This month’s issue of the HBR’s Spotlight was on the subject of how platforms are reshaping business. The subject of platforms are exciting from a technical standpoint as they require very little physical infrastructure and if engineered properly can be scaled orders of magnitude to accommodate rapid growth. From a business mindset owning a successful platform can be perceived as a mechanism to generating seemingly effortless wealth; scaling costs can be fractional to the revenue return on an exponentially growing user base of producers and consumers. The players of a good platform are manifold and can provide meaningful value to all, each in its own way.
With popular, nearing on ubiquitous, platforms such as AirBnB, Uber, Apple’s App Store, YouTube to name a few and even some of the more niche filling platforms such as Lego’s Mindstorm or Valve’s Steam Store it is easy to imagine that the global business landscape will continue to change in the coming years by new and exciting platforms. Successful platforms have shown us the power to make sweeping changes on what products we consume and how we consume services, all while taking big cuts into incumbents that fail to promote and/or adopt a new platform or go so far as to fight against the onset of one.
In the article Pipelines, Platforms and the New Rules of Strategy by Marshal W. Van Alstyne et al. the author’s describe the need for mindset shifts when a company incorporates a platform into a business that is coming from a pipeline business model. The mindset shift is necessary in that behaviours typically ascribed to the success of a pipeline can be counter to the behaviours that foster a prosperous platform. The behaviours of control and optimization that work in favor of squeezing the small margins of delivering a pipeline product need to be loosened as you manage a resource that it not as easily definable as tangible assets. Your resource in a platform is the community, and you must strive to satisfy the conditions that keep both the producers and consumers of that community within a mutually respectable balance; promoting an increasing volume and satisfaction of the exchange of value, data and feedback from the interactions of the ecosystem.
In the article Spontaneous Deregulation by Benjamin Edelman and Damien Geradin, the author’s illustrates industries that have taken huge damage by platforms that seemingly thwart the rules and regulations to operating in their sectors. The two prominent examples are AirBnB with hotels and hospitality and Uber with taxi/transport services.
They demonstrate that legal actions can be very limiting in their effect because they are slow, costly and unpredictable. The law is also changing and backlash from a platform’s user base can influence regulators to favoring a change of existing regulations in favor of the new platform.
Industries where the next Uber and AirBnB will take flight is as the article says, “where current regulations are excessive and obsolete, protecting consumers from low-probability risks.” I myself as an avid user of Uber and AirBnB can attest that even with awareness of the apparent risks of exchanges in the share economy, I value my own sensibilities enough to diminish the fear of any off chance threats and scenarios. Further, there’s very little expectation that regulations stand to eliminate that risk much better.
In Products to Platforms: Making the Leap by Feng Zhu and Nathan Fur, the authors illustrate how transforming a product or a service can dramatically increase its value and what are the best practices in which to navigate the transition. The cases of this article that provide the most meaning to me is where management acknowledged hackers and tinkerers of a product to be a wave of enthusiasm to be embraced when they so easily could have fought against it in the interest of protecting control.
Examples include when Valve created Steam as a mechanism to seamlessly deliver patches to its own series of games, patches that were written exclusively to accommodate the growing collection of ‘mods’ to the Half-Life and Counter-Strike series that the developers decided to embrace rather than to impede. Realizing they had in turn solved their own software distribution problems by creating a fix that had made it easier to deliver patches they opened the platform to all developers.
Leader’s at Lego initially reacted offensively to a Stanford Graduate students hacking of the robotic controller-code to the Lego Mindstorms’ series of kits by sending a cease and desist letter, but quickly realized how much more value they could extract from their creation by embracing the toy as an education or experimentation tool. Opening the software to be used freely and unrestrained birthed an ecosystem where individuals could take a finite amount of product and produce near limitless value. All the while returning customers to the Lego series of kits that operate within the ecosystem.
The authors use this story to quickly remind the readers of the parallels of this initial offensive assault on hackers, turned loving embrace and subsequently insurmountable success for the company and the community, that is the Apple App Store.
My expectation is that the conception of new platforms and the expanding reach of existing platforms will be a continuing trend in the next decade. History has shown that if successful platform takes foot in an industry that was once purely product, there is a real chance of shaking up the balance of market share. Likewise in the service industry where there continues to exist unchallenged and burdening regulations on the service provider, that offer no benefit or added conveniences to the consumer, we too will see new platforms that make us question how we ever got by before. Where these platforms will come from is to be decided. Will we see the incumbents or players in industries that have yet to be disrupted take notice and throw their weight behind meaningful platforms or will we continue to see outsiders upset the status quo.