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Chapter 2 | Platforms Guidebook

The Power of Platforms

Regardless of your industry, platform thinking can drive exponential business strategies.

Network effects can drive exponential growth in any industry across both analog and digital environments.

Platforms disrupt industries

Companies driving disruption in their industries have embraced platforms as a technology, business model and mindset.

Examples of platform-based companies include Uber in transportation, YouTube in media, Airbnb in hospitality and Amazon in retail.

You can see the exponential power of these companies’ business models in the growth rates of key metrics like number of users, volume of content, number of rooms, number of payments.

These curves aren’t driven by acquisition of assets or investment in infrastructure. What’s driving growth for these companies is the powerful network effects generated as members join and use their platforms.

Network effects are key to growth

Network effects can be generated in any industry across both digital and analog contexts.

Different types of interlocking network effects cause exponential growth.

  • By connecting providers and users, supply and demand reinforce each other in a virtuous cycle.
  • By tapping into co-creation, the supply of the company's “product” (rooms, cars, videos) increases exponentially.  
  • Interactions among users (online reviews, for example) spread awareness in the marketplace.

Each of these platforms relies on a cloud-based digital marketplace to connect participants. But while digital technology increases the ability to create network effects, it’s not a requirement.

Exercise

Platforms in your industry

Consider platforms that are currently disrupting your industry. Remember modern platforms are often digital, but might be analog like a physical space, community or event.

Answer the following:

  • How are platforms creating disruption in your industry?
  • What kinds of network effects are they leveraging?

Platform thinking drives exponential value

Research links platform thinking with exponential value creation.

In 2016, a team at Wharton Business School analyzed companies in the S&P 500 to learn which factors determine how investors value companies.

They studied not only products and revenue models, but also things like how the company talked about itself in analyst calls and annual reports—because how people talk reflects mindsets about business value.  

As shown in the graph on the next page, they found that highly valued companies occur across industries. What matters is not the industry but the business model—and the mental model for value creation behind it.

Identify value models

Value models focus on things, people, ideas or connections. Companies can increase valuation by shifting towards the right.

Across industries, there are four basic models for value creation.

  • Asset Builders focus on making or owning things.
  • Service Providers focus on people.
  • Technology Creators focus on ideas and intellectual property.
  • Network Orchestrators focus on connections between other parties.

Notice the exponential curve as you move from left to right. On the following pages, you’ll see comparisons between businesses from the same industry who have different value models.

Example

Encyclopedias

Things:

Encyclopedia Britannica’s model focused on things and people: hiring writers and editors to produce books.

People:

Nupedia shifted to the right with a focus on people and technology, but it was still distributing knowledge through a digital pipe.

Ideas:

Encarta streamlined the pipes for information delivery by going totally digital with traditional encyclopedia content.

Connections:

Wikipedia moved to technology and relationships as a platform connecting a community of co-creators.

Example

Airlines

Things:

Traditional carriers like United and Delta have an asset mindset. They fly planes full of people.

Early on, traditional air carriers tried to copy Southwest's low-cost business model and failed, because they didn't recognize that Southwest had a different mental model model behind its tactics and strategy.

People:

Southwest is in the people (customer service) business; they just use airplanes to connect people to their destinations.

JetBlue disrupted traditional carriers with cost, but also a people-centric, amenity-rich model in service of its mission to “inspire humanity, both on the air and on the ground.”

Ideas:

Sabre is a technology business predicting pricing and usage for airlines, optimizing profit. Meanwhile, Google, Lumo and Yilu are using predictive analytics tech to lessen the impact of delays—and automatically adjust itineraries. And flying car companies like Joby Aviation are threatening to disrupt regional flights.

Connections:

All airlines were hit hard by online marketplaces like Expedia, Orbitz, Kayak and Google Flights, which empower air travelers by exposing pricing.

At the same time, new entrants like Jettly are connecting under-utilized private jets with VIPs who need unusual, luxurious or fast routes—but haven’t hit their stride yet.

Example

Home Safety

Things:

Honeywell and Kidde were strong players in the early days of the modern home security industry, focusing on devices that detect dangers in your home and alert you to them.

People:

In ADT’s model, it’s not the alarms which bring the core value, but the monitoring and security personnel who respond to the alarms.

Ideas:

Nest’s early products combined great hardware design and ‘smart learning’ algorithms to predict what home occupants needed, using a thermostat, smoke detector, alarm system, doorbells and cameras and, later, optional face recognition technology. Nest has now folded into Google Home.

Connections:

Google Assistant and Google Home transcended any one technology to be in the network orchestration business—with a smart home ecosystem, which connects not only devices from various manufacturers. into a network, but also the people in a household. Members can all monitor and interact with the devices in the home from anywhere through apps.

Example

Navigation

Things:

Garmin’s model was based on selling GPS devices (and to some extent, map updates) which were later superseded by smartphones.

People:

OnStar created an industry seemingly overnight by using a relatively low-tech link from vehicles to a call center. Users could simply press an OnStar button in their car to start a speakerphone call to a navigation concierge. OnStar successfully launched the concept of automobility-related subscriptions.

Ideas:

Navteq and Here are mapping companies focused on selling the map itself—an intellectual property/technology value model.

Connections:

Google Maps and Waze made the leap to network orchestration. But Google does it by networking things and ideas, while Waze networks people and connections.

Exercise

What’s your value model?

Sort your company’s resources and activities into these four categories. Identify where your value model is currently focused. All companies include things, people, ideas and connections in their value ecosystems. But most derive their core value from just one of these categories.

  • Things: What are our assets and how do we best manage and monetize them?
  • People: How do we engage the best talent and deliver the best experiences?
  • Ideas: How do we create and protect intellectual property (including technologies)?
  • Connections: How do we enable and empower value exchange between parties?

Recap

Regardless of your industry, platform thinking can drive exponential business strategies.

  • Companies driving disruption in their industries have embraced platforms as a technology, business model and mindset.
  • Network effects can be generated in any industry across both digital and analog contexts.
  • Research links platform thinking with exponential value creation.
  • Value models focus on things, people, ideas or connections. Companies can increase valuation by shifting their value model towards network orchestration.

Read more:

“You Don’t Need to Be a Silicon Valley Startup to Have a Network-Based Strategy"

"The Perils of Confusing Mental Models and Business Models"