I mean you've all seen this data between 2007 and 2017, the number of evaluation of platform firms has increased tremendously and it's not very surprising that under those conditions everybody wants to become a platform rather than a traditional firm and this is the last example. I found even the firms want to become data centers, platforms and so on. Actually in this case they did want to become a platform. Among the partners of a digital chair at TAC for instance, Accor Hotel, which was a pipeline company has recently launched a platform in order to compete with booking.com and so on. Huge amount of debates in competition policy center about the fact that for instance big car manufacturers are more and more becoming platforms where they integrate the data of lots of subcontractors and we don't really know how to manage them from a competition policy and you can think of many examples. So this creates I think two different types of problem. One problem is from the viewpoint of the theory of organization, the economics of organization, what does it mean that we go from what we call a pipeline organization to a platform organization. The second one is what does it mean for the economy at large and in particular what does it mean for public policy. The round table will very much concentrate on the first topic but I do hope that it also gets some things going in some of your brains to think about what should be done in terms of public policy. We've got three very good speakers. First Jean-Luc Vincent-Fran from, they all speak French so we're switching to French in about 30 seconds. Jean-Luc will speak to us about the Skywise platform of Airbus, which is a really fascinating example of a way in which company which still used to produce planes, still produces planes, also produces data and so on. Hopefully you've made sure that your company used an Airbus to bring you to Toulouse. The second speaker will be André Hageau from Boston University who's been very kind because he was supposed to go from Singapore to Boston and accepted to stop in Toulouse on the way. You all know that he's done a huge amount of work on architecture of platforms in particular but he's also done quite a bit of thinking and some consulting on the transformation, the integration of platform aspect into firms and he will speak to us about what this process entails. And finally Patrick Legros who's from ULB, who's very, very well known for his work on the fear organizations. We've given him an impossible task because there's been really no work done on the link between the theory of organization and this transformation. So we've asked him to speak about it. So we'll see what he could do over Christmas break in developing a new theory. And finally we'll try to keep the discussions relatively short. The last speaker is you, we hope to have a discussion between the members of the panel and you in the audience. Jacques, if I can now get... Show me how it works, as it is digital normally. Is that you? Good afternoon. We started in Airbus in the term of digital world. That story started a few years ago. We have started it because before 30, 40 years we are speaking about IT, digital and obviously a lot of... Each year we have members who make power tasks that we continue to try hopefully for the next year. But three years ago... Yeah, I will try. Three years ago we created a dedicated department called digital control management. Just with the ambition to understand what's happening in terms of digital but also accelerate... Understand what's the new trend of technology and the new digital buzz world at that time was being behind and what the application can be in Airbus. Being an engineering and manufacturing company based on processes, based on regulation, based on safety. We were not so used to use really the digital as a neighbor for speaking of speed. So we are spending basically two years to incubate first, understand, look about the technology, what technology can provide to our business. Really make some minimum value practices that we can demonstrate to our business that we can make things different, faster and deliver value. That will be a term that I will repeat many times. Deliver value doesn't mean that we get money in our pocket. We speed up a process, it does not say that we will get straight a new budget in my pocket for developing something else. And we will see later on how that influence also the digital world. The business value is a key word which is challenging a little bit the boundary in our big organization. So since I would say mid of last year, we have started to really have used case which after having obviously demonstrated and discussed with our customer, worldwide customer but also the complete ecosystem, everybody find a case to really get business value. And they were asking us to go further to really make a digital world on top of the aircraft. And I will just tell you a little bit where we stand today and what we have to do. So just to give you also the understanding that it cannot be one department in the DTO with 60, 100 of people that can really change a complete company as a bus. What we have to do is to really show and transfer the know, train the people but let them make the business value in their own department afterwards. We can coach, we can accompany once we have demonstrated the use case, it's up to the stakeholder to make the business value happening. And that's very important because it's about transformation. This is not one guy in one area which is capable to change the company, it's all the companies are tasked to move together at the same time. So we have a vision, that vision has been spread all across the company. Basically everybody is happy to read it but there is a but because it's about transformation. It's about getting out of the comfort zone. It's about spreading the boundary. It's about more collaboration and obviously it creates a lot of friction everywhere. Having the, let's say, organization which is working pretty well but at a pace which is today not the right one where we want to speed up when we want to really enhance, foster the collaboration, it creates some reluctancy which are human being. So for overcoming that we have invested in new talent, new skills all across the world which are today capable to demonstrate, to accompany the business, the technical evolution and in particular the so-called buzzword and we have some of them where we have already progressed and we have skills, we are transferring the know-how to the business but it's up after to the business, to our business to take it, to adopt it and to make their own transformation. Knowing that we are there behind to campaign and to make sure that the company is continuing to sustain the effort all along the cycle. So I will not go through that, you know, basically all the topic, the big data is one of the most interesting where we have today and that will be the next discussion. Connecting the dot, ensuring the digital continuity, restoring the digital continuity all across the 40 years of legacy system which has been built in different organizations in different countries, different, let's say, life of the product. Most of them have been upgraded, some of them have been retired but some are still there since 40 years and still delivering aircraft. So you can imagine that even the know-internally nervous is not yet anymore in. So we have a certain level of maturity, we are not excellent everywhere and we are discussing about artificial intelligence which is something where everybody is dreaming with that term but today clearly we are not engaged significantly in that. We are still monitoring, looking at, experimenting but not really moving forward in that fast enough in that direction. One of the most mature is obviously the analytics where the business value were coming from. Putting all the object of the company together, starting to combine them and analyze in a different manner. Overcoming all the boundary from the former silo, I don't like that term but anyway it's the case, engineering, manufacturing, flight test and so on and so on. When you put all together the data and you can really from the design down to the in-service data demonstrate the behavior, the way, the data and the aircraft and the product and the quality is evolving. It helps a lot either to improve the design, either to reduce the cycle, either to improve the performance of the product. So that's where we are the most advanced and it's that particular line where our customer were pushing to go further. For that we introduced something in the company, which is to say we have two big digital projects in the company. One which is much more long term where we need to rethink all of our processes from manufacturing, design and support. This is something AV, which will have a significant cost. It will run up to 2023. So we are creating obviously 3D experience and many things with the technology but based on the existing process. We cannot today switch off and switch on with a new system from one day to the other. We need to continue our craft. We need to continue to secure the deliveries and the safety of the aircraft. So this one, the first one is called digital design manufacturing services. This is a complete company project but this one will take time. It will reconsider the process, stretch them and make sure that the digital continuity is a real enabler for the company tomorrow. Meanwhile we have also enabled Data Lake with a lot of analytics feature with a lot of user friendly interface which are really helping us now and our customer to rebuild the digital continuity. It doesn't say that there is no big challenge but it's about cloud, it's about analytics and it's about data. I will go a little bit further. Having launched the two initiatives, they are completely complementary. One will be the repository of the source of data. It will be a long-term journey to rebuild the digital continuity from, as I say, the design up to the in-series aircraft managing the full cycle and being capable to really look about the pain point, remove the friction and obviously generate more business value reducing the lifecycle of the development or the troubleshooting. So we launched a brand which called Skywise. Skywise is a brand which is aiming to really develop analytics services all across the ecosystem. When I say ecosystem, it starts with Airbus for sure. We experience ourselves all the benefits of that platform but we are also delivering services now to our customer, the airlines and we aim to go further with our supplier and even more with the whole ecosystem of the aeronautics. It's a race. We have basically, we assess two years, one and a half years advance compared to the competitor but everybody wants to be the platform. Everybody wants to be the reference to really host all of the data and being capable to link that data provide the business value to the customer. Whatever the customer can be, it can be as I say the airline, the one which are operating the aircraft but also the passenger but also the authorities which have an interest and more importantly the supplier. Our supplier which are providing part for the build of the aircraft but also to maintain the aircraft later on have a real interest to see how to behave to reduce the cycle, to manage the stock. So there is immediate business value when you start to combine all of that data together. So the ecosystem is the target. We decided to start by our customer, the one which are really willing to get that business value and let's say that we have