Welcome to Knowledge Nuggets, our all-new content series where we highlight key takeaways and great business ideas from our favourite books, which we think are shaping the way we do business. This week, we’ll dissect the book Platform Revolution by Geoffrey G. Parker, Marshall Van Alstyne, and Sangeet Paul Choudary.
Insight: Today’s industry-leading brands are built on platforms, and they are disrupting and displacing traditional businesses faster than ever.
Data: Nearly 60% of today’s billion-dollar unicorn startups are platform businesses. (Source)
What’s the step change: Disrupt or be disrupted. Can you recreate your business to respond to platform opportunities and thrive in a platformed world?
The edited transcript:
The Platform Revolution is the backstory to businesses like Airbnb, eBay, Uber, and Facebook and how they have effectively disrupted markets. When people talk about market disruption and technology, what they’re referring to and haven’t distinguished yet is that it’s actually a platform business and a platform play.
So we’ll be covering four concepts quickly to understand the distinctions and how they play out for your business.
Businesses who are in the face of disruption are making a choice and need to decide on a strategy according to these three conditions:
- Whether they can transition their existing business model from what used to work in the past to the future
- Whether they could be the disruption and whether that model could work for them
- Whether they can niche out and find a high-value and dependable niche
So when it comes to platform revolution and how that can help your business, here are the four key points you need to remember:
1. Distinguish a Pipeline Business from a Platform Business
In the book, they give examples of the way markets are valuing those types of businesses. But first, what are they?
A pipeline business is a traditional business where there’s a raw material or resource, a production and manufacture phase, and then there’s the customer. Each factor and phase is connected and sequential, and the business looks to add value at each phase.
The catch is they tend to be linear in growth, and you need to add more capacity in terms of production and go-to-market to get a benefit.
These are physical units and physically restricted.
In contrast, the platform business tends to be a technology-based business. The technology platform seeks to connect many producers with many users. It’s generally a form of online market or interaction.
To distinguish a platform and pipeline business, they tend to be in nature exponential. For one thing, to get them up and running, platform businesses can scale with very small marginal and incremental costs.
2. The Heart of the Platform Business Is Commercialisation of the Core Interaction
You must find what that one core interaction is and how can you commercialise that. So the types of things that provide commerciality in a platform business are things like:
- Access. This is the ability to remove friction and access something easier. Uber did this in the taxi world. From the booking, paying, and tracking process — they took all of that out, and they merged payments, avatars, and maps together.
- Marketplaces. This is the ability to bring many different service providers and then provide comparison. So in Australia, we get platforms like iSelect — they compare the markets which are platforms that allow people to select, review, and potentially disparate complex products through a filter or platform.
- Tools. This refers to the ability to get online and into a platform and then use tools to create and add value within that marketplace or platform.
- Curation. How do you commercialise that? You can access content for free like YouTube, but within that, are you subject to ads? And as you start paying, you get premium content and you can personalise it and create your own channels, etc.
Different models exist within this, but the heart of it is finding a core interaction and the commercialisation of that.
3. Beat the Chicken-and-the-Egg Dilemma
Marketplaces tend to be double-sided. Where there is a user, there is a producer, and markets become valuable when there are lots of both and therefore lots of potential interactions.
How do you get that? That’s the chicken and the egg. Effectively, there are eight different strategies that cover how successful businesses have navigated the chicken and the egg challenge. Download the Knowledge Nugget PDF below to find out what the eight strategies are.
4. What’s the Nature of the Platform and How Does It Look Like in Your Particular Category or Sector?
Some platforms tend to be winner-take-all. Winner-take-all markets tend to be formed when there’s one business that takes control of the marketplace. So if you get the number one spot, there’ll be a huge gap between two, three, or four.
This happens when there’s scale in supply as the more supplies you have there, the better value there is for users.
When there’s the network effect, the more people there are on there, the more valuable it becomes. An example of this is Facebook. If you can find all your friends on Facebook, you don’t want to go to other platforms where you can’t find those same people. So you’ll become more valuable when there are more people on it.
And lastly, you’ll benefit from high-switching cost. This means once you have put in your data and your details and decide to use something, the cost of switching becomes difficult. These are the things that are covered in the Platform Revolution.Download our Knowledge Nugget on the Platform Revolution: