Learn about the Business Model Transforming the World: Getting Started with Platforms
A colleague asked me to clarify the jargon surrounding the word “platform.” From his standpoint, platforms were overhyped, and he didn’t understand why they were getting so much attention. As a strategist with a deep background in digital & transformation, I wanted to address his questions. I’ve set out to write a few posts here, related to my work and thinking on the topic, to both clarify issues and highlight what interests me about the field.
Platform business models are behind many of the world’s most successful businesses. Their growth and impact is remarkable. Let’s start with five features of platforms that I think make them so intriguing:
Impressive market caps. Platform companies represent $2.6 trillion in market capitalization worldwide.
Unicorns (private companies with $1bn+ valuation) are disproportionally platforms. “A review we conducted of the 115 companies listed as Unicorns by CB Insights in June 2015 found that 80 of these companies or 70 percent are platform companies,” The Rise of the Platform Enterprise: A Global Survey, By Peter C. Evans and Annabelle Gawer.
Scale and agility, as demonstrated by Airbnb’s CEO:
Platforms as a source of innovation. In 2014, nine U.S. platforms were awarded 11,585 patents.
With smaller teams and faster growth, successful platforms are changing the game:
Citation: HBR Webinar with Marshall van Alstyne, minute 2:22.
Understanding before Responding
Each of these five points indicates a significant shift in business and society. Taken together, they suggest not only the increasing importance of the platform businesses, but also the need to understand them and know whether your business should collaborate, compete or transform in response.
It’s nearly impossible to live in our modern-day society without having interacted with a platform business. Whether you’ve shopped at a mall; bought vintage goods at a flea market; connected with friends on Facebook or colleagues on LinkedIn; purchased books on Amazon, courses on Skillshare, or handyman services on Task Rabbit; shared on Instagram; booked your perfect room on Airbnb; taken Uber to work; or downloaded an app from iTunes, you’ve experienced platforms first hand.
Tech Crunch famously provides a perspective on what makes these platforms so intriguing:
“Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate.”
How is this possible? The answer is in the definition of a platform business model itself.
Competing Definition of Platform Business Models
More conductor than broker, a platform business guides consumer and producer interests to create a balanced ecosystem. The ability of the “conductor” to create a vibrant space for the music is more important than owning the instruments by which music is made.
To provide a more literal definition, I’ve gathered voices of the world’s leading experts on platform business models to define them for you:
Alex Moazed & Nicholas Johnson in Modern Monopolies define a platform business model as: “A business model that facilities the exchange of value between multiple user groups, consumers and producers,” (241).
In her recent MIT Executive Workshop on Platforms, Professor Tucker expands on her definition while cautioning against defining, “People value [platforms] more, the more others use it – just because something is called a platform, doesn’t make it a platform from a business strategy perspective. For example, a political platform or an oil platform is not a platform. – However, don’t get hung up on definitions. Being a platform or not is more of a range than a set point. “
Renowned technology thinker Vivek Wadhwa reminds us of the origins of platforms in his definition in a recent article in the Washington Post:
“A platform isn’t a new concept, it is simply a way of building something that is open, inclusive, and has a strategic focus. Think of the difference between a roadside store and a shopping center. The mall has many advantages in size and scale and every store benefits from the marketing and promotion done by others. They share infrastructure and costs. The mall owner could have tried to have it all by building one big store, but it would have missed out on the opportunities to collect rent from everyone and benefit from the diverse crowds that the tenants attract.”
The brilliant trio of platform thinkers Geoffrey Parker, Marshall Alsyne and Sangeet Paul Choudard define a platform as: “A business based on enabling value-creating interactions between external producers and consumers. The platform provides an open, participative infrastructure for these interactions and sets governance conditions for them. The platform’s purpose is to consummate matches among users and facilitate the exchange of goods, services, or some sort of social currency, thus enabling meaningful value exchanges between all participants.”
This trio also wrote a Harvard Business Review article, “Pipeline, Platforms and the New Rules of Strategy,” that visually illustrates platforms:
Next Steps on Platforms
These definitions showcase not only what a platform is, but they also suggest how a platform works and why it is different. These differences present new opportunities for business leaders to learn and grow, regardless of whether your intention is to improve your existing platform, create your own, or collaborate or compete with an existing platform.
What interests me most about platforms is the constant pursuit of growth between multiple sides of a network. Learning about the ways platforms grow and enable credibility and trust building in service of building an ecosystem is a worthwhile endeavor. If done well, good platform management provides lessons for good governance in society; its implications are vast.
In the coming weeks, I’ll write more about the opportunities that platform business presents to executives. We’ll look at topics including:
How can non-platform businesses create better value propositions and customer interaction using lessons from successful platform businesses?
In what ways have platforms changed your customers’ behavior and how can you use this insight to better serve your customers?
Lessons on go-to-market strategy: how platforms overcome the chicken and egg problem, especially focusing on growth hacks.
Gaining insights into how platforms work through better understanding ways to segment them.
Should you build a platform?
Using platforms to amplify your personal brand
Saving time and money by using the right platform for your business
Why platforms are changing brand managers’ job descriptions
The risk of business as usual: the perils of ignoring platforms
Let me know what you think of these topics and if you have questions you would like me to address as I develop them. I’m looking forward to exploring this space with you.