In the last few years, companies have made huge investments in digital transformation. Companies need to leverage these investments to unlock business model transformation.
One of the most common business models that we see is this platform model. My guest this week, Alex Moazed, the founder and CEO of Applico wrote the definitive book on platform businesses, “Modern Monopolies”. And now his firm operationalizes these insights inside incumbent businesses.
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Sean Ammirati (00:08):
Welcome to Agile Giants: Lessons from Corporate Innovators. I’m Sean Ammirati your host, co-founder and director of the Carnegie Mellon Corporate Startup Lab and partner at the early stage venture capital fund, Birchmere Ventures. Each week I’m going to talk to guests who are experts at creating startups inside large corporations. I believe fundamentally a startup within a company is the same as one inside the proverbial garage. A group of entrepreneurs trying to make the world a better place using new ideas and inventions. However, I also believe some of the techniques and processes are just inherently different. This podcast is going to explore their similarities and differences.
Sean Ammirati (00:56):
How should large enterprises create platform businesses? Over the last number of years, companies have made huge investments in digital transformation. At the C-suite, I believe the goal was the same across all of these companies’ investments. They wanted to achieve technology multiples on their businesses, legacy business. Unfortunately, most of these executives have realized that digital transformation by itself leads only to incremental improvements, and therefore only modest improvements and enterprise value.
Sean Ammirati (01:25):
What companies need to do today therefore, is to leverage these investments in digital transformation to unlock business model transformation. And one of the most common business models that we see is this platform model. My guest this week, Alex Moazed, the founder and CEO of Applico wrote the definitive book on platform businesses, Modern Monopolies. And now his firm is operationalizing these insights inside incumbent businesses. If your company is trying to create a platform business within your enterprise, this episode promises to be loaded with insights for you.
Sean Ammirati (02:11):
Hey Alex, I really appreciate you joining me today. I thought a good place to start is you coming right out of school. You’re 20 years old, you grab your credit card and start this business that has really blossomed over the last 11, 12 years here. Talk a little bit about kind of what motivated you to do that, and then let’s move to what the business is doing today.
Alex Moazed (02:34):
Yeah, I think this was ’08, ’09, and the iPhone had just come out, and I was at Babson College, and I feel like at that time, maybe somewhat still today, there was this aura around being an entrepreneur. And you would look at the Zuckerbergs of the world and say, “Wow, I don’t know. Could I go do something like that? Could I go start a tech startup? And it seems pretty daunting.” And as a young kid, I remember kind of playing video games. I would play MMORPGs, and you kind of build a little business for yourself. I would make money. And I was in junior high school and I made enough money to go buy a car.
Alex Moazed (03:21):
And I would grow up. I grew up in Connecticut and in an affluent area. And a lot of my friends’ families were very well off and their fathers were entrepreneurs. And as a kid, I remember growing up and saying, “Oh, it’d be kind of cool to be an entrepreneur and have my business one day.” Then you go through the motions of, went to nice private schools and boarding school and that trains the entrepreneurship out of you, right. You’re brought up to work hard, get good grades and get a good job.
Alex Moazed (03:53):
So going into Babson, it reignited the entrepreneur flaming me. It really kind of instilled a sense of confidence, because all the other classmates around you or in my fraternity are saying, “Yeah, I’ll go, I’m starting my own business, there’s some guys raised a million bucks there.” And you’re kind of saying to yourself, “Well, if you can do it, I can do it. And I have so much free time in college. So I’m my own biggest blocker.”
Alex Moazed (04:17):
So it took me a little bit to kind of get that internal confidence and that mindset. And then at that point it was, “Okay, let’s do this. Let’s max out some credit cards and start a business doing apps.” That seemed like a pretty good thing. And I felt like apps were going to be around, or become a pretty important part of our lives, which worked out pretty well. And that was really where the journey started. What we do today is very different from where we started. But I also like to say that it took me about four or five years to figure out the heading about where I really wanted to plot a long-term future in the industry. Because you’re just starting a business somewhat on a whim in college. You don’t really have as much awareness and just context. This is your first rodeo. So after you’re kind of building that skillset and getting those cycles and those reps in, then it really enabled me to plot a much longer term future and put us on the course for where we are today.
