There are early signals of potential disruption along three areas of the chemical value chain, write Alessandro Di Fiore and Gabriele Rosani

By Alessandro Di Fiore

Several industries have been disrupted by companies with a platform business model. Think of telecommunications and advertising (Google, Facebook, Tencent); retail (Amazon, Alibaba); travel (; music (Apple, Spotify); and entertainment (Netflix). Other sectors are under disruption: from mobility (Uber, Lyft) to payment and financial services (Paypal, Alipay). Platforms are taking over the world.

Although the first sectors to be disrupted were mainly in the business-to-consumer (B2C) sphere, there are now emerging platforms in business-to-business (B2B) industries such as construction (Autodesk, and steel (Klöckner & Co).

In most cases, the winners in these platform battles are the new entrants who manage to quickly disrupt the market. There are only a small number of instances where incumbents anticipated the shift (Klockner is remarkable cases) or caught up with the new reality (Walmart vs. Amazon).

While platforms have re-shaped industry after industry, one that has escaped is the chemical industry. Within this huge global industry only a small number of platforms have emerged – such as Monsanto’s FieldView and John Deere’s platform in agro-chemicals, one of the business segments in the industry which is closest to the end-user (the farmer). Experience in other industries suggests that other parts of the chemical industry are sure to follow as platforms emerge. But what areas of the chemical industry could be next in line? And is there a threat from new entrants (start-ups or digital giants) that may change the rules of the game?

We see early signals of potential disruption along three areas of the chemical value chain:

1. R&D: the rise of open platforms in material informatics

The process for discovering and developing chemicals and alloys remains largely unchanged and lab-based. It is very difficult to predict the behaviours of materials combined under new conditions. Many lab experiments are needed, and it is costly, inefficient and slow. There is a disconnect between the slowness of the R&D process and the accelerating pace of change in the marketplace.

To address this issue, new start-ups at the intersection of material science and computer science (material informatics) are envisioning open platforms. These will amass the entire world’s material knowledge from different sources into a single, consistent, searchable format, and use machine-learning AI algorithms to come up with unexpected innovations quickly and efficiently.

One example is Citrine Informatics, a Silicon Valley start-up backed by Google’s former CEO Eric Schmidt and Tencent Holdings (the Chinese digital giant). In the short-term incumbents may benefit from Citrine’s platform services to make their labs more efficient. Looking further ahead, Citrine (or a Citrine-like platform) might represent a threat to incumbents (a Google-equivalent of materials and molecules) where value migrates from the R&D departments of incumbents to the material informatics platform.

2. Formulation and marketing: the potential of recommendation engines

The trend of B2B consumerisation is changing the behaviour of buyers. They expect a similar experience to that they have elsewhere in their lives as digital consumers (on Amazon or Netflix). This is characterised by quick search, high quality output (now driven by AI), real time and personalised recommendations to facilitate decision making, preferably a one-stop shop, easy and convenient.

In the last few years we have seen this trend reshaping the construction industry thanks to platforms like and software companies like Autodesk. Now architects and engineers can search for construction products and components in BIM libraries where information-rich digital objects in standard format can be downloaded and used like LEGO bricks to design a building. BIM platforms match users (architects, engineers) and suppliers of construction products in a convenient and transparent way.

Such platforms have not yet appeared in the chemical industry. But their potential is clear. Think of a detergent formulator who has to define the right recipe from multiple ingredients (surfactants, polymer, stabiliser, and so on) from several different suppliers. What if they could subscribe to a platform providing advice and recommendations on ingredients, dosages and expected performances and costs?

The first to develop and orchestrate such a platform, whether they are a new entrant, an incumbent or a distributor, will capture value along the chain using a platform business model. The winner(s) will potentially be able to secure revenues from both users and producers.

3. Distribution: the emergence of a Chemazon

Amazon is making forays into the B2B sector. It has already penetrated the industrial equipment supply business hitting the incumbent W.W. Grainger Inc., a Fortune 500 company. In China,, Alibaba’s B2B marketplace, already hosts specialty chemicals-like ingredients for polyurethane foams, coatings and adhesives. Several western chemical companies, including Covestro, BASF, and Evonik launched flagship stores on to reach the long tail SMEs of China. This development may represent an existential threat to traditional distributors and a benefit to established Incumbents for whom it brings a more efficient channel and better insights via analytics. But, longer term, this shift may also have an impact on suppliers due to increased price transparency and advanced comparison capabilities between products. As happened in the B2C marketplace, private labels or toll manufacturing orchestrated by the platform owner may further push competition and commoditisation.

We are still at the beginning of a potential transformation in the chemical industry. Apart from digital giants (such as Alibaba and Amazon Business) new vertical platforms specialised in the chemical sector are emerging (like the Chinese Molbase) and other niche platforms, specific to sub-sectors, may appear soon. Traditional distributors may also counteract by adopting a platform model. For example, in steel distribution Klöckner & Co. is building an industry platform matching buyers and distributors including the company’s competitors.

Platform-based business models will likely reshape business in several segments of the chemical industry. The good news for incumbents is that the transition will be slower than other sectors due to the intrinsic structure of the chemical industry (asset heavy, regulated, and with high failure costs). This means there is a time window of opportunity to anticipate the shift by experimenting with the new platform business models, to learn quickly, develop new skills and mental models, and lead the change.

But based on our consulting experience in the industry, although there is a growing awareness on the general topic of digitalisation in the chemical industry, the strategic thinking around platform business models is still dispersed and in its early stages of development. Chemical executives need to rapidly become more familiar with the new strategic rules of platform business models and to learn from other industries. If they fail to do so, in the long term they may pay a heavy price and join the long list of companies whose strength has been decimated by the emergence of a platform.

Source: London School of Economics