Platforms

In the search for competitive advantage, many leaders have become fatigued by the hamster-wheel race to continually create new product and service features that are all too soon copied by the competition. They envy companies like Apple that design platforms, seemingly leap-frogging the head-to-head features battle that takes its toll on so many managers. While platforms may appear to be the panacea you’ve been searching for all along, they aren’t an option for everyone.

To begin with, a platform requires the ability to look outside of your organization and see the potential for connections with others, often referred to as complementers. A platform is a foundation comprised of a product, service, technology, or system on which other complementary offerings can be built. Platforms serve to connect providers and consumers in ways that stand-alone offerings cannot.

To be considered a legitimate platform, the foundation is part of an evolving system and is not as valuable by itself. For instance, a video game console such as Xbox is considered a platform. It is part of an evolving system that includes gamers, software companies, and entertainment enterprises. Without the games or the players, it’s not of much value by itself.

As far back as 2000, Apple founder Steve Jobs envisioned the Mac operating system as a digital hub for all of a user’s content, including photos, video, music, and so on. The platform evolved into personal devices such as the iPod and iPad, and continues to transition as the digital hub moves to the cloud. Even a company not considered a pure technology firm, such as CVS, has used its retail outlets as platforms for a wide array of complementary offerings including basic healthcare (MinuteClinic), photography, and optical solutions.

The challenge facing platform providers is that they must engage both customers and the complementary offering developers in order for the platform to succeed. Returning to our example of the Xbox platform, on the one hand, if software game developers see gamers migrating to playing on their mobile devices, they may be less inclined to invest in developing games for the Xbox. With fewer quality games available for a device such as the Xbox, gamers would be further motivated to play on alternative devices such as phones or tablets, and a downward cycle would ensue. On the other hand, if gamers see the highest-quality, most engaging games being developed for the Xbox and not other platforms, then their loyalty to the Xbox platform would strengthen. As the number of users increases, the motivation for game developers to build for the platform also rises. These network effects, along with the high switching costs for gamers to move from one system to the next, act as a strategy shield for the platform provider.

A social network such as LinkedIn can also be described as a platform. First, it’s part of an evolving system of workers moving from one job position or company to another. Second, without the numerous complementary offerings through partners such as Twitter, SlideShare, WordPress, and others, the value of LinkedIn would be greatly diminished. As LinkedIn co-founder Reid Hoffman said, “Social network platforms do best when they tap into one of the seven deadly sins. Facebook is ego. Zynga is sloth. LinkedIn is greed. With LinkedIn it’s taking control of your economic destiny and improving how you operate as a professional and how you can develop a competitive advantage.”15

Too often, a lack of differentiation in a company’s core products or services is ignored or stubbornly dismissed until the firm becomes engulfed in full-fledged commoditization. Then the predictable product-line extension bandages are hastily stuck on the business, but do little to stem the flow of red ink. Research by professors Kim and Mauborgne found that 86 percent of business launches by companies were line extensions, but they generated only 39 percent of total profits. A mere 14 percent of launches consisted of newly differentiated offerings, yet these yielded a whopping 61 percent of total prof- its.16 In a recent three-year study on innovation, only 13 percent of the world’s leading consumer product companies were able to develop a breakthrough innovation. The authors of the study concluded, “The only thing keeping most big companies from creating new categories is their lack of imagination—their inability to see beyond what they’re selling today.”17

A rich source of platform innovation can come from the mental agility of leaders to move out of their strict mindset of providing either a product or a service, and instead look at the other category as an opportunity to develop their own complementors before outsiders do. Manufacturers exploring service complementors (Apple and their retail stores) or service providers exploring product complementors (Amazon.com and the Kindle) can reignite a company’s growth.18 In the automobile industry, increased cost/pricing transparency and hungry competitors have whittled away at profits. A number of auto manufacturers have worked to build on their platforms with services such as financing, insurance, warranties, maintenance, repair, Wi-Fi, navigation, and satellite radio. Their ability to enhance the service experience of an automobile may hold the key to growing profits in the long run.19 Table 1.2 provides examples of platform complementors for different businesses.

Table 1.2 Platform Chain

Company

Customer

Need

Primary

Offerings

Next-Layer

Needs

Comple-

mentors

Apple

Baby

boomers

Mobile

computing

iPad, Mac

Personalized

instruction

Own

retail

store

Amazon

Business

travelers

Business

knowledge

Online

store

Convenient

format

Kindle

reader

Taco Bell

Teenagers

Hunger

Tacos

Unique taste

Doritos-

flavored

shells

LinkedIn

Job seekers

Optimal

employmen

Professional t networks

Knowledge

enhancement

Business

content

How does one determine if their business is or could be platform- based? The following Platform Chain exercise can begin to clarify if your business is a candidate for platform development:

  • 1. Identify your key customer segments.
  • 2. Determine the main need currently fulfilled for these customers.
  • 3. Record the primary offerings (products, services) that meet this need.
  • 4. Uncover the next-layer needs this customer group has within this area.
  • 5. Create solutions to satisfy these additional needs (complemen- tors). Litmus test: without these complementors, the product/ service is of lesser value.

Establishing connections between the columns demonstrates there’s opportunity to leverage a platform. If no platform currently exists, in what ways can the Platform Chain be modified to create one? If you’re

Table 1.3 Platform Chain: Netflix Example

Customer

Need

Primary

Offerings

Next-Layer

Needs

Potential

Complementors

20- to 30-

year-old

males

Convenient

entertainment

DVDs,

streaming

Variety and binge-viewing

Original content delivered in its entirety

a manufacturer, what services could be complementary to your products? If you’re a service provider, what products could be complementary to your services?

Table 1.3 shows the Platform Chain being applied for Netflix.

 
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