The book Platform Revolution states that Platform business models are leading the way and dominating almost every industry. The power of this business models is that it “uses technology to connect people, organizations, and resources in an interactive ecosystem in which amazing amounts of value can be created and exchanged” (Parker, Van Alstyne and Choudary, 2016 p.3).
A platform is a business model which enable interaction between producers and consumer in the same place, it facilitates the exchange of goods services and social currency. Platform don’t produce anything; the value is that they allow networking and interaction (Parker, Van Alstyne and Choudary, 2016 p.5). This is why companies such as Facebook, Google, Uber, and Airbnb become very successful in no time.
On the other hand, can a traditional business shift successfully to platforms or they just missed the train of future forever. One might agree that some business sector can be difficult to adopt platform business model because of their nature. These business sectors have been functioning on pipelines for many years. However, I believe all businesses can benefit from the platforms revolution.
In an interview with Sangeet Choudary, he explains three phases of Platformization:
1. EFFICIENCY: Digitizing key interactions in the marketplace
2. EVOLUTION: Adopting new, platform-enabled business models enabled by digitization
3. EXTERNALITIES: Inviting third parties to engage with and innovate on the platform
He gave an example of a pharmacy (a pipeline business model) successfully managing to convert its business to a platform.
“Walgreens started by looking at their pharmacy business and realizing that they had a lot of data about what kind of medicines patients consume,” Choudary says. “Then they saw that they could make this data even more effective by capturing a more complete patient profile, so they enhanced their digital loyalty program.”
According to John Newton, Walgreen digitized their customer’s loyalty which was (Step 1: Efficiency) and it has “enabled Walgreens to create a platform business model (Step 2: Evolution), where they invite tele-health experts and other third parties (Step 3: Externalities) to interact with certain patients based on the health conditions they have.”
However, can platforms fail?
In my opinion platform are very powerful business models that belongs to the internet era, however companies need to be careful in the shift from pipelines to platforms.
Because we have been using pipelines for years now, Sangeet Paul Choudary in his article says that “you could be running your business the wrong way if you’re building a platform, but using pipe strategies.”
If you are thinking about shifting to platform, there are many elements to consider. For example, the way to acquire users in platforms is very different from the way to acquire them on a pipeline.
Choudary mentions that in platforms you can’t get users and try to convert them to certain actions. On the contrary he explains that in a platform, “users (as producers) typically produce value for other users (consumers). Producers upload photos on Flickr and product listings on eBay, which consumers consume. Hence, without producers there is no value for consumers and without consumers, there is no value for producers”.
Choosing to start your business or convert your existing one to a platform is not enough. There is a lot of challenges to overcome and lessons to be learned. Platforms are relatively new but in my opinion it is very crucial for all kind of businesses to learn about them and decide how to convert smartly in a way that suites them best because I believe we live in a world about users and consumers and not products.
CHOUDARY, SANGEET. “Why Business Models Fail: Pipes vs. Platforms.” WIRED, 2013, www.wired.com/insights/2013/10/why-business-models-fail-pipes-vs-platforms/.
Newton, John. “The Platform Business Model: Why It Works And How to Get There: An Interview With Sangeet Paul Choudary.” Forbes, 29 Nov. 2016, www.forbes.com/sites/alfresco/2016/11/29/the-platform-business-model-why-it-works-and-how-to-get-there-an-interview-with-sangeet-paul-choudary/#4cc6675217c3.
Parker, Geoffrey G., et al. Platform Revolution. W.w. Norton & Company, 2016.