an exponential adoption today. Even if we are asking to sign contract and you will understand why because obviously we cannot go like that, opening data to everybody without having a minimum framework of contractual framework with the company. In let's say less than 8 months we were capable to convince more than 50 airline and that 50 airline are already getting the business value of that platform by putting their own transformation, all their own business object together linking them, making the digital continuity and speaking at the process. I will show you some case. Just for the sake of time I will have a bit speed up but feel free to raise question after. So basically we have three drivers to generate value and even more but that one have been somewhere acknowledged by everybody. The first one is internal of any vertical branch. The ability to really link the different department, the object of any department, procurement with design, with manufacturing, with support, with after sales. We are all working in silo and that big company and the fact that we can put the data in the same place link that data together and combine through the analytics that data to deliver value is creating already for their own purpose a competitive advantage. That's the first one, vertical one which is called internal providing that space is already enabling business value for our customer. The second one is about industry if we are capable to partner with the other, in particular benchmark look about the best practice applied by one of my competitors but in a neutral way we can benchmark ourselves. We can obviously approve the way we practice the business. And the third one which is working transversely, how can we really share the speed, the benefits of linking together the different processes independently of the competition which is still there because there is a lot of friction everywhere in the system which is just latency. If we can reduce the latency we already save a lot of money. And save money is not necessarily hard money just to make our passenger feeling more comfortable. If you can reroute the flight preventing that the passenger is sitting three hours in the airport, it's already a benefit. It's a customer satisfaction. Right? So just linking between the airline and the airport and the airline being capable to reroute another aircraft which was on the tarmac because the MRO informed that it was available. It's already making a lot of progress in the airline business. So we are very generic at that level. I think that you can raise questions later on. In let's say less than eight months as I say we were able to provide a platform to provide a self-service to the airline and to gather the trust of the airline because it's about trust as well. They are sharing their data. We combine their data. We are enabling them to make the analytics with their own data but we are also providing them neutralized data to benchmark themselves. Which is a huge value. Obviously they will not compare. If I take Air France they will not be capable to compare with Lufthansa. This is not the purpose. But with all the company in Europe performing with a 320 and fuel consumption or the availability of the aircraft in average is already a benchmark for the airline to see if the aircraft is operated properly and if they can improve the way they operate the aircraft. So that's already 53 airlines which have already committed to come to the platform. We aim to get 100 airline which is the critical size that we have assessed to be the platform on the market. And we aim to get that by let's say end of 2019 and to be a bit challenging hopefully by mid 2019 then we can really develop this case with the airline. We have offered them 25 what we call workflow. The workflow is something which is quite simple you can develop it in less than a week. That's the purpose. We are not developing huge application but just linking the dots, making the digital continuity within the airline and showing them the business values that they can extract. The adoption has been immediate. Now we have some challenge. Anyway, having said that you can imagine that offering all of that is offering also a lot of key challenges in front of us. I'm not discussing about business case. I'm not discussing about convincing the airline and getting a contract sign. But there is behind that people is a challenge because people have two mindset. One which is willing to go the other one willing to protect because they are afraid. And that's really something which is about change management which is about mindset and we are seeing that internally in Airbus but we are experiencing the same with our customers. And in particular in the IT department where they were somewhere the king of the place and now we are offering to the hand user the ability to do things which was taking weeks, months, years, sometimes in two clicks they can get the analysis done. Security. Security is for many systems now on the cloud is really a threat. It's a battle. It's a race. We never win. We can only loss. We are deploying a lot of resources. Thank you. To at least be in front of the security and being capable to anticipate rather than bear. Data governance is also a subject that is really touchy. We are facing obviously internally the way we deal with the data to make sure that it's the source of truth. We have so many source of data that sometimes without and it's the same everywhere. But we have also to face to the compliance. Compliance to the GDPR, the personal information. Compliance to the export control which is a regulation worldwide. So this is opening new things which was not as of today on the table since it was operated internally. Organization leadership as I said, it's really amazing to see how some people feel really frustrated because we are providing the transparency the complete hand-to-hand visibility on the data which is opening obviously opportunity but also leadership issue. Technology. We are moving fast. We want to continue to move fast. It's very demanding but it's also sometimes challenging because our business rely on things which has to be up to run 24 by 7. When an aircraft is flying there is no way to have a disruption and not be capable to monitor what's happened. It's becoming business critical and business critical on new technology it's a challenge I can tell you. And then we are also experimenting new way of working based on agile technology. Agile technology is also another mindset. We are not discussing anymore as we were discussing roadmap, business plan and so on. We are really now agile making incremental improvement. Discussing with the customer and not spending time to write specification and to read the specification to validate and so on and so on. It's really 300 people now which are working on a plateau, clearly a complete plateau and working in agile mode. We call it scaled technology which is called safe. We are not mature at all. We are experimenting. It's improving every day but it's a real challenge but the benefit is there. We are today connecting directly with airline. Directly with our internal customer and we are able to deliver the value immediately on a question of days and not in a question of months. That's really where we have also another challenge which is about cultural change. It raises another point which is about the threats of the change, the threats of getting out of the comfort zone the right to fail because it's also the case sometimes we are failing, we go fast but we have the right to fail but the benefit is that the time to fail is short then we can succeed faster as well. We conclude on that one and we'll be open at the time for the question. Is it okay? I'll try to speak loud. You guys can hear me, right? In the back, okay. Not coincidentally, I actually have the same purchase line as you. I mean, not surprising, just it's a good background for everyone today talking about turning products into platforms. So the idea here is we know for like past 10, 15 years that platforms are very valuable. If you look at the companies that we tend to mention here, all of these companies were born as platforms. I mean, the platforms that you rely upon were platforms from day one. So what we're interested in here and more generally for other companies that were not born as platforms is well, under what conditions should we try or attempt to turn products or services into platforms? I mean, that's obviously a very good question for Airbus but I think it's true for most companies that are not Facebook, Google and so on. So actually before I talk about how you turn products into platforms, there's an interesting question like why would you do that? So why is the rest of the world envious of platforms? And the answer is very simple, right? So actually I got this from Intuit, which is a company that I work with on this transformation and one of their executives said, listen, it comes down to fear and greed. So fear is I'm in this competitive battle so every day I have to put out a better feature in my product, in my competitors and that's very exhausting. Coming up with new features all the time, it's actually and you don't really get sustainable competitive advantage. Meanwhile, who's looking at the rest of Silicon Valley, companies have platforms and the idea is if I become a platform, competition becomes easier. If I'm the successful platform, if I'm the really the big platform guy in my industry to some extent I can relax a little bit, right? Because of network effects the idea is you have more sustainable competitive advantage and the greed part should be pretty easy. It's also related to this and to become a platform, have a product and somehow magically I turn this product into a platform, what I'm hoping to get out of it is well new sources of revenue, more stickiness, switching costs, kind of dominance that platforms typically tend to enjoy. And I just wanted to show you this picture, I mean basically nothing else makes sense this is like a really good illustration of what you're hoping to get for a product company. So I didn't come up with this, this was the picture that I was looking at, the ones for you created for an article that I wrote on turning products into platforms and I think it captures what we mean very well. So I'm hoping everyone here knows Transformers you should watch. I always feel funny like making the ballistic for that movie in France, it's a great movie, very insightful. Especially after you read the article. So the idea is you take a product like a post-vac in Viro it's like a tiny little product and then all of a sudden it transforms into this big beast that's what, you know, that's what this should evoke. If you call a platform somehow it's a lot more powerful. So anyway, now just one note before I get into the how you turn products into platforms I mean the answer for a lot of companies is probably the answer should be no. So I actually played this game and I've done this a few times with my students now where I take a random product, typically boring products, I actually did bottled water and I asked them how would you turn a bottled water company into a platform actually since we have 45 minutes maybe we should try this in the audience.  