Platforms can be a bad strategy

It’s the in thing, the most widely spoken tenet of business strategy – Platforms. To the extent that if you are not talking about it, you are from the stone ages.

Successful platform stories are all around us – i.e. Amazon, eBay, Facebook, Pinterest and Apple. Want to embrace the model? Think again. Hidden in these examples are different dimensions of what makes a successful platform.

Category 1: Amazon and e-bay offer a platform bringing buyers and sellers together and then pairs them off to create value for themselves.

Category 2: Facebook and Pinterest play the role of providers of a platform (essentially features), but don’t own or create value on it. The value is created in the enablement of conversations by users of the platform who ‘manage’ and ‘transact’ through ‘conversations’ on the platform, facilitated by communities.

Category 3: Apple through its Apps Store provides a platform for other third parties to build on it, but in a way prescribed by the interfaces exposed by the platform.

In summary, you needs to bring a network of buyers and sellers, create a community that leverages your platform to engage in conversations and open it up to other third parties to create value. Easy? But what happens if you have a traditional, conventional business model built around proprietary products and services, marketed through channels that you own, manage and govern? How do you migrate to the open world of platforms from there?

Well, for a start, you need to think about whether you want to be the platform provider or integrate your products & services into another platform provider? Being a platform provider gives one better control and leverage over the customer or consumers of the platform. Even though value is created by third parties who choose to bring their products and services onto the platform, the value for the provider is disproportionately and exponentially higher than the parties who choose to transact on it. eBay and Amazon’s valuation is multi-fold compared to the millions of buyers and sellers that contribute to it. The proximity to the customer brings deep insight of buying patterns and behaviour, unmatched! Which is why some players (esp. banks) have so far been very wary of integrating their products and services into a platform provider. By doing so, they become in some ways further removed from the customer and thus receive little insights on buying patterns. Also, there is this inherent fear that the platform provider can themselves offer competing services at some point. Inside banking board rooms, the one thing bankers fear the most is threat of competition from unexpected & tangential platform players like Facebook and Google than direct competition. It is the trust or lack of it that discerns them from being platform players or advocates of it. On the other hand, becoming a platform provider is not easy especially if you are yourself competing on the platform. Attracting external market participants can be a big challenge and not everyone can become one in the first place.  

I am not for a moment saying there is no value from a platform strategy – organizations need to think hard about their approach or else it can severely backfire. The answer lies in the problem!  

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