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Chapter 4 | Platforms Guidebook

Unlock Exponential Value

For exponential value, focus on creating connections.

In this chapter, you’ll see how shifting your mental business model can exponentially increase business value.

Platform thinking drives 10X value

Research shows platform thinking is linked with exponential value creation.

A team at Wharton business school analyzed all of the 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 in the next section, they found that highly valued companies occur across industries. What matters is not the industry but the business model—and the mental model behind it.

Recognize value models

Value models focus on things, people, ideas or connections.

Across industries, mental models for value creation fall into four categories:

  • Asset Builders focus on making or owning things.
  • Service Providers focus on people.
    These models are rewarded modestly by investors.
  • Technology Creators focus on ideas and intellectual property.
    Investors nearly double their valuation of these businesses compared to Asset Builders and Service Providers.  
  • Network Orchestrators focus on connections between other parties. Investor valuation of these companies is exponentially higher than Technology Creators.

Shift your value model

Any company can increase value by shifting its value model towards the right.

It’s not the business model that drives exponential outcomes, but the value model behind it. This graphic shows the areas of focus that drive value for each model.

Examples on the following pages compare businesses that share an industry but have different value models.

Encyclopedias

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

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

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

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

Airlines

Traditional carriers have an asset mindset. They fly planes full of people.

Southwest made a big shift to a people-centric mental model. They are in the people business, they just use airplanes to get those people to their destinations.

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 behind its tactics and strategy.

JetBlue has now successfully emulated Southwest's people-centric model in service of its mission to “inspire humanity, both on the air and on the ground.”

Home Safety

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.

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.

Nest leapfrogged all the way to network orchestration with a smart home ecosystem which connects not only devices from various manufacturers into a local network, but also the people in a household who can all monitor and interact with the devices in the home from anywhere through the Nest app.

Maps

Garmin’s model was based on GPS devices, which were soon superseded by smartphones.

AAA offers a subscription-based service with maps as a benefit.

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. We’ll look at these examples in more detail in the next chapter.

Exercise

What’s your value model?

All companies include things, people, ideas and connections in their value ecosystems. But most derive their core value from just one of these categories.

Sort your company’s value generators into the four categories, and consider where your value model is currently focused. We’ll work with these results in the next chapters.

  • Things
  • People
  • Ideas
  • Connections

Recap

Research shows platform thinking is linked with exponential value creation.

Value models focus on things, people, ideas or connections.

Any company can increase value by shifting its value model towards the right.

Go deeper

"Network Revolution: Creating Value Through Platforms, People and Technology" by Barry Libert, Megan Beck and Jerry (Yoram) Wind

“The Perils of Confusing Mental Models and Business Models” by Mark Bonchek

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