You can have a lot of fun with this but you know you can do this and you can be very creative and think about many different ways in which any product or service has some way to become platform at least in principle. But in the end obviously the answer can be no right. In the end maybe in the organization there's organizational issues or lots of other problems that may say look I mean it's interesting idea but it doesn't work for everyone and stick to being a product or service. However I think it's a useful exercise for more companies than probably recognizing. So this is basically what I described in the Heart Business Review article I'm going to go through four different ways in which you can turn products into platforms and I'll just use a bunch of examples I'm happy to talk through others and in particular I was thinking as Jean-Luc was presenting which one of these applies best to customers. Actually I don't have a good answer for now so we'll talk about it later. So let's start with the first one. So this I would say is the easiest and the one that everyone kind of has in mind. I have a product or service, I have customers and then there's a bunch of third-party sellers who may benefit by actually very interested in reaching the same customers. And basically what you do is you give access to these third-party sellers to your customers within your products. It has to be within your product in order for that to become platform. So very simply I mean the easiest example is the iPhone. I mean I know it's hard to remember now but initially when it was first launched the iPhone was not a platform. I hope everyone remembers this. So for a year it was a closed product they did not take specifically is that we do not want third-party developers. Now we look back in retrospect say what are you thinking Apple? It's very obvious that this should be a platform. So what did they do? They simply took a product and then they opened it up to third parties and they opened up the software APIs. And then they built products for this. A similar thing for Salesforce. So Salesforce I would say is probably one of the most successful transformations from a pure product company which was customer relationship management into a platform. So Salesforce today it's mostly it's much more platform than it is a product and basically it's the same idea. They just invited a lot of third parties to offer developers to offer other pieces of software products to their own customers. And what's interesting about this is especially in the case of Salesforce they also invited companies that at least partially competed with the offering with the baseline Salesforce product. Which I think it cuts across all of these examples. I think the idea of turning the product into platform works even if the third parties that you're inviting are actually partial competitors. And actually I have a paper about this now with Bruno Trivino. I think he's not here. I'll present it tomorrow. In some warm country. And then so by the way so obviously it's very easy and it's very easy to get carried away and do this with digital products but I do also want to have to give you a sense that this is definitely possible for boring brick and mortar products. So gyms have started to do at least in the US there's some big box fitness centers with gyms that do this. So the idea here is something like the New York Sports Club instead of providing all their own classes with all their own instructors they said listen we can't keep up with all the new fitness trends like go to yoga and stuff like that. We'll just get third party studios to come in and they essentially they rent out space to those third party studios to run classes within that gym. There's lots of interesting things about the arrangements but basically it's no different than Salesforce except it's not software. So the idea is I invite third parties I give them access to my customers under certain terms and then you know I kind of control I still have some control over the relationship. And there's lots of I mean there's a lot of examples here so this is very recent in Europe so banking you can start seeing the same examples of Deutsche Bank was one of the first ones. They opened up access to their customers to third party banks or deposit sellers to actually kind of competing with Deutsche Bank. And the idea is well yes they're competing but at the same time there will be a platform for this we'd rather be the you know we'd rather become the platform even at the risk of kind of disrupting ourselves or like using some of the some of the value that we offer to our customers and giving that to these third parties. Alright so that's the first scenario. The second one is a little bit different so now suppose you have a product or service and you have two customer segments for whatever reason there's two customer segments and suppose they want to interact with one another. Outside of your products and the idea here is like I can become a platform by enabling that interaction. So I should have said this at the beginning when I say platform I always assume from this audience is fine I always I'm thinking multi-sided platform in particular and so I know in industry people use the platform much more loosely than we use it here so when I say platform I really mean there's multiple customer groups interacting on the same you know on the same platform which is different sometimes in industry when they say platform it could be an internal platform it could be something that's not really used by multiple external groups here like it really has to be multiple external groups. So a good example of this is one that I worked on at Intuit so Intuit QuickBooks is like boring financial software for small businesses and they realize long story short they realize there are two types of small businesses there's like regular small businesses could be restaurants or whatever have you. The other one is also small accounting firms and small accounting firms could be one or two people who just do accounting. Now what do all small businesses need? Accountants like every small business needs an account that reads for taxes so what they realize is that there's definitely a big demand for both sides to interact with one another and you know prior to this they were kind of trying to find each other offline or online for other services. So Intuit decided you know what since they're both using QuickBooks it actually makes a lot of sense for us to add a matchmaking feature within QuickBooks which allows small businesses to look for accountants that fit their needs and vice versa. And literally when I was sitting in the meetings in which they were thinking about how to design this product they were using the dating club analogy so it was like should this be like match whatever match.com for accountants or like Tinder for accountants or like eHarmony this is like long term relationships. Now it's true like it's all these design decisions like how many for example how many accountants do I need to show them like is it three is it five is it one at a time or and so on. Well the point is they took this and they said look this is like there's no different than actually the traditional two-sided platform for dating and we're just going to incorporate it into QuickBooks. That's one. Here's another one which is kind of interesting for a reason I'll come to in a second. Do you guys know Diablo? Anyone play video games here? Okay so you can correct me if I'm mischaracterizing it's one of these like very immersive like very popular video games produced by Activision Blizzard became so popular that people started actually trading what's it called like in-game avatars and weapons so it takes quite a lot of time to actually accumulate very powerful weapons and people started trading those outside the game so typically on eBay for actual real money and so the developer Activision Blizzard realized this and said listen this is actually good news right I mean there's a lot of demand for the game we should do that ourselves so they said let's actually add we call like a marketplace which they called the auction house within the game where people can actually trade these weapons for real dollars now I do this with students asked if you think that's a good idea and apparently most people say yeah that's brilliant right they may actually you know increases demand for the game engagement and so on so here's the funny part about this the auction house was launched in 2012 and then they closed it down like a year and a half or two years later so you can ask yourself why so you know this suspense the issue here is the following and I think it's important to be aware of this because on the surface again to get very enthusiastic about I can turn any product into a platform this seems like really like a good idea so it happened here and you can easily see it with the game right as people start trading more and more of these it basically kind of undermines the whole point of the game right so I can I don't really play video games I can go in and spend say 100-200 dollars and get to relatively advanced stages thereby completely obliterating people that have spent you know actually put real time working with you now that may be fine it depends what you want but obviously like Activision Blizzard their whole point is like we want to build a game that actually engages people so they realize it was reducing demands you know for the game and then they said look there's actually like this platform idea actually is taking away value from the initial product that we have so they completely discontinued it so it's an interesting example third scenario how much time do I have so you've spoken 8-17 minutes so you don't have too much how many? wait so how much do you have this I mean I can do 5 more minutes 5 more minutes yeah 5 is fine I've done this in 9 minutes once I think ok so the third one is similar but quite different I'll show you the example so here it's now you have two lines of business it's not the same product I have two lines of business two different products and similar to the previous scenario imagine now I'm trying to connect the customer groups of these two lines of business so I'm going to try to enable some sort of interaction between the two so are you miscounting you've got 6-7 minutes then I guess I'm slow ok so here's let me see well I'll just do one example this one's funny it's in the article this one's less obvious also I worked like consulted for this company quite a bit ok so equity facts there's three companies in the US that do credit sporting is equity facts they have two main lines of business the one of them is selling actually credit information credit sporting information to financial institutions so let's say if you go and get a mortgage or any kind of loan or car loan and so on the bank will have to decide whether you're credit worthy or not the way they do this is they have to ping equity facts and ask is this person credit worthy should we lend to them so that's the main line of business like 80% of their revenue or something like that the other line of business is directly to consumers so as a consumer I can go to equity facts ask for my credits for and also get some sort of services that enable me to protect my ID or in case my ID got stolen take measures to limit the damage that's 20% of their business so up until I started working with them they basically these are separate lines of business you know as you probably know like organizations they're almost didn't even talk to each other even though you can easily see that they're related right I mean it's built on the same information I mean the same information flows between the two it's clearly there's some synergy now the interesting part just because you have data that cuts across these different lines of business doesn't mean you have multi-sided platform right so the exercise