Most people have heard of Uber, Airbnb, Amazon and PayPal. The growth and success of these companies and others stem from a technology-based business model that connects people and resources in an interactive ecosystem that creates and exchanges value while disrupting traditional businesses. That model is a platform and successful companies that utilize its power are transforming business, the economy and society.
In Platform Revolution, authors Geoffrey Parker, Marshall Van Alstyne and Sangeet Paul Choudary assert that “practically any industry in which information is an important ingredient is a candidate for the platform revolution.” Those industries can be information-rich like education but can also include businesses where access to information about customer needs, supply and demand, and market trends has value. Most of the world’s largest companies either operate a platform or are adopting their business to a platform approach.
Platforms beat traditional businesses because they scale more efficiently by eliminating gatekeepers. Using higher education as an example, the authors note that most colleges and universities force students and their parents to purchase college as a bundle that includes administration, teaching, facilities, research, athletics and much more. In their roles as gatekeepers, colleges can require families to buy the entire package because they control who earns a degree. As other non-bundle options proliferate, such as alternative certifications or online-only institutions, colleges will be challenged to maintain their bundled pricing.
Platforms also beat traditional “pipeline” businesses because they unlock new sources of value creation and supply. Consider Airbnb’s business model versus the traditional hotel industry. Airbnb utilizes rooms, apartments or houses that are privately owned, requiring no investment in capital by Airbnb whereas traditional chains like Marriott and Hilton must acquire land, construct buildings, develop reservation systems, and continually maintain and upgrade their properties. Uber and Lyft use the power of the platform to offer transportation services without investing in vehicles and salaried drivers.
Using data-based tools, platforms create feedback loops from their user/customer community to modify their product to better meet customer needs. Companies embracing a platform strategy shift from a focus on internal to external activities. Instead of controlling unique internal resources and constructing competitive barriers, platforms orchestrate external resources and build and engage vibrant communities of users/customers.
The authors provide a comprehensive analysis of platform business models that offer guidance to anyone seeking to develop such a business or change an existing one to a platform model. Network effects, architecture, disruption, launch, monetization, openness, governance, metrics, strategy and policy are all critical issues that must be considered as a platform business is developed. Of these issues, the authors note that “platform managers should be thinking about potential monetization strategies from day one, and plan their design decisions so as to keep as many monetization options as possible open for as long as possible.”
In an era when rapid advances in technology are providing information to many more people at lower costs than ever before, businesses need to understand the ability of platforms to capture substantial market share and undermine traditional models of commerce. As such, I highly recommend the book to both leaders of established businesses and entrepreneurs.
