For decades, traditional firms like General Motors, General Electric or Exxon were the largest firms in the world in terms of market capitalisation. Yet, in May 2017, Apple, Google (Alphabet), Microsoft, Amazon.com and Facebook have replaced them at the top of the rankings. These companies have something new and unique in common. There are platform-powered businesses. Benoit Reillier and Laure Claire Reillier, co-authors of Platform Strategy, explain.
Airbnb, Uber, Facebook and many other platforms have been disrupting entire industries. While it’s taken decades for hotel groups such as Hilton, and Accor to build and manage hotels across the world, it’s taken only a few years for Airbnb to become the world’s largest accommodation provider. Yet Airbnb owns no real estate. Similarly, Uber, the world’s largest taxi company, owns no vehicles. And Facebook, the world’s most popular media company, creates no content.
But what are platforms? Platforms are first and foremost a new business model rather than an underlying technology or product (see definition below).
A platform is a business that attracts, matches and connects different groups of customers and enables them to transact.
Example: eBay with buyers and sellers, Airbnb with hosts and guests, Uber with drivers and customers, Deliveroo with diners, restaurants and couriers, …
Platforms are very different in nature from traditional linear businesses. Instead of buying raw materials and resources (inputs) to transform them into products or services (outputs) that can then be sold at a margin, platforms enable transactions.
For decades, traditional firms like General Motors, General Electric or Exxon were the largest firms in the world in terms of market capitalisation. Yet, in May 2017, Apple, Google (Alphabet), Microsoft, Amazon.com and Facebook have replaced them at the top of the rankings.
These companies have something new and unique in common. There are platform-powered businesses. They combine platform business models with traditional ones to create powerful ecosystems. Instead of just manufacturing or distributing goods and services, these firms also match and connect community participants to enable transactions. Apple does this with its app store where it harnesses the power of thousands of developers to offer one of the largest marketplace of applications. Amazon does this by connecting its customers with merchants connected to its platform. Google matches people looking for content and those creating it. Airbnb matches hosts and guests, Uber cars and passengers, etc.
Old management rules no longer apply
Most companies have now understood the importance of digital transformation yet few understand that the real opportunity is to transform –rather than transpose- their business model for the digital age. Firms who understand this shift are transforming their business model so that they can place themselves at the nexus of transactions and communities… They are becoming orchestrators of ecosystems rather than mere manufacturers or distributors.
The role of the firm is no longer to simply produce and/or distribute but to enable interactions and transactions amongst platform participants. The bottlenecks are no longer simple hurdles in a linear process but complex feedback loops in an ecosystem. In that new world, the ability to co-create value with platform participants and harness the power of communities and networks are paramount.
So why you should think about your platform strategy
These developments represent both threats and opportunities for businesses. Threats because successful platform businesses can quickly disrupt entire industries (e.g. music, publishing, retail, transport, hospitality, education, etc.) and become formidable competitors once they have scaled. They can also become tough negotiators if you depend on them for distributing your own products.
But platforms can also represent opportunities. Marketplaces, a type of platforms, can attract millions of buyers across the world and can therefore be powerful distribution channels for manufacturers, distributors and retailers. Selling on marketplaces as part of a well thought through omni-channel strategy can therefore transform a company’s reach.
Becoming a platform
SMEs can also play the platform game and win by harnessing the power of communities and networks to displace incumbents. Often this starts with the development of a community.
Mumsnet, for example, was founded by Justine Roberts as a website to help parents pool information and advice following a disastrous family holiday with her one-year-old twins. As its parent community grew, Mumsnet morphed into a platform connecting multiple customer groups including parents, bloggers and advertisers.
The first version of Airbnb also started as a simple website. The first two founders, who were unable to pay their rent, put an air mattress in their living room and turned it into a bed and breakfast that anyone could book. They then realised that other people like themselves were eager to be hosts and share their homes online. And that’s how Airbnb, by simply connecting hosts and guests, grew to be a $31 billion company in just a few years.
Benoit Reillier and Laure Claire Reillier recently co-authored Platform Strategy: How to unlock the power of communities and networks to grow your business published by Routledge in April 2017. They are co-founders of Launchworks & Co, an innovative digital transformation advisory business.