6
The Rise of the Platform Enterprise: A Global Survey
There are also innovaon plaorms, which consist
of technological building blocks that are used as
a foundaon on top of which a large number of
innovators can develop complementary services
or products.
These complementary innovators
can be anyone, anywhere in the world, and
together they form what is called an innovaon
ecosystem around the plaorm. An example is
the iPhone, which has hundreds of thousands of
applicaons. Those applicaons are developed
by innovators all over the world, who use Apple
technology the company makes available through
soware connectors somemes called APIs—
applicaon programming interfaces—or soware
developer kits, which will in eect connue the
cycle of innovaon and growth.
A fundamental feature of plaorms is the
presence of network eects: plaorms become
more valuable as more users use them.
10
As more
users engage with the plaorm, the plaorm
becomes more aracve to potenal new users.
This goes a long way toward explaining why some
plaorms have had viral growth. There are two
kinds of network eects: direct network eects
(where more users beget more users, as in more
Facebook users will beget more Facebook users)
and indirect network eects where more users of
one side of the plaorm (for example, video game
users) aracts more users on the other side of the
plaorm (in this example, video game developers).
Je Bezos, the founder and CEO of Amazon,
refers to this reinforcing virtuous dynamic as the
“Amazon ywheel.”
11
It is important to understand that with plaorms, scale
is both the outcome of inial success and the engine
for the further growth. Network eects existed before
online plaorms, for example, the telephone network.
But today, where individuals have access to pervasive
connecvity that is facilitated by the Internet, and
where there are 7 billion mobile phones in the hands
of users—this ease of communicaon has increased
the network eects. With plaorms, scale creates
value and aracts addional users. This dynamic
creates a self-sustaining momentum for growth.
As menoned earlier, an important feature of
plaorms is the ability to eciently match buyers
and sellers in the market. While there is always
fricon associated with transacons between
buyers and sellers, by building new soware and
harnessing the speed and scale of the Internet,
platforms help reduce that friction. Innovative
platform entrepreneurs have discovered that
there are ways to get the flywheel going faster
if one side of the market is incentivized to join,
for example, by being subsidized. This is why it
is not uncommon to see platforms offering deep
discounts to one side of a market or even provide
“freemium” goods or services to third parties
to induce them to join, contribute and even
innovate on the platform.
Platforms also present different strategic
objectives than traditional frameworks for
corporate strategy, which will often emphasize
concepts like “lean” and “just-in-time” supply
chain delivery. Platforms change what it means
to lead organizations, forcing them to re-think
their strategies, business models, leadership,
organizational structures, and approaches to
value creation and capture systems. Aiming to
become a platform leader entails a vision that
extends beyond one’s own firm, and aims to build
and sustain an ecosystem of partners, where the
platform leader has to be the equivalent of a
captain. And just as any “team captain” would
have to, a platform leader must maintain some
degree of neutrality and benevolence over its
business partners, failing which, it would damage
its own legitimacy.
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Platforms excel across a number of different
dimensions, which has helped to set them
apart from traditional business models. These
include the way they foster efficient and
productive interaction, speed and scale of
innovation. Platforms are highly successful at
efficient matching. The largest in the world,
such as Facebook, Amazon, and Alibaba,
facilitate hundreds of millions or even billions of
interactions per day.
10
See Geoffrey Parker and Marshall Van Alstyne, “Two-Sided Network Effect: A Theory of Information Product Design,”
Management Science; 51, no. 10, 2005; Mark Armstrong (in “Competition in Two-Sided Market”, RAND Journal
of Economics; 2006, p. 66) defines two-sided markets as “markets involving two groups of agents interacting via
‘platforms’ where one group’s benefit from joining a platform depends on the size of the other group that joins the
platform”. They have also been defined as “businesses in which pricing and other strategies are strongly affected by
11
Brad Stone, The Everything Store: Jeff Bezos and the Age of Amazon, Random House, 2013, p. 126.