Before you can answer whether your company needs a platform strategy, you first have to define what you mean by a ‘platform’, writes Suvi Nenonen.
Platforms are big business – or at least they are big in business. Open any magazine or watch a random Ted talk, and the chances are that you face the gospel of platforms.
Even the esteemed Harvard Business Review focused on platforms in its April 2016 issue. Platforms are supposed to change the economics and rules of the game in various industries. The advances of some wildly successful companies such as Amazon and Apple are often attributed to their platform business models.
However, the more talk there is about platforms, the more angst there seems to be among practicing managers. Is our industry under an attack from platform business models? Do we need a platform strategy? And most fundamentally: what are these platforms that everyone is raving about?
Same name, multiple meanings
No wonder practitioners are confused. Terminology is always a challenge in social sciences such as management. Most often this problem materialises as a plethora of synonyms: each academic and consultant pitching their own term, while essentially talking about the same phenomenon. Tackling this sea of synonyms is frustrating – just ask any graduate student – but it is still doable.
Unfortunately, there is an even more dangerous form of terminological confusion: using the exact same term to mean distinctly different things. And at the moment the conversations about ‘platforms’ seem to be suffering from this ailment. A quick review unveils at least six different uses for the word ‘platform’ in a business context:
1. Product family. In the early 1990s when the word ‘platform’ first entered mainstream business speech, it was usually used to denote a family of products that utilises the same design, engineering and production efforts as well as components. For example, Volkswagen uses the same product platform to produce both Audi A4, Volkswagen Passat and Skoda Superb – enabling the Volkswagen group to reduce its product development and production costs while catering for the preferences of different customer segments.
2. Organisational capabilities. The typical dictionary definition for a platform is a “long, flat and raised area or structure” that enables you, for example, to get on a train or to make a speech. Thus, it is not surprising that some experts consider firms’ foundational capabilities to be platforms. After all, Zespri’s success relies on its ability to perfect kiwifruit varieties and their cultivations as well as manage the Zespri brand globally. So, it is not unfounded to say that these capabilities form Zespri’s business platform.
3. Infrastructure. Similar to organisational capabilities, also the publicly available – and often publicly funded – infrastructure can be perceived as platforms that enable businesses. In such instances, roads or the internet infrastructure are platforms that multiple firms can draw on while conducting their operations.
4. Collection of customer touchpoints. In marketing, you might encounter a concept of engagement platform – which typically denotes a collection of customer touchpoints between a firm and its customer. Under this use, LinkedIn and personal sales calls are all part of company’s engagement platform.
5. Market intermediary. Increasingly, we use the word platform to describe intermediaries that connect two or more parties. Media could be considered such a two-sided platform, bringing together advertisers and readers. Amazon’s business model is also an example of multisided market platform, settling hundreds of transactions per second.
6. Technology ecosystem. Finally, platform can also denote an ecosystem or technology architecture that consists of relatively stable core elements and changeable peripheral elements. Apple’s app developer kit is a classic example of such a platform: Apple controls the core aspects of its iOS technology, while allowing vast numbers of developers to create apps ranging from kids’ games to lifestyle hacks.
So, before you can answer whether your company needs a platform strategy, you first have to define what you mean by a ‘platform’. If your platforms are about product families, capabilities, infrastructure or customer touchpoints, then there is probably little reason to panic – these concepts have been around, under different terms, for quite some time.
However, if your business model is influenced by new intermediaries or digital technologies, then you should pay some attention to the platform buzz. For example, market intermediary platforms and technology ecosystem platforms tend to be characterised by network effects (the more players are involved, the more value is created for everyone), and thus these types of platforms may be able to disrupt certain industries. And under network effects, it is better to be the disrupter – or at least belong to the same ecosystem.
Associate Professor Suvi Nenonen works at the University of Auckland Business School’s Graduate School of Management and teaches in the MBA programmes. Her research focuses on business model innovation and market innovation.