Ecosystem Governance and the Platform Economy

Airbnb introduces anti-disciminatory guidelines. Uber integrates Pandora, Spotify and SnapChat to its rides. And Nike goes from selling running shoes to managing consumer-generated data and content. Online platforms’ business models are redefining the strategic landscape for everyone.

Photo Credits : Randall Bruder

Platform Economy

According to a 2016 Global Survey ( The Rise of the Platform Entreprise, a Global Survey), 176 platform companies forged a combined market value over $4.3 trillion, 70% of which value came from the US.

Apple, Google, Facebook, Amazon, Netflix, Uber, Airbnb and WeWork are all examples of such platform entreprises: these technology-based companies connect a public to a service or product. Traditional businesses such as Walmart (jet.com) are acquiring other platform-based firms to compete in the new space.

A Shift in Strategy

Experts such as MIT Professors Michael Cusumano have started pointing at the shifts brought on by the Platform Economy. Their recommendation: redefine traditional ways of looking at strategies, to compete effectively with the new networks and communities emerging.

Managers (at least in industries affected by digital technologies as well as network effects more broadly) should move beyond conventional thinking about strategy and capabilities to compete on the basis of platforms, or complements to another firm’s platform. A platform or complement strategy differs from a product strategy in that it requires an external ecosystem to generate complementary product or service innovations and build positive feedback between the complements and the platform. The effect is much greater potential for innovation and growth than a single product-oriented firm can generate alone.

Success Stories: Platform Strategy in Action

In a recent article on Pipelines, Platforms and the New Rules of Strategy, authors Alstyne, Parker and Choudary outline the three pillars of platform strategy. By looking at the headline from this year’s tech news, it’s easy to see these three pillars in action. Here are noteworthy examples to illustrate each of them:

1. Air BnB understands that value is generated through its customer base, rather than its value chain. Previously, the value of a product or service came from the addition each step in the value chain. In this new model, the value resides in the community of customers. AirBnB is a clear example; with a double-sided platform strategy, it relies on hosts’ availability, friendliness and, most importantly, houses, as well as on tourists using the platform as booking platform. This gave rise to interesting moves from the company with anti-discriminatory measures on their website and app. In September 2016, AirBnB essentially set the stage for the values it enforced on customers. In an industry where the client is King, this is a rather bold move. AirBnB has, however, understood that the value in its service relied on the community, leading them to take a firm stance in order to preserve their ‘’asset’’.

2. Uber looks outside, not inside, its organization, to improve its service. While traditional businesses optimized the value of their services by controlling internal operations, being in a platform space means paying close attention to and aligning with external players. Case in point, Uber created a partnership with Spotify and created special SnapChat Filters, improving the customer experience during Uber rides not through the improvement of their own processes, but rather, by crafting the correct partnerships, aligning with their demographics’ tastes.

3. Nike expands business from athletic wear to a platform for athletes. Instead of focusing on the lifetime value of a customer, platforms seek to maximize value for all participants, by growing in a ‘’circular, iterative, feedback-driven process’’. Nike took the curve smoothly with a focus no longer on shoes (retail), but on User Data, generated by its customer base. With initiatives surrounding their smartwear (FuelBand), Nike has understood the value did not reside on cultivating one customer at a time, over his lifetime, but rather, that each customer’s data, combined with the rest of the data stored on users, will drive value as an ecosystem.

A Relevant Trend in the Consumer Landscape

While only an emerging trend currently, the early entrants may well have an important advantage: ecosystems are difficult to reproduce. Since the value of its services offered increases exponentially as it grows, the platform entreprise may turn out to be difficult to beat as later competitors enter the space.

Originally published at https://www.linkedin.com on January 2, 2017.