What Makes Uber Different From Android?
Understanding Platform Types and How They Influence Growth
By Alex Moazed and Nicholas L. Johnson
Platforms are taking over our economy.
Just look at a list of recent companies that have received billion-dollar-plus exits, IPOs or valuations. High on that list would be Uber, Airbnb, Amazon, Square, Apple, Google, YouTube, LinkedIn, Twitter, Facebook and WhatsApp — all platform companies.
Judging by the recent mega-trend of startups trying to be the “Uber for X” or the “Airbnb for Y,” many entrepreneurs have taken notice. There’s now a would-be platform for just about everything.
But while platforms are increasing in number, they’re still by and large poorly understood. Aspiring platform entrepreneurs might have many questions that don’t have readily available answers. For example, other than industry, what distinguishes a platform like Uber from one like Google’s Android — or an Airbnb from an Amazon, or even Facebook from WhatsApp? All of these platforms are enabling interactions between consumers and producers. But what really differentiates one platform from another? Most importantly, if I want to create a platform, how do I know what I should build? How do I attract users? What kind of value does my platform need to provide to be successful?
“Platforms create value by reducing search and transaction costs and by enabling innovation in complementary products or services.”
As a Platform Innovation Company, Applico has spent a lot of time grappling with all of these questions, and through a mix of hands-on experience with clients and in-depth analysis and research, we’ve managed to break down platforms into a couple of distinct types.
What Kind of Platform Are You?: Uber vs. Android
The most fundamental split in platform types is based on a platform’s core value proposition. In general, platforms create value by reducing search and transaction costs and by enabling innovation in complementary products or services.
But if you look closely at different platforms, the core value they deliver tends to focus mostly on one of these imperatives. (And for good reason, since for any new platform, trying to deliver on more than one core value proposition at a time is often a death sentence.)
Take Uber, for example. The transportation-network company has unified a fragmented industry and made it easy for potential customers to connect with drivers. Before Uber, getting a ride on demand usually required calling the number of a specific business, which had limited availability and often highly variable quality, and coordinating with them to get picked up. Anyone who has spent hours of their life waiting for a late or lost car while dealing with an ineffective or unhelpful dispatcher can attest that this arrangement is less than ideal.
By building a platform, Uber has cut out the middleman and blown up the traditional limitations on richness and reach for transportation providers. As a result, Uber enables much greater scale while also creating a much more pleasant experience for consumers. This means that the core value that Uber delivers is a reduction of search and transaction costs for both drivers and customers (the unpleasantness of dealing with traditional transportation companies being a form of transaction cost).
Effectively delivering on this promise has allowed Uber to unlock latent inventory on the producer side and latent demand on the consumer side. As a result, Uber facilitates lots of transactions that wouldn’t have taken place before.
Both drivers and consumers have been voting with their smartphones. Uber reportedly reached over $1bn in gross bookings and $213mm in revenue for 2013 while continuing to grow at a rapid rate. Similar transportation-network companies like Lyft have also been enjoying enormous success.
But contrast Uber’s value proposition with that of Google’s Android. Both are platforms that connect consumers and producers (in Android’s case, smartphone users with software producers), but each provides its core value in a very different way.
Android’s fundamental value is that it provides the basic infrastructure that software developers can build and innovate on top of. While reducing transaction costs and providing reach is still part of platforms like Android (just witness the proliferation of app stores), their core value lies in how they enable other producers to innovate and build directly on the platform.
This means that for Android and other similar businesses, the platform’s attractiveness to producers isn’t primarily based on how effectively it connects different user groups. (Apple’s App Store is a notorious mess.) Instead, Android’s value is mainly based on how well it enables producers to innovate and build on top of it. This isn’t to say that the size of the ecosystem doesn’t matter. Ecosystem scale is a crucial factor for all platforms. But for platforms like Uber versus platforms like Android, their core value proposition is very different, no matter the scale.
Exchange vs. Development: The Basic Split and How It Effects Platform Strategy
You can see this same dichotomy in value proposition when you compare many other platforms, like Airbnb vs. iOS, Amazon vs. Xbox or EBay vs. Nike’s Fuelband. The key difference is between platforms that provide value primarily by enabling exchanges and those that provide value primarily by enabling producers to build on the platform. We call this first type Exchange Platforms. And we call the second type Development Platforms, since all the examples we've seen so far involve building software.
While there are plenty of similarities between both types of platforms, there are very basic differences in strategy for the Uber’s and Android’s of the world, especially when dealing with cultivating their producer ecosystems.
The set-up processes for producers on Uber and Android are a great a window into how the differences between Exchange Platforms and Development Platforms directly affect growth strategy.
On Uber, once drivers are approved as producers, Uber gives them an iPhone with the Uber app on it. The goal is to make it easy for new producers to connect with potential customers. All the driver has to do is boot up the app while in their car and they’re ready to go.
Android also provides support for its producers, but it does so in a very different way. Instead of a phone and app, Google offers developers a free software development kit (SDK) and integrated development environment (IDE). This type of support has proved very effective in attracting software developers, and Apple has a similar program for iOS.
But Android’s support for producers isn’t directly aimed at enabling exchanges, like Uber’s free smartphone is. Instead, this initial help is meant to encourage developers to make software for Android by making it easy and cheap for them to get started. Android, like Uber, knows what its core value proposition is and works hard to support producers who help them deliver on it. But for Exchange Platforms and Development Platforms, this core value is very different. So while both Uber and Android provide initial support to their producers, in each cases the basic platform type determines what behavior the platform wants to enable.
Lots More to Come
This is just the tip of the iceberg for understanding how to build and scale platforms. Working at a Platform Innovation Company, we grapple with these questions every day, and there’s plenty more to discuss.
For example, in addition to identifying a key difference between Exchange and Development Platforms, we've further segmented platforms into a number of more specific categories that will likely look more familiar to you, like social networks or payments platforms. You can also have platforms, like Facebook, that expand into both types and multiple categories at the same time. We’ll break down all of these categories and the role they play in platform strategy in another post.
With platforms set to “eat the world,” you’ll want stay tuned.
For more platform innovation updates, visit Applicoinc.com and follow Alex and Nick on Twitter.
*The Android photo on this page is reproduced from work created and shared by the Android Open Source Project and used according to terms described in the Creative Commons 2.5 Attribution License.