Sean Ammirati (05:24):
Yeah. And so let’s talk about Applico today. So you’re the CEO of the business and you guys are really the experts on building platform businesses for these incumbent players in the industry. And so talk a little bit about how you got there, and then maybe the sort of story that you have today. I know you wrote a book as well, which I want to get to as well, but just give me a sense on where the business is today, Alex.
Alex Moazed (05:51):
Sure. So, we use the word build pretty liberally in the sense that if you’re the CEO of a large enterprise and you say, “Hey, I should own my own platform business. How do I go and do that?” And we think about it in the sense of you need to go build that business, but you don’t need to build the whole business from scratch. You need to build capabilities internally, because you have all of these intrinsic assets. You have all these massive competitive advantages that can help solve for scale. They’re locked up inside of your multibillion dollar enterprise. The question is, how do you unlock those? You got to build, you got to build out capability to capture those synergies.
Alex Moazed (06:35):
And then you want to buy. Either invest or acquire a platform startup and put the two things together. Because what we’re trying to solve for is, I’m the CEO of a large enterprise. I used to get this platform thing going. I don’t want to wait five years. I want to do it in like two to three years. And if I could do it faster, I probably would. But at that point, it’s less about the money. Net net if you were to build everything from scratch and it was successful, certainly that would come out cheaper. But it’s less about the money and more about, are we getting to scale quickly? My board doesn’t want to wait five years. I don’t want to wait five years. How can I lower my execution risk, accelerate my time to scale or some level of breakeven. And if that means I need to net net outlay more dollars, I’m happy to do it.
Alex Moazed (07:28):
And that’s where kind of the invest and acquisition piece of this comes in. But you got to put the two things together. How do I put my traditional assets and competitive advantages together with this separate entity and merge the two? And that’s really where the rubber hits the road.
Sean Ammirati (07:46):
Awesome. Can you talk about maybe a company that you’ve done this with and sort of make it real for the audience? Because I think there’s a lot of people probably leaning in like, “Yeah, it is much more about time to market than it is cost to get there.” Talk about a group that you helped accelerate that time to market.
Alex Moazed (08:05):
Yeah. So one of the biggest names would be Ford. A few people might know who they are and they make a lot of cars. And we worked with Marcy and the executive team there. Marcy, she recently left. She was their former head, president of mobility, basically all things kind of transformation and technology rolled up into her. She reported directly to Mark Fields and then Jim Hackett, the current CEO. And so the proposition was, “Hey, cars are becoming connected. How can we monetize? How can we get digital revenue?” And so we look to set up and run a lot of hacks and prototypes and set up proof of concepts to try and test and say, “There’s a lot of this value. A lot of the value being in the fact that they have a huge install base of customers with Ford cars, they have a lot of data that’s now kind of being sent up to the cloud as these things become connected. How could you build a business around that?”
Alex Moazed (09:07):
And so where we navigated to, by failing fast, by standing up prototypes, by doing these hacks is to say, “How can we open up these command and control APIs? A lot of people, historically when they think about making software for the car, they think about putting software into the HMI, basically the dashboard in the car. We tested that. We didn’t really love it. It’s actually very limited. You can’t do very much in the car pre-autonomy because it’s a safety risk. You get distracted and you crash, not good.
Alex Moazed (09:43):
So you want to say, “How can I build software, but not have it be literally in the car.” And then that was this idea around command and control APIs. So, “Hey, I can unlock my car remotely. I can turn it on or off. I can open the gas socket. I can open the trunk.” And then you think about, “Oh, there’s actually a trillion dollars worth of services, pre-autonomy, going in and out of the vehicle every year.” That’s insurance, that’s putting a package in my trunk. That’s getting gas delivered to my car while I’m at work, that’s getting maintenance done on demand for me. “Hey, come pick up my car, do some maintenance, bring it back.”
