Platform is fairly new word in the world of business strategy. It has existed in the engineering world for a long time. What is a Platform? Social network is a platform (Facebook, Ning etc)? Is brand a platform (Easy Jet, Virgin etc)? And there’s product platform (Blackberry) and standard (Blueray). Windows Mobile is a platform. Is Apple a platform? Or is Lotus Notes a platform? Is Nike Air a platform? Is Oprah a platform? Is Google's new Open Social a platform? What about Kiva, is that a platform too?
We have never properly defined what a platform is. Check it out in the dictionary and you will get: "a raised horizontal surface of wood, stone or metal;" or "a statement of principals and policies, especially of a political party." The first refers to stage and the second refers to public issues.
But neither definition really covers what I refer to in world of business strategy, so it looks like I just have to take a shot and offer my own definition, a third one, one that matches the way we use day-to-day, and I think this will evolve over time.
In the product engineering world, product architecture, platforms and commonality can help a firm deploy and manage a family of products in a competitive manner. Obviously there are both strategic as well as implementation aspects of the challenge. A key strategy is to develop and manufacture a family of product variants derived from a common platform and/or modular architecture. Reuse of components, processes and design solutions leads to advantages in learning curves and economies of scale, which have to be carefully balanced against the desire for product customization and competitive pressures. Additionally, platform strategies can lead to innovation and generation of new revenue growth, by intelligently leveraging existing brands, modules, and sub-system technologies.
For software, sometimes they don’t become a platform until they are massive adoption. They need to intensify adoption not only for users but also through out the ecosystem for others to participate. An example would be when Skype was opening up its platform in 2005 to anyone who wants to integrate Skype’s presence and instant messaging services into their application. By opening up Skype’s platform to the web, it made it easy for anyone to connect to Skype’s fast growing member base, which passed 51 mil people in only 2 years. By opening up its platform to the web, Skype was instantly creating the largest open instant messaging platform in the world.
Most industries today operate on certain platforms and platform owners means market power and usually benefit from economic gain. Many are quick t call their products platforms in a casual manner, but here are some of the key characteristics:
- It must perform one or more critical function in a superior fashion within an industry
- It must define certain “standards” and has influence over the overall architecture
- It must be open or semi-open for others to build upon
- The economics must allow the complementors in the ecosystem to see some upside in order to attract them to participate
- Early momentum is key for any platform strategy so a lot of negotiation needs to take place to make business trade offs.
Game theory is most useful in any platform strategy as competition between players are often intense as players see the big win and everyone is motivated to give up more in the short term. All sides compete by giving away value hoping to get market lock-in. Sustain complementors incentives require creativity and become a key part of the strategy. There is also anti-trust consideration when there are only 2 or 3 players involved. In todays technology-driven competitive environment, every company will come across a time to consider growing to become a platform leader in their space. Not only companies require a compelling and realistic vision of the future, they also need the ability and the commitment to design a defensible and vibrant eco-system by evangelizing an industry model (not only a business model) that works for all complementors. It is a function of selling a collective destiny with enough payout for all members.