that I did with them was really interesting was well how can we connect these two different lines of business and turn this into a true something that will qualify as a two-sided platform right so it was this idea of how am I going to what am I going to enable between consumers and lenders that turns two products into something like two-sided platform and the idea that they came up came up with was something called digital credit ID the easiest way I can explain this think of it as the equivalent of you know how you have Facebook profile and you can take that Facebook profile to login to different sites it's called Facebook Connect so I can take you to my Facebook login and do the Airbnb a bunch of different sites this would be very similar so there's a profile which of course is not your party picture but in this case would be information about you that's objective that's verified and that's relevant to credit lending so there's that profile that you have stored in the cloud by Equipax and you can take that profile any time you go to a bank or any kind of financial institution and you basically can give them access to your profile so they can decide on the spot whether or not your credit working of course they have to decide the controls and how much of that information is self-reported versus objective whether or not you have to review all the information or I can suppress all the information and so on but the idea is very similar to Facebook or LinkedIn you're creating actually clear interaction that is enabled by Equipax which did not exist there before well long story short they actually put this stuff on pause Equipax had a major data breach in 2017 and this is because they did not listen to the advice that I gave them I always have to say this is a disclaimer I used to be very proud of working for them but then this happened so it's not perhaps it's not a model company at least at this point but I think this is definitely a very valuable idea and I still think they're pursuing it alright so last scenario that I wanted to talk about I think this is the most difficult so this applies particularly to companies or products that are B2B so the idea here is I have products at customers and then my customers also have customers and they're selling them some sort of service or product which is based upon the initial product that I sold them so here I can ask the question can I close the loop again trying to become a two-sided platform can I close the loop by going to my customers customers and offering them something that enhances the value of the product they got from my customers I realize it's a little bit confusing but I'll give you an example so Shopify is I think one of the largest companies that provides tools to e-commerce companies that want to build their own e-commerce websites so you and I can build an e-commerce website we can do everything from scratch or we can buy tools from Shopify to basically build order fulfillment you know all the backend stuff that is actually relatively commoditized at this point now we as the e-commerce website then we have to go out and get customers right so we can sell whatever we want to sell like economic papers or borrowing water or whatever have you so now you can ask the question well how can so Shopify at this point right now they're just a B2B I mean they're a glorified product I mean on their website actually if you look at it they call themselves a platform which I find super misleading and super annoying because a platform in this case just means I'm a B2B product and basically my customers build something on that product and they sell it to their customers but it's in no way a two-sided platform now how could you turn this into a two-sided platform it's an interesting question so this would have to involve Shopify going to the users of their customers and basically giving them something that is related to the products that they get from the e-commerce websites so you can think about multiple things like say a common loyalty program or a common user login like the one we talked about like Facebook Connect or something like that and the idea here is it has to be something that enhances the value of the relationship between their customers and the users and of course the key difficulty here I mean if you ask like is this like why is this difficult well if you're an e-commerce website and you have this supplier of tools and all of a sudden this person says you know what I'm going to actually provide some sort of service I'm going to go around you to your customers I mean how do you think the e-commerce website will feel there's this idea I mean there's this sense in which you're kind of trying to commoditize your customers so this is why this is actually pretty I think it's pretty difficult to pull off but at least in principle I think it's something that a lot of companies could consider so anyway these are like these are the four scenarios like I said I mean I had a lot of fun with students and going through a bunch of examples we can do a lot more if we have time just a few concluding thoughts and maybe this would be a good transition to the Patrick presentation so I think you can do this with lots of products and services very clear why a lot of companies you know are very interested in these ideas now the problem sort of the main difficulty I would say that at least in the limited experience that I've had working with a couple of these companies in this process is that it requires a pretty big shift in mindsets so when you're doing product it actually turns out it's very difficult it's very different from building platforms so most important obviously when I produce something a product or service I'm fully responsible everything depends on me if I move to a platform to a two-sided platform the idea is like now I rely on third parties to provide services or products to the same customers and I don't fully control those third parties and I'm sure this is a big deal with Airbus actually that's why I think I'm reassured that Airbus is still a product not a platform I think we're all better for that but you can see how it's tricky right I mean you're not you start dealing with people that you'll fully control and of course then there's also lots of organizational issues I mean you have to reorganize, you have to re-incentivize people to build products for other services Thank you for the transition I sort of disagreed that producers control over production Oh sorry, well more control Patrick was very proud of his first design when Jack gave me the assignment from a pipeline to a platform I sort of fathered to pipelines from an organization point of view and for platforms to platform a sort of new but so I will anchor my discussion on what I know and try to go a little further and I will focus on Airbus because Airbus is here so this is why I quite agree that Airbus has control over production this is basically a cross-section of the third light shine of Airbus in 2003-2004 where you have basically this is done by computer scientists and it's very frustrating to read because this thing is only the firm, they are all in other firms but anyway, so tier one obviously is the direct suppliers of tier zero which are the UEN, the wind ideonics and et cetera, tier two supplies the tier one tier three supplies the tier two and you have here something like five airbus suppliers and Airbus has something like 12,000 suppliers possible that they can choose from at a given point in time the problem is that you know this is production, this is how you produce a nervous thinking and why is that important because it's like a sub-economy so you want to understand how to organize this sub-economy and we'll see what is very important, we'll be able to integrate for how to you know contract these suppliers the second thing is we have a shock now, we have a technological shock which could be internet, could be the internet of things, could be anything so what will change for you, how do you want to leverage this technology and then you can think of doing two things, you can do lateral things you can create something that new activity and actually sky wise is something like that, that is linked to the other one that is very different in order to leverage the pipeline so you expand the scope very much like you are a firm, you decide to create a new product or new service but the technology never allows you to do it so that's the lateral thing, the second thing will be the vertical thing so in terms of platforms, you have these new technologies, let's do it inside increase the logistics, you know, increase management potentially if you believe in blockchains, you decentralize completely the supply chain you automatize the supply chain, you have smart contractings through the chain and all of that and a very old example is the trucking industry in the 1890s they started to put computers on trucks and they started to build yeah, it's 1990s thanks for listening and there is a nice paper by Eber and so on one side you have a monitoring possibilities that increase you can monitor what truckers do, on the other side the logistics what these type of things can do is increase logistics and what you observe is that actually you have a lot less employment by independent truckers independent truckers disappear for employment in order to reap the benefit from coordination through the vertical chain so the technology can change the way you supply or you produce and this is important, we'll see that again in a minute so the good news is that I understand a little about first organized production and we have some things that are important, how to contract upstream and downstream ownership, control over decisions, if you integrate a supplier you can give him more design, you can impose a design you can have a more coordination with what he does you can choose a range of product activities, again you can integrate a supplier or you can even bypass completely suppliers and decide to produce within your plant and you can centralize and decentralize also decisions through different means and the good news is that when we think of firms, classical firms, pipelines we see them as creating products and having to do this type of thought process to organize the supply chain, the good news is that when you think of platforms platforms organize markets but the economic forces from an organizational point of view to think of the pros and cons of platforms will be very much the same you need to contract with upstream downstream people you need to decide the range of activities that you want to perform on the platform obviously the network effects are very large and change the magnitude of these effects but the good news for me when I say to look at that is that perhaps there is not so much difference in the way we may go about understanding how these things function and we need to be organized so let me tell you what we know, so this is a pipeline so we go from the 12,000 suppliers to what economies believe the pipeline is you have basically a tier 1 supplier here who has basically two tier 2 suppliers the tier 1 basically gives some avionics to Airbus so let's call that the firm for the moment and you have a nice little supplier here with potential suppliers maybe you know somebody else, so it will be important for you so the first thing when we think of firms, the firm may expand vertically because the firm may integrate suppliers that's the problem of calling firms anything, the firm here will be that that's the benefit of integration and why do you want to