Why Platforms? - Innovate For Scale, Scope and Speed
Due to the rapid evolution in customer demands and needs, the first question to any technology company is becoming "are you a product company or a platform company"? There are lots of companies who are moving from a product based mindset to a platform one with very high adoption rate by customers. The most valuable companies today (Apple, Amazon, Microsoft and Facebook) derive much of their ROI from multi-sided platform business. Though success is not automatic after launching a platform that generates new sources of revenue, the below article is about the reasoning behind why many companies make the leap and the business objectives organizations strive to achieve when creating a platform.
Benefits of Platform thinking
One of the biggest benefits of moving from a product mindset to a platform mindset is that it provides companies the opportunity to secure many sources of competitive advantage. The companies would be able to heavily capitalize on the unique characteristics of a plat form. If the platform is built in a sophisticated, scalable fashion, it gives a fairly good edge for the companies not only to create and build innovative products on its own , but also to create networking effects by encouraging third parties to create products and market places adjacent to theirs that leverage the same shared architecture.
From an enhancing brand image perspective, it gives tremendous advantage for platform companies to carefully create connected products and services with the same core capabilities that convey similar stories. This way they can stay connected with the brands without losing their core customers or main line of business, but still opening the gateways for third parties who can contribute with new innovative products to their platform and also improve their existing products. This also gives an opportunity for many firms to realize their commonality goals and engage in activities to expand the product ecosystem.
Another interesting fact is that in the going, there is a good chance many platform companies would realize the untapped potential of their business model as they try to perfect their product ecosystem. We have seen several examples with major companies where they hit their "Aha" moments as they engage in activities to increase the value of the product while also trying to attract third parties. As much of the platform business innovation is dependent on opening up their API's to create ecosystems, it also helps the fragmented markets to come closer together to unlock new sources of value. As the activities in each of these markets strongly effects the other market via platform, this interplay of market dynamics leads to exponential growth curves and what leads to a platform revolution.
On the ROI side, platforms help to deliver more variety at a lower cost. For companies that deliver complex product offerings leveraging different design architectures, it has becoming more and more difficult to identify the complexity cost involved with the development. With many companies having started to put a quantified value in $$$ against complexity, cost sharing across product development is one of the top goals for any enterprise. Platforms are a major help here as the technical investment needed to build more products is much less as the base infrastructure is already created.
Another huge source of revenue would be the networking effects that will be encouraged on the platforms. Typically the companies will have a percentage cut from the revenue on any apps created and deployed in their platform. For Apple, one of the most valuable companies in the world, app store is becoming one of the biggest sources of revenue where they are taking a 30% cut on all sales made through the platform. The more robust and scalable the underlying plat form is , the more can be leveraged on the cost saving strategy side along with generating higher quality products. This eventually increase the speed to go to market and provides lower technical risk there by increasing the company revenue.
Usability and Platform Maturity
The key usability of the platform, along with a robust underlying architecture also depends on how the usability of the platform features are documented. All major core companies have a technical team focusing merely on the technical documentation of how the shared architecture can be leveraged. There should be clear definitions on a variety of use cases involved. It is also extremely important to have clear directions on when to re-use Vs when to develop to create a commonality strategy when designing a platform. This requires Platform product management to serve as key strategists to set direction along with ensuring the IT leaders have the API's are structured the most effective way for platform optimization
The product to platform strategy would need substantial investment and management efforts. The more thought out and mature the platform strategy is, the more ROI can be reaped. Product development and Implementation plays a crucial role here as how they leverage the platform to create and deploy carefully thought out products to create a unique brand experience for the customers . It is also necessary to develop a deep understanding of the different use bases you serve to analyze the demand curve and apply the tactics. The more robust the core platform framework is, the more you can optimize by also building a healthy business for your consumers.