PLATFORM STRATEGY FOR YANGON CIRCULAR LINE RAILWAY SYSTEM

“When a platform enters the market of a pure pipeline business, the platform virtually always wins.”

Back in 2007, the five major mobile phone manufacturers – Nokia, Samsung, Motorola, Sony Ericsson, and LG – collectively controlled 90% of the industry’s global profits. It was then, Apple’s iPhone bravely jumped into the fiercely competitive ring and swiftly winning away market share from the competitors.

By 2015, iPhone single-handedly controlled more than 90% of global profits while most of the former incumbents were clocking up annual losses year after year.

What’s the Reason for iPhone Rapid Rise?

How can we explain the iPhone’s rapid rise to domination? What was the reason behind the free fall of the competitors? Nokia, Sony and others were no weak and poorly-run back-street stores. They had classic strategic advantages that were being taught in all major business school classrooms: strong product differentiation (remember that ‘top of the line’ 3310 model and the sharp annoying peeping tone for text messages?), well recognized and truly trusted brands, leading operating systems, world class logistics, protective regulation, big R&D budgets, and massive market share and scale. And all these companies looked stable, profitable and indeed well-run by top quality executives.

Certainly the iPhone had an innovative design and great capabilities. But in 2007, Apple was a very weak and totally non-threatening small player to these mobile phone giants around. It had less than 4% market share in desktop operating systems and none in mobile phone market.

The main difference is that – Apple overran the competitors by exploiting the power of PLATFORMS and leveraging the new rules of PLATFORM STRATEGY. Platform businesses bring together producers and consumers in high-value exchanges. Their chief assets are information and interactives, which together are also the source of the value they create and their competitive advantage.

Apple understood how to structure the winning Platform Strategy by using its operating system as more than a product of a conduit for services. It created a system as a way to connect participants in two-sided markets –app developers on one side and app users on the other – generating value for both groups. As the number of participants on each side grew, that value increased – a phenomenon called “network effects,” which is central to the Platform Strategy.

Apple successfully created extra value to all stakeholders by offering Platform Strategy for all – app developers, consumers, and third party content providers alike.  Apple focused on ECOSYSTEM VALUE instead of just customer value.

Why not Sony?

As the company that gave exciting Walkman that we all loved, fashionable Vaio notebook, and high-quality TV sets, Sony had every piece of business type that could have been combined into a successful Platform Strategy. It had an attractive mobile phone & Walkman type of portable hardware, music and movie contents through its publishing and distribution companies, and everything else needed including highly capable and well-respected leaders.

Unfortunately, Sony could not come up with a workable platform strategy for all parts of ecosystem to contribute, interact and finally create value for all stakeholders. Therefore conceding the true winning Platform Strategy to the ‘weak new comer’ Apple in the end.

In other words, while Sony was busy building product/service Pipeline, Apple came in with the winning Platform Strategy.

What’s the Need of Platform Strategy for Yangon Circular Line Railway?

You might wonder (rightfully so) why the boring government monopoly like Yangon Circular Line Railway would need Platform Strategy? What is there to ‘win’ for them?  Yes, we understand that it is a public transportation service and will more or less be a monopoly without any other direct ‘railway’ competitor to outdo in the near foreseeable future.

Yes, it is being thoroughly studied and planned with local and international partners (mainly from Japan) to revamp the system to make it better for the daily commuters. Please allow us to make it clear that the process that the government took (or is taking) is NOT WRONG. It is the traditional well-proven process that the whole world would do to develop a railway system, any transportation system really.

After all, the usual process of railway or public transport system development is that the government would engage an expert rail developer for feasibility studies (it is usually always feasible, somehow), come up with specifications and requirements for the system, go through the tender process to develop the railway system (or negotiate directly with a foreign government recommended consortium of rail developer, coming in with foreign government sponsored special long-term loan), start building the rail system, and finally operate it under the PPP or BOT arrangement.

It is all good and fine since the daily commuters would get to enjoy the shiny new rail system in the end. But, in reality and most of the time somewhat invisible to the general public, the government (either city, state or country government) is left with a very heavy burden of loan to pay back for the next generation, potentially depriving allocation of funds/budget to other areas of development needs.

And based on the 2011 reported US$630,000 annual revenue and US$3,900,000 annual expenses of Yangon Circular Line Railway, it is highly unlikely that the loan can ever be successfully financed even if the ticket prices doubled and user numbers tripled or quadrupled after the new railway system comes into operation.

But Myanmar Strategy strongly believes that Yangon Circular Railway System can utilize the fully integrated PLATFORM STRATEGY even for this ‘boring’ monopoly of government & foreign funded railway as an opportunity to WIN in the long-run.

Platform Strategy for Yangon Circular Railway System

Our recommendation is to think out of the box and have a creative (and yet very simple) solution for the long-term success of the railway system.

Instead of having the traditional rail system development company comes in with the traditional ‘piece-meal approach’ of rail-only solution, Myanmar Strategy strongly believe that the government (and citizens) would be much better off by developing an INTEGRATED LIFESTYLE AND TRANSPORTATION ECOSYSTEM for the daily commuters and residents alike from the very beginning.

Let the Rail System Developer come in with its own Consortium/Team of Real Estate Development Expert, Funding Partner Bank and also potentially a Feeder Bus Operator to propose to the government with a PLATFORM ECOSYSTEM including, but not limited to, the following important components:

1. How each of the 35 current railway stations’ valuable land areas can be developed into town centres (We have identified appropriate locations for at least five large-scale town centers and five more mid-size town centres developments for a start).

2. How these town centres can be developed and utilized as lifestyle hubs for the commuters and residents alike.

3. How the real estate developer and operation entity can operate under BOT (lease) arrangement system to generate leasing revenue from such valuable real estate assets to be developed at ten station locations (at least) and to utilize the free cash flow generated to fund the railway system development costs (in addition to the real estate development costs).

4. How the feeder bus company can serve shorter routes connecting to each station, potentially cutting the need for longer inner city bus/car rides.

5. And finally how the consortium Bank can fund the real estate developer and rail developer/operator based on the future cash flow to be generated from this whole ECOSYSTEM of PLATFORM.

The big advantage for the government would be to receive the extra percentage of operating revenue (based on the BOT agreement) flowing into the account instead of facing the heavy burden to finance the long-term loan repayment and the ‘invisible debt’ passed down to the next generation. The government will also be left with a well-proven and successfully operating rail system, feeder bus system and thriving lifestyle hubs for happy citizens with just some minor maintenance/improvement works required at the end of BOT agreement period. Commuters and residents will not only gain access to neighborhood lifestyle hubs, but also get to enjoy the well-organised feeder bus in the neighborhood that is linked to the shiny new rail system.

Our internal numbers show that this Ecosystem based on Platform Strategy will represent to be the long-term successful model for both government and citizens.

Who says that the winning PLATFORM STRATEGY is not necessary for the ‘boring’ monopoly of Yangon Circular Line Railway System?

Disclaimer: (a) At the date of publishing this Insight, Myanmar Strategy does not have any financial interest in Yangon rail or bus systems. (b) We have developed the initial financial simulating models to come up with the above feasibility conclusions. (c) If required, we would be happy to share the information directly with the government as our goodwill gesture to support (in our little way) towards the continued development and progress of Myanmar for its citizens.