integrate right now rather than later, how does the technology change this desire for integration this is basically at the core of what we are trying to understand in organization theory so uncertainty, information about suppliers will be important, the need for coordination is also important because coordination may happen more easily within the roles that you can control than outside, uncertainty may also be important and here is a very nice paper by Richard Compton and I mean art on basically the type of uncertainty aggregate uncertainty seems to matter less than actually I use uncertainty among suppliers and if you have a supplier where basically you have a lot of noise among them, then actually having a network of suppliers very much like you seem to have a purpose, whether it's an integration may be a good idea you know the model of uncertainty you know is very ambiguous and in the last 10-15 years I've developed a very simple theory of value which is to say the desire to integrate is basically trading off the benefit of coordination versus the fact that when you integrate suppliers they lose control on the decision so you have a very simple trade-off between the benefit of coordination which is often monetary benefit versus the cost of coordination which is often the price cost so you see that when the product price increase, the value increase the coordination benefit will look larger than the price cost and therefore you tend to integrate more and this prediction seems to be actually born in a in a playground work so it seems maybe one of the motives one of the other motives actually of uncertainty plays some role but it's more delicate so this is what you have and the important part here is that when you have a firm in the classical cycle, pipeline other firms, competitors let's say Boeing and other users are closed they don't access your firm so this is what we understand I think pretty well and you can put that in a competition context where you know AMB compete, audiopoly or where you have N3 and you can do that so let's look at the topic of today from pipelines to platforms let's take the views at new technologies enable firms to expand their activities laterally but they can also use that technology vertically so another example that is very close to Skywise but this is more down to earth because it's practical this is John Deere John Deere basically a critical platform which is called my John Deere Con and this basically planters are connected to 77 processors 6 million lines of code and basically they can connect by the farmer to a central unit and to other farmers and again some parties have come in to help them choose their content depending upon the weather conditions depending on the host of them so why is a good idea from John Deere to develop this type of platform well when you think of platform you think of install base you think of network effects and how can you leverage this to gain competitive advantage and sustainability in a certain way and for John Deere it's clear they have an install base of farmers using tractors and at the end of the day will be again the data collection and the performance of the platform will be there very much like for Airbus will be the plane the fact that they set planes to companies the fact that they will get data and for Uber is the software and data data is very large but the beginning will be the fact that you can install base very quickly so from a theory point of view this was a little shocking because ownership here is no longer the same as control in order to get control of the suppliers if you have a platform that functions well and that is basically essential then all you need is the ownership of this asset because even if the other asset holders will have a risk to all right of decisions the outside option lead to this right is very small so in the bargaining you expected that so let's go back to our pipeline and let's look at Airbus, John Deere deciding to expand their activities by creating a possibility of platform that enables basically other firms other users to connect to the platforms and here we have our isolated you see our isolated supplier who was not producing but who can provide services now to these firms that has expanded their terms so this is what you have and the big difference is obviously the firms that were before is that you have this open segment here for this part of the firm and one of the benefits of the platform is not only to provide you value here but potentially also in the interaction between the product development the question you have about the aggregate will be very useful for the big planes and this is very important because digital economy is very large but at the end we want planes, we want chairs we want good products and in the case of planes indeed we want very good products so this is basically what you have but you see you have some type of so now the question for quality is what will happen vertically now will these incentives to integrate change vertically and here I have no answer to that I don't know I haven't done the work but this is at the end what will matter for this part of the firm the product the production of the good how you reorganize the production as a function of what you what you get from here so and this is a thing open because I don't know so but this is my way to link the two from backline to platform is basically going from basically one product to another activity but what do we know we have a producer may decide to integrate suppliers or to backline this is what we know from the old literature I would say the platform may decide to provide some backline or to make them actually so I would say from platform to backline is as much a question that you want to ask from backline to from platform and what does that mean so let's take a pure platform where you have basically products here so now we have products and we have basically users here and the platform basically match them to organize the market in a nice way so what about integrating with the pipeline with products if I see for instance of Amazon and Whole Foods for me this is a little like that if we think of what Thomas said earlier this morning about Alphabet and the base free there is also some of these elements where you basically put into your firm products that will be active on the platform okay you integrate them or you can decide actually to make rather than to integrate so you make these products that will be part of the platform and the firm is now not only the platform but also it's a big way same up and if you think of Netflix in 1997 Netflix in 2019 you have this change from purely providing streaming services versus providing actually the product which is a content so I think I think from platforms are new the activities that are new they are going to in a mature phase, not a mature phase there will be some shutdown in the industry and I think for the same reason that the old technology the old industries have evolved in integration and the like we may observe the same type of things not only laterally among platforms but also a change in how they define themselves in terms of product space so I will stop here thank you very much so now we begin the discussion first do you have any comments about each other I wanted to emphasize but I didn't have time but I think every presentation made very clear in my mind I think there is one thing that is very important to there is a very important difference between being a product and being a multi-sided platform and not just a regular platform and to me it's basically I had this question at some point someone was asking what's the difference between outsourcing and being a platform and that is actually what's very important here outsourcing is essentially like you have that network of suppliers that you have there's a million suppliers I can even call it an ecosystem I'm fine with that the difference is at this point Airbus at the end of the day they control the relationship with the customer like I don't care how many suppliers Airbus have when I'm an airline I buy from Airbus if there's something wrong with a part you're irresponsible if I'm in a two-sided platform mode that's actually very different in the sense that third party suppliers directly connect with my customers I don't have full control and I don't have full responsibility for those transactions and that's very different obviously it's a little scary in the case of Airbus but maybe we'll get I mean especially for critical parts you're probably not going to have some supplier going hey would you like a new wing with that plane that you bought from Airbus but I think that's very important to distinguish the two I would agree to restrict my attention to the traditional producer who creates a platform provide add-on services or additional services to this point I would say for the quality wise these questions of how to organize the supply chain is very important when you think of the Dreamliner the Boeing 787 40 months delay with 10 billions cost over one and what has happened for the production of Dreamliner they shifted from a system of control of suppliers where they gave the design and basically had a very tight relationship with suppliers to a system of outsourcing where suppliers have a lot of independence so this change in integration if you like a huge consequence in this case it was only delays which is why I meant the control over the quality right so it would be even more delays if now the suppliers would actually have to independently supply those parts to the customers like you already given them the control but you still have to buy the stuff from them to integrate into an airplane you mean a consumer comes with a wing by the wing here by the engine there ZOEMs would be at the end of some changes that's the point Jorik do you have any no I'm very interested because basically what has been said is part of the Skywise project because it's about the internal transformation we are discussing about the supply chain we are discussing about our supplier when we look at the digital services we are getting young our product we want to really enable new things new digital things by putting on collaboration across the so called ecosystem meaning we have no interaction today with the direct passenger which is in the airline and used by the airline if we are capable to really make the dot and having a better service for that passenger is also happy by getting new business value she will connect the passenger but the passenger will be also being secure that he will be on time at the destination and he will have an aircraft safe at some unknown time he can even predict the weather that he will pass through will be at some unknown time the one you expect he can even change the flow in the airport so that new services that we have to bring when we are discussing what's your party typically the business model that we have behind for so today we are bringing the ecosystem we are bringing all the data continuity we are getting the data from the airline the way they use, the way they operate the aircraft but tomorrow offering all of that set of data to serve party we could create new models and new things that we can even not imagine today that's the aim of the Skywise.com so meaning that we are dealing with an uncertainty with the value behind but we don't know exactly where we go and clearly the data and the source of the data and the availability of the data which is excellent the availability of the data with the priority and all of that is really where we fully