyone's pocket, so now we can change the way people start thinking about their paint purchase or decorating project," Caruso explains. Yet simply delivering another smartphone app that helped consumers zero in on the perfect color from the comfort of their home would be parity once again, as all of PPG Architectural Coatings' competitors were doing the same thing, he says.

In 2009, the IT team began to map out a vision of where to go digitally, including filing several patents related to digital color representation that would help them digitize the entire paint-buying process, from color selection through purchase. That effort also included opening up their APIs to third parties that could leverage them as part of their software packages and services.

"The idea was to take what people do in the real world -- getting paint chips and samples, putting them on the wall, deciding on the color they like and figuring out how much they need -- and creating a fully integrated digital process around that," Caruso says. "We didn't believe the [existing color-pick] apps were taking customers [fully] through the journey and getting them where they wanted to go, which is making a purchase."

How they made it happen: PPG took its first step by focusing on color selection, creating a desktop app, released in 2010, that allows users to select a color onscreen and tap into visualization capabilities so they can see the color in the context of their room.

Next came the Digital Color Platform (DCP), released in mid-2011, which works in conjunction with the desktop and mobile app to create a fully integrated platform of color selection and visualization tools, Caruso says. DCP is rebranded for each of the PPG paint brands -- for example, the Voice of Color brand in the United States -- and can be accessed by any mobile device.

The digital color platform was built from the ground up using HTML5 and the Microsoft Azure cloud to create an interconnected system comprising a website component, mobile capabilities and in-store kiosks. Because of this approach, the details of a customer's project (paint colors, room details and specific products) are maintained in the cloud and follow the customer as they move through the process whether they are at home on their PC, using the service on a mobile device or using an in-store kiosk.