Alex Moazed (10:21):
Or now you see this whole new industry around renting your car out, like Airbnb for your car. So we went to all the top 10 kind of on demand, mobility tech startups in providing those different services and said, “Hey, if we can open up these command and control APIs to you, would you want to integrate with those? Would you also pay us a percent of revenue?” And they said, “Oh absolutely we would do that, in two seconds we would do that.” And then we started, we kind of sat down that path. And ultimately what that resulted in was there’s a company that Ford ended up buying called Autonomic. And that company kind of had the pipes, all this infrastructure so that you could expose one standardized API to these tech startups. They didn’t want to make 10 different integrations.
Alex Moazed (11:12):
But you know, even just within Ford, let alone multiple OEMs. So even just within each OEM car manufacturer, all the different data and like the computers on the car, if they’re reading a gas reading to you, five different cars will report that thing five different ways. So you got to standardize the data, do that across multiple other car manufacturers. Now that problem just gets multiplied. So how do you standardize the data, expose one common API to app developers and then enable them to create really great digital experiences for the connected vehicle.
Alex Moazed (11:50):
So you need someone who’s going to help build the business case, put in entrepreneurs into the organization to sniff that out, test it. And then go to the other side to the startups to say, “Who are the partners? Who are the producers in our platform talk that would say, ‘Build apps on top of this platform.’ And then who are the startups that you could invest or buy, like an Autonomic that would help enable this connectivity and already have a business with all these pipes and infrastructure in place.” And then how do you put this all together? Now I bought the company, how do you right now integrate all these things?
Alex Moazed (12:25):
And that’s really the role of some kind of intermediary to go figure that out. And so that’s what we do. And we like to think of us as ourselves, as business builders, by bringing both of these worlds together, the large enterprise and the startup, and hopefully how do we get a piece of ownership of either the thing that you’re buying or the thing you’re investing in and building this bigger business on top of.
Sean Ammirati (12:50):
Yeah, that’s awesome. And I love how you describe that. And I think the Ford example really makes it real. How do your clients categorize you? Because I’m finding myself finding that model very compelling, but also struggling to think about how I would categorize that type of work.
Alex Moazed (13:10):
Yeah, it’s a great question. I have no idea, frankly. We’re not bankers, but you need the deal making experience. Ford is unique as they’re a Fortune 10, I don’t know what they are, maybe now Fortune 25. I don’t know, but they’re massive, right? They have huge Corp Dev capabilities, but still buying a tech company is very different for these organizations than buying a company that looks like themselves. So you need to help on the tech M&A side or investing or acquisition side. And then you need to bring the corporate or the entrepreneurship chops and then understand how to navigate the corporate world. You know, we call ourselves a boutique advisory firm for platform business opportunities. So yeah, you’re really just kind of building businesses, but bridging these two worlds, the startups and the enterprises.
Alex Moazed (14:01):
So yeah, it’s the dawn of a whole new thing. We were just talking about it when you came on the show, Winner Take All, which is kind of this, these new options for enterprises to say, “Hey, if I was really to lean into new business opportunities, if I was really to dig deep and figure out how we can much more tightly integrate these new tech driven business models inside of our organization, what would that look like? What would that feel like and how do we execute upon it?”
Alex Moazed (14:29):
And I think that’s honestly the next 10, maybe more, 20 years of corporate innovation. It’s kind of like for the past number of years they were dipping their toe into it. And now it’s saying, “Okay, let’s really open the kimono. Let’s go deep.” And we got to do it much more aggressively now, which is exciting. And I think there’s a myriad of opportunities to capture there.
Sean Ammirati (14:54):
One-hundred percent. So let’s get to your book, because I don’t want to miss that. So you wrote sort of the definitive text on building platform businesses, and the sort of platform business model with your book, Modern Monopolies. I guess talk a little bit about the experience of co-authoring that, and maybe for those who haven’t read it yet, just give them a tease of the takeaways they’ll get to kind of get them excited about maybe going and buying it.