believe that there is a value and new opportunity for the neediness for others in addition to the product the product is linked to the DMS project where obviously we are seeking for collaboration more, let's say, interaction with the supply chain as we say there will be part of the development it will still lead and control because safety reasons our product but anyway we want to have them more and more involved not only in design but also on the life cycle afterwards and that way our supply chain can really play a role not only just the parts for the valve the parts mounted on the aircraft that may secure in-service flight somewhere handover to the supplier and the continuous improvement may happen as we say all there are some threats because the business is nothing more the same when the supplier is giving a will to create I told them what they have to do and we are handling somewhere the responsibility of the safety and the consistency of the aircraft this is slightly different when we are handling also to them that responsibility I have good questions but any questions from you more like a question try to understand the discussion I mean I view this like the classical AGC problem I believe of the film the same discussion so I want to go more in the inside of the outcome of computational platform in a way that when you transform yourself you are calling to a platform in a kind of way or understanding in a dynamic way but first you are allowing for competition to entrance in your virtual integration but I mean with time if you don't screen for example I mean you don't screen quality you have you need to control anyway those kind of things you have cost over there so until what are the limits in those aspects in the line of the discussion that not all products can be turned into so you can assess a little bit more about what maybe what means living is that when we open the platform we have also the Boeing one the Bombardier one all you have from the line are now fed in our platform with the privacy rules which are obviously on the skyway this is not just Airbus this is for the aeronautics meaning any line are feeding in skywise unfortunately there are some Boeing but we do prefer to have Airbus but they can do the same analytics versus Boeing against Airbus or against any other and cross check all of that it really triggers competition we don't have control it means what we protect our business and tomorrow in any case someone else will do it so then seeking for excellence meaning if the line is saying the Boeing needs better than yours because we are doing that and that it's also pushing us to really improve our product so that's really something where we believe it's a platform I insist on that we are combining Airbus product Boeing product, Embraer and so on for the airline for our customer and for sure we want to get a part of the business value because it's about business but in any case we should do that and we are not feeling the competition we are not willing to get the full control of that because there is a lot of uncertainty but also a lot of value behind I'll just add one more thing here so it's exactly what I mentioned earlier the possibility of turning your product into a platform makes you look at your competitors in a very different way I mean you have to be willing to actually invite the competitors competitors may take away, may substitute away some of your value but I think the point is I can create more value than it's going to be substituted even by inviting competitors I think that's actually it's a nice example Yes the discussion of safety in the Airbus ecosystem helps to focus attention on what exactly is the difference between say the Airbus ecosystem and something like Heathrow Airport which invites a lot of different suppliers I'm talking about the consumer side of Heathrow Airport sellers of jewelry and clothes and restaurant meals and so on where there's a safety aspect obviously but the different suppliers of the restaurant food for example are not free to choose their own standards of hygiene and it's relatively easy to inspect those in a way that's completely orthogonal to the reason why you would have lots of different restaurants of buyers which is that there's real value added from knowing the different preferences of the different consumers if you want Wagamama noodles you've got one place to go and that's the kind of thing that would be quite difficult for Heathrow Airport management to try and figure out in advance if they had to supply them food that suggests that it's not about whether safety matters it's about whether safety can be assured on a relatively small number of dimensions or whether safety is a huge multi-dimensional problem as it is in your ecosystem you can't have the equivalent of health and safety inspectors coming in checking the restaurant and then leaving the rest of it up to whoever supplies the park so I think that it's useful to think about the multi-dimensionality of the mission critical elements of the platform as helping to figure out what can be centralized and what can't and that also helps us to think about slightly less dramatic choices like this is an example I use often to students why does Uber control the prices of their rides whereas Airbnb allows the owner of the property to set the price of their accommodation it's because you can take your time when thinking about where you want to stay in Airbnb but you don't want to be sitting there with your plane or your ticer figuring out the different prices of the alternative riders plus how nice the inside of their car looks and whether their conversation is interesting while I'm trying to catch my flight so with all of those things I think the real issue is relatively a small number of dimensions you can let the platform make their choices if you've got large numbers of dimensions you really want to hand those over to the third party agreed 80% 20% remaining happening to the regulation and the way their craft are designed where the safety is a mandatory feature of the project itself and we cannot replace a park by another because the supply chain or the carrier is capable to do it cheaper but like whatever it's also something which is well regulated it has to be demonstrated as a design feature compliant with their love all along the cycle and that's where there is a difference between the food or the car we have a regulator which is really stamping approving the design of their craft and not only for the first month but also for the life cycle doesn't prevent you to change a product by another one we do it every day for many reasons but it has to follow a process which is still down to the safety of the car which is the safety of the car to be a safer one and that's the reason yes can I have one? I think it says I agree there is a degree of control one other element that's very important is the degree of responsibility which is but not necessarily perfectly correlated with control so in the case of Airbus again if something happens Airbus responds like I don't care how many suppliers or whose suppliers fault it was in the case of Heathrow if there's food poisoning at a restaurant you'll hold the restaurant responsible I may get mad at Heathrow that they let that restaurant in the first place but I think the degree of responsibility you have is not quite the same but on the other hand there's also the indifference between choices I can choose to get a word about or I can't choose to have a different level of safety on my flight fair enough so it's a general question so I guess if Airbus is successful in developing the platform Boeing cannot do the same right so so when I'm talking about 5.2 platforms it's actually some kind of competition however strictly with a factory monopoly one big platform controlling most of the market and you know we don't like when supermarket chains merge you know I can't see much myself we'll be here so what can I say about that this is a very good point and that's also the reason we have a brand which is called Skywise it's still let's say four by Airbus but who knows tomorrow and Terry is a platform he's in the race today for sure Boeing wants to do the same but even the MRO which are maintaining their craft wants also to get a piece of the cake the ecosystem mentioned is for the airport wants also to build their own it's a real race we have the chance or not by chance maybe to be a little bit ahead today on that platform and offering services where the business model will come will be much more to valorize the data as the thanks force did in the past starting with an open creating value and then offering more value by getting the data and the data without being monetized but clearly this is a race and there is nothing prevent today and by the way it's the case Boeing is waking up the standard technique is waking up good roadblocks much more than collaborating with us to get a single platform the race and the speed matters a lot that's also the reason I mentioned the 100 airline which will secure the critical size on the market which will be delivered to the authorities for the airport smooth? thank you you actually stole my question that was my question as well but maybe I continue and note that for instance Google had to make choice between being in the product business in their phones or Android or platform business and that may actually be a question also for Airbus one day whether you want to be an airline with or building phones or running the platform but I think that there are no bestimo words for Nokia but I think that maybe the second question could be that one of these multi-sided platform business or the research has been related to where the consumers has the strong role and they are kind of making the choice now this is very much more like B2B type platform where there may be some little consumer influence but still I kind of gather most of these these questions that you deal in the platform they are related to B2B type setups where these liabilities and many other things are so important is there really a good theory to kind of combine such a multi-sided platforms where the consumer has the strong role which behave different because consumers are less intelligent than the companies are or at least they have less information available so does the theory of multi-sided platform apply the same way to the consumer market and it applies to the B2B market A short answer I think when we model like in economics I think probably businesses are better because they are more rational for consumers they may be I agree but I think that you have I mean broadly speaking I think the same forces are at play but you're right like if you look at more in-depth decision making when you deal with businesses maybe it's harder because sales cycles are longer but at least they respond to economic like they always respond to economic incentives True but if you think about multi-sided platforms in the consumer markets particularly when you have multiple those platforms competing to each other interesting developments there when the platforms are competing against each other and when they are kind of pulling the consumers in trying to get the consumers in you cannot do the same things in the B2B Well unless you do what I've mentioned at the end of my fourth scenario so I've seen this happen where basically their companies they're obviously in B2B and they're continuing B2B but then they're worried that someone actually is going to take the extra step and somehow there's this idea that the company that gets the end customer which is