Only Dead Fish

What Exactly IS a Platform Business Model?

'Platform' is a somewhat overused word these days and yet, as I wrote over on the agile business blog, speaks to arguably one of the most fundamental shifts in business models and thinking of the digital age. It is however, poorly defined (and often mis-used), and so it's worth dwelling on what exactly defines a platform business model and how we might understand some of the key characteristics.

In that piece that I wrote on the shift from pipeline to platform organisations (drawing from Van Alstyne, Parker and Choudary's article on the new rules for strategy) I talk about how platform models are nothing new but also how digital has brought a heightened level of significance and new contexts to the idea. If you are a platform, you sit within an ecosystem comprised of multiple components typically including owners, providers, producers, and consumers:

‘Platform businesses bring together producers and consumers in high-value exchanges. Their chief assets are information and interactions, which together are also the source of the value they create and their competitive advantage.’

The dynamics of ownership, scalability, interaction, data are therefore all different from more linear, pipeline-type models. 

Similarly, Hugh Durkin describes here how platform models are as old as the hills - money, TV, Shopping Malls are all examples of platforms that bring together different participants in 'multi-sided' relationships. Platforms are often distributed and intangible (you can't see all the developers creating apps for Google Play for example, but you can see the result of their relationship with the Android platform). Digital has arguably brought even greater intangibility by facilitating the flow of value through data and APIs. Hugh gives three key characteristics that help to further define what a platform is:

True platforms serve multiple types of consumers (where products typically serve one type of customer). An example might be Spotify who serve music lovers, record companies and artists, and then multiple businesses who have integrated Spotify into their own services and the developers that enable that integration.

True platforms facilitate efficient value exchange (between all the constituent players in the ecosystem)

True platforms exhibit shared common standards (the terms that ensure the participants can transact easily and fairly)

If what you are building exhibits all three of these characteristics, then you are probably building a platform. Anything else is a product. But the organic nature of platforms and ecosystems is important to acknowledge. I hear a lot about ecosystem design and whilst I think there is benefit in mapping out potential sources of value, it's important to set up a platform model in a way that allows it to evolve easily in response to changing competitive or consumer contexts.

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The 'Antifragile' Organisation

In the book I talk a lot about how, in the face of rapidly changing contexts, there is a need for greater organisational manoeuvrability and not just speed. Speed is great, but speed in the wrong direction helps no-one. Improved adaptability helps responsiveness but it can also build resilience and momentum if done right. In contrast, overly rigid planning or processes or hierarchies can generate greater fragility over time, creating a dangerous kind of brittleness to the organisation that leaves it unable to cope effectively with change. 

So I rather like the distinction drawn here between the different states of organisational readiness and response. To paraphrase:

FRAGILITY: is about breaking without any significant signs of alteration.

Being ROBUST is about the ability to resist against known changes or stresses

RESILIENCE is absorbing/reacting to disturbances by re-establishing as close as possible to the original state 

An ANTIFRAGILE system however, is one that improves as a result of stresses and failures (many biological systems have this capability of-course including disease response and evolution) and evolves to a new state which is better suited to the new environment.

Agile and iterative approaches have continuous adaptation at their heart, enabling antifragility and improved recovery from unanticipated events. The author goes on to outline some sensible principles around implementing greater agility including validating changes in small increments, staying focused on value delivery, decentralising control, removing unnecessary synchronisation of flow or dependencies, and making culture explicit (all stuff I talk about in the book). But this is an important distinction. Do we want a business that is simply robust or resilient in that it resists or absorbs changes but fails to learn and adapt? Or do we want one that is also able to continuously learn and improve from every test or challenge? I know where my money would go.

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Products to Service

I talk a lot to clients (and also in my book of-course) about what the shift from product orientation to experience really means. As software eats the world an ever increasing number of products are becoming services - even those that you might think are relatively distant from digital disruption like the unbundling of Procter & Gamble's product portfolio by a host of digitally-enabled startups.

A business like Dollar Shave Club for example has totally changed the male grooming market by shifting the way in which shaving (and then other grooming) products are sold. In a traditional 'pipeline' business model, value creation is typically characterised by a linear value chain. The way in which digital often disrupts is by changing one stage of that value chain to such an extent that it unbundles the whole thing. Dollar Shave Club have disrupted the route to market but in doing so this transforms the rest of the value chain as well including operations and logistics. And of-course having a direct to consumer model means that rather than being reliant on manufacturing and distribution efficiences and relationships with retailers, layers of services and experience can be added to what was a razor and some shaving foam. 

The impact of this is quite profound. Not only does service design and innovation become way more important but the orientation of the business is more focused on continuous iterative improvement, and in the case of a platform business, externally-facing orchestration, and the flow of value around an ecosystem (including data through APIs). Experience is not limited to comms and marketing, but becomes fundamental to what the business is all about. And increasingly of-course, that means that service innovation is not limited to digital as a channel but digitally enabled physical hardware and real-world experiences. Just as businesses that started out with physical products are becoming more focused on software, so software-dirven businesses innovate into hardware. Google does Nest, Pixel and Home. Amazon does Kindle, Echo, and so on.

And now Citymapper does buses. It's (to me at least) a fascinating phenomenon that a startup that began as an app to help people get from A to B could well end up becoming a bus company. But it makes complete sense in a world where sluggish response to consumer need opens up the very real potential that someone else will come in at pace to fill the void (just look at what's happening with banking, with space created for great propositions like Atom and Monzo due to the glacial pace of mobile user experience innovation from most of the big players). In his recent shareholder's letter Jeff Bezos talks about how customer's are ‘beautifully, wonderfully dissatisfied, even when they report being happy and business is great’, and how a desire to delight customers will therefore drive continuous invention and progression. I'm quite sure Citymapper didn't envisage becoming a bus company when they started out, but the point is is that they are bold enough to think broadly in terms of capabilities not markets in order to innovate and evolve.

The Trust Equation

I was lucky enough to be in New York this week doing a workshop for a big pharma business and took the opportunity to catch up with Mark Raheja, founder of the brilliant August. In our conversation Mark mentioned a formula that he'd come across (which comes originally from this book by Charles H Green) that was a useful way of thinking about trust relationships in business. The equation is based on four variables (paraphrasing from here): Credibility (is credible on the subject); Reliability (is dependable, someone who delivers, does what they say they will do); Intimacy (referring to the safety or security that we feel when entrusting someone with something); and self-orientation (referring to the person’s focus and whether, in particular, their primary focus is on themselves and what they can get out of it, or on the other person).

I rather like this as a way of demonstrating the factors that can empower not only trust between vendor/consultant and client, but also a culture of trust within an organisation (that can generate greater agility. As Green and co point out, this equation has one variable in the denominator and three in the numerator, and increasing the value of the factors in the numerator increases the value of trust whilst increasing the value of the denominator (self-orientation) decreases it. This makes sense since (as every good sales person will tell you) great selling or consulting is based on listening rather than telling. But it's also important since in the modern organisation trust is critical to building the culture to move fast. It's the difference between fixed and growth mindsets or, put another way, pie-eaters and pie-bakers. 

Post of the Month - April 2017 - The Winner

Delighted to say that Richard Shotton is the winner of this month's vote with his excellent post on 'Truthiness in marketing', so well done Richard. You are entered into the hall of fame. My thanks to everyone who took part. Don't forget to bookmark your good reads for next month's nominations.