Alex Moazed (15:20):
Yeah, it was a great journey. Nick, my co-author, we grew up together. We went to elementary school together and now we’ve worked together for over six years. So it’s really been fantastic. We launched an ETF based on the book with Wisdom Tree last year called Plat, P-L-A-T. And basically the essence of the platform business model in short is, these are businesses, they don’t own the means of production, they create the means of connection. So they facilitate exchange, and you have two customers. Yes, you have a consumer, but you also now have a producer. And so if I’m Amazon, I have third party sellers. If I’m YouTube, I have content creators. If I’m the iPhone, I have app developers. And so you have a supply base, which you need to think of as a customer, because they are contributing inventory to you. And then you’re connecting them with some kind of demand.
Alex Moazed (16:13):
And you’re there to facilitate exchange. A lot of these large tech monopolies, pretty much all the large tech monopolies, except for Netflix fit this business model. Some of the best platform conglomerates, where you now have multiple platform businesses. So the book details eight different types of platform models like a product marketplace for Amazon or Etsy is similar, but also different than a development platform like iOS or Android. So we compare and contrast a lot of that. We explain why these are winner take all businesses. There’s only one or two dominant players, hence the name Modern Monopolies, and why there’s a lot of good from that, but there can also be some downside from that. And so we work through a lot of that.
Alex Moazed (16:55):
And I think when you look at what we do, again, when you have that winner take all dynamic and you’re saying, “Hey, I’m a platform startup, maybe there’s my company and four other competitors.” This is where scale is almost more important than cash. And that is now the other side of this, which we work with, right, is the large enterprise where you say, “Hey, if I’m a large multibillion dollar company, I’ve got scale. Oh, and I also have cash.” But for the startups, they need the scale. And so yeah, the startups want cash. And during this pandemic, you’re actually seeing a lack of cash, because the VCs are in many times kind of reassessing strategy and hitting the pause button. But really the startup, these platform startups, above all anything else need to solve for scale.
Alex Moazed (17:44):
And that’s this huge kind of untapped value, undervalued value that I say is locked up in so many of these large enterprises. And if you can get access to that value, we like to say, “How can you get tech multiples on your traditional linear assets?” That’s kind of the Holy Grail of what we’re talking about. So the book helps set the foundation for what platforms are, how they work, why they’re so dominant. And I think the next book, I don’t know when that will come out. We’ll say, we’ll talk about this dynamic of platform startups and platform business models intersecting with these large traditional what we call linear enterprises.
Sean Ammirati (18:23):
All right. So that’s really what you do is Applico, right? You as the CEO of Applico, you sit down with Fortune 500 C-suites and boards and you help them either build or buy these platform businesses to get these digital multiples on these linear businesses. Obviously it’s hard to summarize all that work in a couple minutes. But if you were to give one or two pieces of advice to a C-suite executive right now exploring this, what might be your first couple of pieces of advice to them?
Alex Moazed (18:56):
Sure. So my advice to C-suites at large traditional enterprises is that I think for these types of things to be successful, where you’re saying, “Hey, we’re going to embrace a completely new business model, which could arguably commoditize part of our existing business today. But certainly long-term is a strategic asset and model that we need to embrace, right? And very often in these industries, that strategic heading, that North Star is very obvious. And it’s very obvious, because if the enterprise doesn’t do it, they’re called an incumbent enterprise for a reason. And the reason they’re called an incumbent is because not because of the startups are competing against them. It’s because you have a large tech monopoly that’s already in your backyard.
Alex Moazed (19:44):
So if you don’t do it, it’s really not a question of startup or incumbent enterprise. It’s really a question of, is the large tech monopoly going to capture 30, 50, or 70% of the market? And how much do you want to capture? Because if you just continue to incrementally improve, do traditional digital transformation, which is kind of like making incremental improvements to your existing business model, you’re digitizing the existing model that’s been around for however many decades. Yes, you need to do that, but you also now need to embrace the new business model, the new way of doing things. And this is that question.