the consumer will have more power than everyone else and I'm sure you can relate to this right and just swap them like at the bottom of the stack and then all of a sudden someone gets the top of the stack and in the sense if I own the consumer then everyone else is going to be a commodity basically, yeah, fair enough At one question for you Zorik about data you have data on the way your customers use their planes and so on I can imagine you can offer them services for instance on how they should use their free but also give them advice on how what would be the good next planes to buy and so on On the other hand there must be I want to say that you are using this data transmitting it to your safe force when they go and bargain with them how do you what are the instruments you have contractually to guarantee that you have the proper access and not too much and that you use the data in the right way This is a very good question I think that there is three answers The first one is the data belongs to whom belongs to data at the end I just I don't care as long as I can use it so then that's what Electricity de France is doing as well they get our data and they use it so first the data are an agreement between the airline, the consumer the supplier as well we are also some suppliers now can be here for soon it's their data the way we enrich their data is in including potentially some additional data source from external ecosystem like third party as an example providing additional information to the airline that's also for us it's really a value hard already on the data itself and that data belongs to us as long as we are putting some additional feature on it but we share meaning that the immediate benefit is that for the airline the data is already enriched combined linked and they get the benefit for us obviously it's a lot of learning experience because we know our product when we produce the product but we don't know how it's operated the way the product behaves in service in different conditions it's also a lot of learning for us we get a lot from there hopefully we will use in our future design all of that learning is for us and experiencing the way the airline are operating the product the way they maintain the product the cost of the life-taker of the aircraft also where you can have the map and make the simulation the real life is significantly different so that's the second one and the third one is really now opening the door and neutralizing the data meaning having data which are not linked to an airline and having data enabling best practice is also interesting new author in the ecosystem if we can demonstrate that the safety of a company of an airline is far better than another one it may influence also the passenger that will select another airline and that's also interesting to look at safety and the way the airline are taking care of the safety and that's at the beginning of the price to a definition so this is something where the market is getting together the authority are obviously interested to get a platform to obviously be a bit independent so far from the platform to go about the safety reports that the airline are forced to publish to combine them and to get statistical and that's also one of the values that we are providing any... it's quite curious I sort of categorize a lot of this session as having been about the benefits of platforms the opportunities that they can offer indeed some traditional firms, traditional industries and ways of mistaken about their business models and I would characterise Tomasso's session from this morning as when platforms go bad and I sort of really opened the comment from my neighbour as for whom there's an interesting gap between these two these two kind of extremes I think you also see this as something that the political rhetoric as well in Europe when we are a lot of complaints about big tech particularly American big tech and often this sometimes sounds a little bit like why can't we have our own rent seeking platforms here in Europe and so my question is really if firms are competitive from this in terms of firms and their suppliers and their students can benefit from this transition from pipeline to platform and as long as economic opportunities are used in these new business models but this then poses in the future particular problems what's missing if we know that this is going to be a repeated problem in the future what kind of ex-ante regulation might be missing so that we get the right kind of platforms or the right size platforms or whatever it might be as I said at the end of my presentation and as Jacques said at the beginning the starting point should be to understand well what's happening dynamically in these industries which we are very far from it so even in the short term let's say the Skywise system, the John Deere system some consortia in pharma do the same thing of information sharing they must have a flavor of public good because it's basically what you try to tell right you try to do information sharing and create basically a public good point that will benefit the whole industry so your right that will benefit and therefore competition may change because after all quality may increase because you know the problem for competition policy is the dynamic effect is that once you are established platform and you are basically essential is there a chance that you can abuse this position that's I think what Tomasso was more concerned about rather than the immediate short term effect so there is no I think paradox between what he said here and the competition policy authorities point of view I had in my slide I removed there is a platform by McCormick they do spices and they ask people to taste customer taste you know too much I don't think there will be a big concern for competition policy for this type of platform because there is already a lot of competition for this type of things but for big industries where you have first few competitors because you know you have few competitors then the concern may be large maybe you know in 10 years something may be used with an abuse so I think there is no I mean certainly it's an efficiency of funds you create a good public good that may go against you after a while but I think that's basically so regulation I think is complicated because you need a crystal ball to understand what's going on dynamically and we are far from I think we are far from it so that's what I would say John? The classic way to understand dynamic competition and the conclusion the results or the outcome that the see is that you have states where competition is low and you know other regimes where competition is higher and in the welfare perspective actually you don't know really what is happening I mean the welfare losses or the welfare gains from information sharing actually are not quite big and you cannot conclude that consumers are losing welfare and well that's the main conclusion so I don't know if it's applied to this case but there is at least a work that is trying to understand what are the dynamics of competition I don't think there is nothing okay I think Yassin will know if I'm right I think it's time for us to stop this round table before letting you applaud the participants I want to remind you there is a cocktail in the same room when you had coffee and so on and the official inauguration of the TSC digital center but thank you very much to the three of you for your time thank you


Hello and welcome to this edition of NewsClick. With me here is the person who is in a sense one of the moving forces behind NewsClick, Prabir Purokaista, who also happens to be an important person in the Delhi Science Forum. And in this edition of the program we are going to discuss the Controller and Auditor-General of India's report on the Krishna Godavari Gas Basin and the manner in which the government of India, that is the Ministry of Petroleum and Natural Gas, has unduly favoured a few companies, the largest of whom happen to be reliance industries limited. The country's largest, biggest and perhaps most influential corporate conglomerate in the private sector. Prabir, thank you so much for coming here. You've been writing about the report of the Controller and Auditor-General of India. If you can kindly highlight how the CAG has pointed out that in the case of reliance industries limited and the exploration contract and the production sharing contract, they have with the Ministry of Petroleum and Natural Gas, reliance industries just in one month's time was allowed to increase its capital expenditure almost four times to increase its output by a hundred percent. So output was slated to double. Capital expenditure went up almost four times, almost four hundred percent. But what actually happened was though the capital expenditure went up, production not only did not double, but came down substantially. How do you explain what is often euphemistically called gold plating of contracts? Well, you know, this is of course one of the major issues on the CAG report. And this has also been focused much earlier because this is really, this issue had been explored, had come out much earlier when Director General of Hydrocarbons had accepted this inflated capital cost or what we would call as inflated capital cost. It was done in a matter of 55 days. So the CAG report says by September sometime this was submitted, the revised cost was submitted and this was again passed by December, so really a matter of 55 days this increase was accepted. It's almost impossible, humanly impossible to evaluate such huge contracts in the period in which the Director General of Hydrocarbons did it. So obviously as people have argued, there is a lot of problems with the way it was done. What CAG has draw out that these are the things which are really new that these were done on the basis of single party financial bids that quite often what would happen is five or six parties would be asked to bid, would be pre-qualified and then finally they would all be disqualified except one party and a single party financial bid would then be closed. Now, the control and auditor general's report has over a dozen such examples. But one of the biggest such examples was AKER, Acre Floating Production which is part of the Acre Group. They got a 10-year lease on a floating production and storage and offloading vessel and this contract of over a billion US dollars, 1.1 billion dollars was given to this contract without even looking at competing bids. The other bidders were completely disqualified and only Acre's financial bid was open. I mean this kind of manipulation of contracts which goes against the basic principles of competition, fairness and transparency, does it not? That of course if it is only a private issue between Reliance and ACRE we did not be concerned about it. But unfortunately what happens when the capital cost increases then as per the production sharing contract that has to first come out of the top number one and number two the profit petroleum ratio also changes in favor of the private party. So even if we accept that Reliance did not benefit directly from the extra money which ACRE got by virtue of as you are saying gold plating even then its share of profits would have gone up. So essentially it is the manner in which what is called the IM or the investment multiple is structured into that production sharing contract and one would say that if production goes up further one would logically assume that thanks to scales of production your investment should come down. But in this case the reverses happened