A Strategist’s Guide to Platform Thinking
Overview
Platforms are Eating the World
Venture capitalist Marc Andreessen wrote an essay in The Wall Street Journal eight years ago to describe a broad technological and economical shift where software companies are disrupting established industries. He introduced the adage “software is eating the world.”¹
In just a few years’ time, we have witnessed another major development where platform companies are taking over the global economy and transforming how we work and live. These companies are reshaping the landscape of multiple industries such as transportation, hospitality, eCommerce and payments, social networks, and media.²’³
Today, platforms are the new titans. Five out of six of the most valuable companies in the world are platform-based businesses.⁴ Nearly 60% of today’s unicorn startups (i.e. worth more than $1 billion) are also built from platforms.⁵ In an analysis of nearly 250 platform companies, Accenture found that these platform juggernauts generate more than $1 trillion in annual revenue and are valued at more than $4.7 trillion.⁶ Michael Cusumano, Annabelle Gawer, and David Yoffie conducted an explorative study of the financial performance of a large number of companies from the Forbes Global 2000 list for the period from 1995 to 2015. Their research reveals that on average, a platform company is valued 314 percent more and has 34.5 percent higher sales and 70.3 percent increased gross margin compared to its non-platform counterpart (Figure 1).⁷
The Rise of Platformania
The popular press and industry publications portray platforms as the new panaceas to success in the digital age. Platforms promise network effects and allow companies to scale faster without owning physical assets. Platforms help make resources more accessible to participants by facilitating exchange. Platforms build an ecosystem that brings together users and developers to encourage the development of innovative products.
“Some years back, the industry starting tossing out the word “platform” like confetti during Mardi Gras. Everyone was using the phrase and it quickly became the word du jour.” (Huffington Post, 2013)⁸
Nowadays, it seems that everyone is thinking in terms of platform. Entrepreneurs, investors, and business leaders have all recognized the powers of platforms and wanted to be the next Uber, Airbnb, and Facebook in their respective industries. As noticed by the Huffington Post, even publishers wanted authors with platforms.⁸
Platformania, a word coined in the recent book “The Business of Platforms,” describes this frenzy of jumping on the bandwagon to exploit network effects, create wealth, and build economic moats.⁴
What Exactly is a Platform?
“The platform is a simple-sounding yet transformative concept that is changing business, the economy, society at large.” (Gary Parker, Marshall Van Alstyne, Sangeet Paul Choudary)²
Despite the growing popularity of platform thinking, there is no consensus on what a platform even means. If you ask five industry experts to define a platform, you will get at least five different answers. Academics also cannot agree on what exactly a platform is. Is the platform a product, infrastructure, business model, module, technology, network effect, software, API marketplace, or ecosystem? See the blog post written by Heather Hopkins on the various views of platforms.⁹
There are now definitions of platforms that describe any of the combinations mentioned above, just to be sure all the bases are covered. Figure 2 provides a good example.
The problem is that the word “platform” has become so amorphous that it often leads to ambiguity, confusion, and misunderstanding. Demos Helsinski, a Finish Think Tank, raised the concern that not being able to distinguish between platforms from pseudo-platforms or not-quite platforms can have negative financial consequences.¹¹
So, what exactly is a platform? Originated in the sixteenth century, the term “platform” was derived from the French word Platforme, literally meaning flat shape. The Oxford English Dictionary defines a platform as “a raised level surface on which people or things can stand.”¹² Surprisingly, the word has been used very loosely in an abstract sense ever since.
Multiple definitions of platforms have emerged over time. That’s because we all have different mental representations of what a platform is due to the cognitive framework we impose upon our unique experiences of the world. Unfortunately, what one views as a platform may be vastly different from another person. It becomes problematic when we use the same word platform to mean a plethora of things. For example, with SAP’s definition, even kitchen stove can be considered as a platform because all the dishes cooked on the stove share the same heat source.¹³
Using an analogy of painting, our current understanding of platforms is like many creative ways of mixing colors. However, artists produce their best work if they know the twelve building blocks of the color wheel and the relationships between these colors.
Thinking in Terms of Platform Spectrum
What we need is a different way of thinking. Trying to come up with a unified definition of a platform may be a futile exercise because we often use the same term as an abbreviation to refer to different things.
The platform actually represents a group of related concepts. Some concepts are at the firm level while others are more aggregate in nature. I have developed a categorization scheme to group these concepts based on shared characteristics. I have also arranged them according to scale and complexity to delineate their relationships with each other. New vocabulary is introduced to define and organize the different platform categories with clear boundaries (Figure 5).
Whether you want to build a platform-based business or pursue a platform strategy, I hope this framework will serve as a roadmap to help you better understand the different ways in which platforms are used.
This article is the overview of a five-part series.
Part 4: Innovation Platforms
Part 5: Platform Companies, Economy, and Ecosystem
Each part covers a different aspect of the platform spectrum and can be read independently in any order.
References
1. Andreessen, M. (2011, August 20). Why Software is Eating the World. The Wall Street Journal.
2. Parker, G. G, Van Alstyne, M. W., & Choudary, S. P. (2016). Platform Revolution: How Networked Markets Are Transforming the Economy — and How to Make Them Work for You. W. W. Norton & Company.
3. Moazed, A., & Johnson, N. L. (2016). Modern Monopolies: What It Takes to Dominate the 21st Century Economy. St. Martin’s Press.
4. Cusumano, M. A., Gawer, A. & Yoffie, D. B. (2019). The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and Power. HarperBusiness.
5. Moazed, A. (2016, May 1). Platform Business Model — Definition | What is it? | Explanation [Blog post]. Retrieved from: https://www.applicoinc.com/blog/what-is-a-platform-business-model/
6. Accenture. (2017). Platform Companies: Threading the Path from Early Disruptor to Platform Titan. Part 1: The Industry We Can’t Live Without.
7. Cusumano, M. A., Gawer, A., & Yoffie, D. B. (2018). Platform versus Non-Platform Company Performance: Some Exploratory Data Analysis, 1995–2015 (Working Paper). Retrieved from: https://cdn.questromworld.bu.edu/platformstrategy/files/2018/07/Platform-vs-Non-Platform-Performance-Working-Paper-v2.pdf
8. Sansevieri, P.C. (2013, Sep 22). Why Having a Platform May be the Only Way to Sell Books. Huffington Post. Retrieved from: https://www.huffpost.com/entry/why-having-a-platform-may_b_3639378
9. Hopkins, H. (2017, September 1). What is a Platform? [Blog post]. Retrieved from: https://www.linkedin.com/pulse/what-platform-heather-hopkins/
10. Mckinsey Quarterly Five Fifty Platform Plays. (2019, October 17). Retrieved from: https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/five-fifty-platform-plays
11. Koponen, J. (2019, July 23). Misunderstanding of Platforms will Lead to Costly Failures. Demos Helsinki. Retrieved from: https://www.demoshelsinki.fi/en/2019/07/23/misunderstanding-of-platforms-will-lead-to-costly-failures/
12. Definition of Platform in Oxford Dictionary. (2019, November 1). Retrieved from: https://www.lexico.com/en/definition/platform
13. Ferose, V.R. (2018, November 8). How to Manage a Platform for Massive Growth: What Comprises a Platform. SAP. Retrieved from: https://news.sap.com/2018/11/manage-a-platform-massive-growth-part-one-what-comprises-platform/
