In the pre-digital world, companies competed over products by building a better mousetrap. But in today’s networked world, competition is mostly focused on platforms. The better your platform, the greater advantage you have over your competition. By building digital platforms, you enable other businesses to connect their business with yours, build products and services on top of it and, importantly, co-create value. Just think about smartphones. Nokia and Blackberry did not disappear from the market because they had inferior phones. Some of their phones caught up with iPhones and Android phones fairly quickly. Features and functions did not make the difference. The ecosystem was the difference between failure and triumph. App stores created immense value through external developers taking advantage of network effects that created an insurmountable competitive advantage. Nike is also shifting from products to platforms. Building on the success of its Digital Sport products, Nike recently launched its Nike+ Accelerator to help companies build on the Nike+ platform. Retailers including Etsy, Amazon and eBay have been tapping into platform thinking since they launched. The rise of platforms is being driven by three transformative technologies:
- The cloud enables a global infrastructure for production, allowing anyone to create content and applications for a global audience.
- Social networks connect people globally and maintain their identity online.
- Mobile technology allows connection to global infrastructure anytime, anywhere.
- Connection: How easily can others plug into the platform to share and transact?
- Gravity: How well does the platform attract participants, both producers and consumers?
- Flow: How well does the platform foster the exchange and co-creation of value?
- The Toolbox creates connection by making it easy for others to plug into the platform. This infrastructure enables interactions between participants. Think Apple’s OS/code libraries and Wikipedia’s writer’s toolbox.
- The Magnet attracts participants to the platform with network effects on social platforms. It is imperative that buyers/developers and sellers/users achieve critical mass. This requires platforms to be diligent about incentives, reputation systems and pricing models.
- The Matchmaker makes connections by matching up producers and consumers. This is where data comes in and is the biggest differentiator for platforms as business models, leveraging data to facilitate connections between producers and consumers.