and what is clearly evident is that the government of India becomes a loser. So there is something inherently there was something inherently faulty but the manner in which this production sharing contract was worked out and the way in which these investment multiples figured out and that is clearly something that the control and auditor general of India's report points out. Again there are a set of issues that come out with it because the award of the contract depends on what you have committed in your bid and that is how Reliance got the contract they had made attractive profit sharing proposals. All of it gets subverted by the fact of increasing of the capital cost and therefore the investment multiple changes and the changes in a way the government loses its share in fact that is what the essential point that CIG has made that in the way this has been handled the way this contract was handled the government has lost its profit share considerably and therefore the CIG comes in to review whether this contracts have been done properly or not because Reliance raised the issue these are private arrangements we are buying stuff how can you audit all this. But probably you know as you rightly pointed out it is not just a matter between private parties the government of India is supposed to be the custodian of resources that are supposed to belong to the people of this country in this case natural gas found under the sea in the Krishna Gaudawari basin in the Bay of Bengal now here you have a situation where the original cost estimates go up from 2.4 billion to 8.4 billion and then the company says that the gas flow will go up from 40 MMS CMD that's million metric standard cubic meters a day it would double from 40 MMS CMD to 80 but actually it comes down it doesn't reach that doesn't reach that figure at all in fact current reports indicate that it's way way way below the what had been predicted so clearly you deliberately inflate the target you gold played the investment you rob the exchequer so do you blame Reliance or was it the government which structured this production sharing contract because Reliance's argument is this is a highly risky business this is the deepest anywhere in the world such deep drilling doesn't happen the cost of hiring rigs has gone up all these reasons are being forwarded by the spokespersons of RIL let's take the one by one you know of course the question is that government did have the mechanism of what's called the management committee in which the government was the chair and also at 50% share on the board the two five four people two of them were government's nominees so government was supposed to supervise also all such large value contracts which of course it didn't do so that's one part of it the second part of it when you come to what Reliance is saying let's look at the let's go back to the 1.1 billion dollar FPS of the floating production the vessel storage vessel that we talked about it's an interesting issue and CG has done its homework on this the cost of that vessel was 26 billion it was a converted tanker conversion cost of two such vessels by Jurong shipyard shipyard in Singapore was given by Jurong shipyard in a press release as 88 million so if we take even outside figures the cost would be something like 150 million for this FPSO which was finally given as a bareboat lease for 10 years for 1.1 billion you know management committee of the government are obviously connived completely the government's parties are nominees can act completely the director general of hydrocarbon completely fail this regulatory oversight okay no no no all right now on this issue of the regulatory the regulator the DGA is the director general of hydrocarbons the first charge sheet against Mr. VK Sibble who used to head the DGH at that point of time has nothing to do with the Krishnagodhavi gas it pertains to alleged favoritism shown in a completely different matter now there's a huge amount of evidence which indicates how Mr. Sibble allegedly got a lot of favors from RIL do you think that the time is now opportune that the CBI should name reliance industries limited as one of the parties that allegedly bribed Mr. Sibble and that's why all the paperwork was done as you say superfast I think there is absolutely no question that Mr. Sibble should be proceeded against and obviously the beneficiary is reliance and if the beneficiary is reliance then it should also be proceeded against but you know coming back to the production sharing contract this one element of the CAG report which hasn't received as much public you're talking about the whole issue about vacation of acreage vacation of acreage you know I really wanted to ask you about that and you could even argue that this is a land grab of a different kind except it's not land it's acreage under the under the ocean bed under the sea and then basically sitting or hoarding future hydrocarbon reserves which you are supposed to have brought on stream by certain date on which you have to make it all right you know the facts as has been highlighted in the controller and auditor general's report is that there was 7,645 square kilometers of the exploration area now and you know as for the terms of the contract up till say 2009 if you you continue to explore and then if you do not you know get the reserves of are you not able to strike your gas you're supposed to vacate 25 percent of the exploration area in the first phase then 50 percent in the second phase and finally another you know almost 100 percent you just keep 5 percent but what we actually said that instead of keeping 5 percent RIL continue to keep 100 percent and continue to work that entire 7,645 square kilometers this is the issue really and I think this is a very important issue which is difficult to quantify the benefits and reliance may or may not get out of it the essential issue is that as you progressively explore the area you put in money you're allowed to keep a certain amount you're allowed to keep that amount which you have explored and struck gas if you have not struck gas or you have not drill wells you're supposed to release that area as you said there is a phase wise release and then the last phase which is expired in 2009 you're supposed to release all areas where you have not made commercial discoveries or you have not developed all but 5 percent which in this case would be tantamount to 5 percent if you see the map that CIG has given it shows that probably only about one-third of the area max that reliance has even sunk wells the other area nothing has been done so there are absolutely no basis why DGHH the director general of hydrocarbon DGH should have allowed them to keep 75 percent and 50 percent which they are supposed to have kept rest they're supposed to have released the first two phases itself after 2009 all other areas except the 5 percent should have been kept DGH and ministry of petroleum and natural gas finally connived with reliance to allow them to keep entire hundred percent in complete violation of the production sharing contract more important this areas if they had been released to other parties we might have had strikes there and you could have alternate sources of gas coming up because the entire logic of the NELP the new exploration policy is that it brings hydrocarbon to stream much faster which public funds may not be able to do so so in a sense what this episode has highlighted it's undermined the very basis of that new exploration licensing policy I have two quick questions for you before we conclude this interview the draft report of the controller and auditor general was leaked to the media and it was widely publicized various newspapers television channels websites including news click had published detailed extracts from the draft report of the CAG how much of a difference is there between the draft report and the final report has it truly been diluted has a lot of the I should say harsh criticism of the manner in which the ministry of petroleum and natural gas favored reliance industries limited has a language being toned down substantially because the CAG has been criticized for commenting on policy issues which is not supposed to be part of its domain so that's the question I have to has the report really been diluted I think it's very clear language has been softened but the content has not been diluted so CAG has stuck to all the substantive points are made I did not see comparing the two reports I did not see that they have really taken back any of the points they had made in substantive terms so so in other words what you're saying is just the tone and the tenor tone has been there diluted on the question of policy it has been very clear that it is commenting on the policy in so far as governments share of profits or government share of revenue has decreased and it has said it shows that the original policy perhaps needs to have a relook because it's very difficult to keep the production sharing contract without really doing continuous in well you know analysis of the investment expenditure and so on the government might be better off with a simpler exploration policy in which the production sharing is really a lump sum royalty on the total amount of gas that is produced so that is what you are suggesting a change in the manner in which these contracts are lined up greater transparency also in way these contracts are not only signed other way in which these are awarded my last question to you was the apparently sudden decision on the part of the then former minister for petroleum and natural gas the union minister Mr. Murli Deora to decide to quit his position and devote all his time for the party the Indian National Congress ostensibly because he was also getting my ideas do you think that this was some sort of a move to preempt the criticism that would be leveled against him because after all he was the minister when all this was happening or all these contracts all these the alleged favoritism was taking place you know only there was proximity to the money group is quite public I mean I don't think there is really it's hardly a secret it's not really the best kept secret in the country now the question is it's also on record in the CAG report that the minister did show an interest in what was being done and if we really dig deep into the files perhaps we'll find dotings in the files which have not come up in the CG report which would show that minister was favorably inclined to the reliance case having said that I don't think leaving his chair would be reason enough to stop the heat on him because Maran has left his chair on telecom but the heat is still on him that's another story this kind of things really don't die down that easily we are talking of mammoth scams what would you explain what would we expect the public accounts committee which is supposed to you know then recommend to the government what action it needs to take on the basis of the control and auditor general support what do you expect the PSC to do I think the PSC should talk about how cases should be filed against the corrupt officials and exact really examination of the culpability of the minister and the senior officials in the petroleum and listeria petroleum and natural gas well time alone will tell probir whether that happens or not and whether action will be taken to break this nexus between business and politics thank you so much for explaining the issues behind the controversy surrounding the manner in which gas in the Krishnagodawari basin is being exploited by reliance industries limited thank you once again