Alex Moazed (20:26):
And in order to accomplish that, my advice would be you as an executive team need to be involved. If your CEO and you as a C-suite member, if your CEO cannot allocate 30 minutes a week to a sync phone call, then don’t bother. It’s not going to be worth it. It’s not going to work. You’re going to waste your own time and everyone else’s time in doing this. So it needs to start at the top. The board needs to embrace this, and it doesn’t mean you need to go and do a massive acquisition in year one. You can dip your toe into it, but you have to allocate the time. Otherwise it’s not going to work because you’re going to be going across multiple business units. You’re going to need to be changing processes or making exceptions that those exceptions can’t take months to make, they need to happen much more quickly and iteratively. And you need to try and bridge this divide to … You’re never going to move at a startup pace, but if you just continue to move at your pace, it’s just going to break and fall down.
Alex Moazed (21:26):
And so you need to embrace these existing platform startup businesses. So those startups can’t move at your existing timeline. So how do you kind of meet in the middle, right? And the only way that’s going to happen is if you have executive involvement from the get go. So that would be the first point of recommendation. The second point of recommendation would be to embrace the dynamic that you don’t need to own the whole business outright to get all the advantages. You could dip your toe in and say, “Hey, we’re going to be a strategic minority investor. And how do I now start to build that organizational readiness?” I think for most of, even I’d say the Fortune 500 traditional enterprises going and buying say a platform business outright is probably the wrong move, but could you go and take a five to 20% stake?
Alex Moazed (22:25):
Could you go and start these partnerships and proof of concepts and start to build that organizational readiness, that kind of cultural skin and kind of that memory, right? That muscle memory to embrace before you go kind of all in and say, “Yeah, we’re going to go spend however many hundreds of millions of dollars and billions of dollars and own this business outright. So there’s a way to gate this and to iterate, even in these models. It will inevitably probably dilute or compete with part of your core business. And that’s also another reason to say, “Let’s just not go all in on this, but how can we take a step?” It should do two things.
Alex Moazed (23:05):
It should fit that long-term strategic box, but it should also drive short-term immediate impact. Is it either increasing my revenue in the short term, or is it giving me some other kind of operational synergy or cost savings? And if it isn’t checking both of those boxes, it’s not going to work, right? You as an executive of a public company that is needing to deliver quarterly reports, it does need to thread the needle. And that’s hard to do, but what we’re not saying is, “Go make some big bet and then a few years it’s going to pay off.” You need to balance the short and the long term. That’s the hard part about this, but it is achievable and it is doable.
Sean Ammirati (23:47):
Yeah. I think that’s both really great advice. And I actually love how you started as well with this kind of … I do a podcast once a month on Cloud Wars, which has done a really nice job I think covering the digital transformation and cloud revolution. But a point I’ve been making on that you kind of recurring series over the last six months is that digital transformation today is really table stakes. It’s really about business model transformation. And I think the good news is that the money invested into digital transformation has created organizational readiness for business model transformation. But if you stop at digital transformation, all you have is incrementally better customer experiences, incrementally better supplier experiences, which are incrementally better, but still leave you very vulnerable for disruption. And I just think across the board, whether it’s a platform model or subscription or other business that you’ve got to transform your business model.
Sean Ammirati (24:43):
And I think over the next few years, that’s going to be the area, I think business model transformation will become as strategic a topic in the C-suite as digital transformation was over the last five years. Because I think people did digital transformation to get the enterprise multiple that you talked about to change from traditional multiples to digital multiples. But the problem is, Amazon’s not worth what it’s worth today just because it’s the digital business. Amazon’s worth what it’s worth today, because there’s a culture there of taking one out of 10 bets with 100 X payoffs all the time. And these large enterprises need to embrace that.
Sean Ammirati (25:25):
And I think what’s really exciting about the work that you’re doing with groups like Ford and other groups is you’re giving them a real playbook where it’s not just, “Yeah, I want to do that. That sounds good to me.” But it’s this crawl, walk, run kind of staged approach to implementing that strategy. So I think that’s awesome. If people want to get in contact with you and talk to you more about this, what’s the best way to find you?
