How to help other businesses create value by building platforms. Most people are concerned about building great products instead of great platforms. A product will generate 10x return a platform will generate 100x returns.
In this networked age, people are more interested in building products rather than platforms. What are platforms? A platform is a holistic business model that creates value by bringing together consumers and producers. Just like in construction, platform in business is something that lifts you up and on which others can stand.
By building a digital platform, other businesses can easily connect their business with yours, build products and services on top of it, and co-create value.
Using the smartphone market, the success of apple and android can be linked/is from the app stores, where external developers create value. Platform building has gone beyond the tech space and is now evident in other sectors, we can see this in the retail space eBay, Amazon etc. are shifting from distribution channels selling products, to engagement platforms co-creating value.
The rise of platforms is being driven by three transformative technologies: cloud, social, and mobile. The cloud enables a global infrastructure for production, allowing for the creation of content and applications for a global audience. Social networks connect people globally and keeping their personality online intact. Mobile allows connection to this global infrastructure anytime and anywhere. The result of this is a globally accessible network of entrepreneurs, workers, and consumers who are available to create businesses, contribute content, and purchase goods and services.
Platforms also rely on the power of networking — the more users they attract, the more valuable it is to those users.
To measure the success of a platform, we can use the three following factors;
1. Interrelation: how easily consumers and producers can connect to the platform to share and transact
2. Force: how well the platform attracts producers and consumers.
3. Flow: how well the platform encourages exchange and co-creation of value
To achieve these goals with your platform, we need to make use of these three building blocks;
1. The Tool box: makes it easy for others to access and gain from the platform through creating a connection. This helps interrelation between the producers and consumers. For Example, Apple provides developers with an Operating System, YouTube provides creators with an infrastructure, and Wikipedia provides writers with the tools to collaborate on articles.
2. The Magnet: this helps to achieve the force factor. It creates the pull that attracts participants to the platform with a kind of social gravity. It should be able to attract both buyers/consumers and sellers/producers. E.g. Apple had to attract both developers and Users. Platform builders must pay attention to the design of incentives, reputation systems, and pricing models. They must also leverage social media to harness the network effect for rapid growth.
3. The Matchmakers: this encourages the flow of value from producers to consumers by making connections. For successful matchmaking, data is required, and this differentiates platforms from other business models. The matchmaker gathers sufficient data about both participants, the consumers and producers, and leverages this data to create interrelations between the participants. For example, Google matches the supply and demand of online content, while marketplaces like eBay match buyers to relevant products.
While all three building blocks are important, it may not be necessary to focus on all three at once, as not all platforms place emphasis on all three. While Amazon web services has chosen to focus on building its toolbox, Facebook has focused on toolbox and magnet and is actively building its matchmaker ability.
Every business today should focus on the most important question of platform creation, “How do I help others create value?”
SOURCE: PLATFORM THINKING