The Platform Capabilities
What is a platform? The term platform is often misrepresented as an integrated collection of software products. Companies adopting the linear business model use the term “platform” loosely. It’s marketing at its best. What is a linear business model? The linear business model occurs when businesses take in components, and then create finished products/services and sell it to the consumers. So, what is a Platform? A platform is a business model that enables exchanges between various actors and creates value, and in such exchanges, the value generated usually exceeds the value of the company itself.
Quoting Bill Gates - “A platform is when the economic value of everybody that uses it exceeds the value of the company that creates it.”
For such exchanges to occur, platforms harness and create substantial, scalable networks of users and resources accessed on demand. They create communities and markets - network effects, i.e. the consumer base directly influences the value of the platform itself. The network effect hypothesizes that the value of an ecosystem grows with increased use. Technology could be the key enabler for the platform business model. But, just the use of modern technology does not automatically qualify a business as a platform. For example, Tesla for all its technology break through and beyond, follows a linear business model. Tesla takes or makes components, and then creates finished products/services and sells to consumer.
If you are a CIO managing a technology company that follows a linear business model, should you re-imagine your business model as platform? My answer is yes. But, just by re-imagining your business and services as a platform is not going to increase value. You might have to broaden your thinking, like creating new platform-based capabilities. Going beyond platform creation and adding additional platform based capabilities would be the key to your success.
Consider Amazon, most technology folks including yours faithfully have an immense amount of “platform-envy” on them. Some might assume Amazon’s wide range of open architecture and design is the (Getafix’s) magic potion behind their strength and success. If you ask me, Amazon’s disruptive triumph emanates from their ability to create compelling new business capabilities. These range from supply chain diversity, recommendation engines, seamless product shipping (prime) and returns, drone delivery, AWS and so on… Amazon has been experimenting a new capability since 2014. Believe it or not, in near future Amazon will move away from a shopping-then-shipping model to a shipping-then-shopping model. Confused? Let me explain. Amazon’s AI recommendation engines will predict what you need ahead of time and ship it to you in advance, even before you order. From a human cognitive sense, the idea by itself is intriguing – how can Amazon guess my choice? I have been married for the past few decades now and am still not able to guess what my wife wants for her birthday. Artificial intelligence and prediction is such a complex subject, and the world will witness all its bells and whistles in the near future.
Now, if you look at it from the business sense, the shipping-then-shopping model cuts the cost of selling which is often higher than the cost of shipping. If Amazon elegantly keeps track of all my digital shopping traces, my choices etc. and then predicts the time of buying and just ships it me automatically, say something like heater filters or Keurig coffee cups., hey! I would welcome it. The value I get is reducing one more of my mundane tasks. If I don’t want it, I can send it back, but this returning risk is only until the AI algorithm is perfected. I am digressing.
Reminding you - Re-imagining the business as a platform will not add value by itself, instead create new platform-based capabilities
Another example is Apple and its transition. Apple learned this the hard way. In the past, Apple failed completely by following a closed approach. During the desktop times, Apple was notorious for building a closed eco-system – a linear approach. They lost to Microsoft and nearly went out of business. Such closed approaches in today’s digital economy are fatal. Apple’s top revenue is from its linear business – making and selling devices, the most prominent - iPhone. Even though Apple grosses most of its revenue from selling such devices, Apple quickly started to differentiate itself using its past experiences. The emergence of iOS reformed Apple’s core value to its customers. Apple decided that its core value to consumers was its enormous network of apps and developers. Apple reimagined their platform by adding new platform capabilities.
To conclude, when you start discussing about building a platform or augmenting an existing one etc., you must believe that “creating new business capabilities” add immense value. New capabilities must be the driver for creating favorable platform strategies. Return on such new capabilities is directly connected to the returns on your platform investment. If you have heard the leaders of Amazon etc talk about their platform’s future, they never discuss mind blowing technology. They typically describe new capabilities to explain their platform’s growth and achievements. My point is, let’s build platforms, not products and features, but new capabilities that bring in and offer value exceeding the platform itself.
Good luck!