Alex Moazed (25:51):
Well, I guess our website or social media, and we create a lot of content they can watch and they can listen to this. They can watch my show, Winner Take All. And you know, I think there’s a lot of learning that needs to be done in order to do this right. And we just launched this thing called Enterprise Hacks, which is this community for corporate innovators, kind of like a watering hole. If you think like, hey, you’ve had a lot of things happen to corporate innovation as you were talking about past five, 10 years, but how do we move from just digital transformation to business model transformation? It’s very new and this is a new topic and how can you help bring people together? So we launched this thing, it’s at hacks.applicoinc.com, our community. And so it’s a long journey, and there’s a lot of dialogue and learning to be had on all sides.
Alex Moazed (26:48):
So yeah, I mean, and lots of ways to engage in the conversation, and just collectively try to learn from what everyone’s doing in this. I think at the end of the day it’s really about, if I was to oversimplify it, you have the large enterprise incumbents, you have the tech monopolies, and you have these startups. And I think historically there’s been a little bit of a stigma from the startups being skeptical or reticent to work with the enterprises. And in my mind, it’s kind of like, “Hey, the enemy of my enemy is my friend.” And if the ultimate threat is the tech monopoly for both the enterprise and the startup, how can these two groups work more closely with one another, because they need it, now more than ever.
Alex Moazed (27:34):
We’re seeing, just because of this pandemic, the tech monopolies get even stronger, amazingly healthy balance sheets, continuing to double down and reinvest in growth and incumbents and startups having it tougher. And so now more than ever these groups need to work together to try and achieve this greater goal and just bring more equilibrium or balance to the state of innovation and where it’s coming from. So yeah, love to connect further and just keep the dialogue going.
Sean Ammirati (28:03):
I couldn’t agree more. I feel like we could have a whole nother 30 minute conversation on that. But in the interest of being respectful of your time, I just want to wrap up with one last quick question that I like to ask all guests, which is wind back to the beginning of this career journey for yourself. So you’re 20 years old, you’re graduating from college. What advice would you give to an Alex coming out of school in 2020 today who wants to have a similar career path to yours?
Alex Moazed (28:28):
I mean, I think you got to surround yourself with the right people, both on your team, on your board, your advisors, if you have investors and in your personal life, right? You got to surround yourself with the right people. At the end of the day also it’s going to come down to you as the individual. And do you have the confidence in yourself to drive this? For me it’s been over 11 years. There was probably a three year period of time where we didn’t have two weeks of runway to live. Sometimes we had hours to live, right. And I think, especially now, given the times that we’re in, how do you stay positive? How do you keep that confidence? How do you say, “Hey, I’m going to make it through this. And when I do make it through this, there’s going to be greener pasture on the other side.”
Alex Moazed (29:14):
Surround yourself with the right people to keep yourself sane, and moving in the right direction. But ultimately you can achieve it if you want to do it. And that was the thing that when I was sophomore, junior year of college, I kind of got a little bit of that confidence. But that confidence in the individual it’s super important, and no one else is going to chase this thing down as aggressively as you will, as that founder or that co-founder that’s going after this. So now don’t let any good crisis go to waste, right? Now there’s actually a tremendous amount of opportunity on the table. And so how can you adapt to the new normal, get that confidence and charge forward. Because that’s what we need to start to rebuild and get out of this thing.
Sean Ammirati (30:04):
Alex, I think that’s a great note to end on. I appreciate you making time today for Agile Giants and we’ll include links to the sites that you mentioned in the show notes as well.
Alex Moazed (30:13):
Thanks Sean, stay safe buddy, and great talking to you.
Sean Ammirati (30:16):
You too. I hope you enjoyed this episode of Agile Giants. If so, consider sharing it with a friend. And if you think it’s worth five stars, which I hope you do, please go to iTunes and rate it so that others can find this content as well.