When you run a platform on scale, you have to make sure it’s truly open. That way, not only do you do well, so do others. Part of the reason a platform is successful is because there are very, very important things from other companies and other developers on top of the platform.
– Sundar Pichai
Highlights
- Platforms are emerging as a way to create significant value through the non-hierarchical coordination of complex, business ecosystems that enable multiple parties to participate.
- The options created through leveraging outside minds and assets far exceeds (by both quantity and quality) what’s available in house.
- Despite the wide variety and many variations of platforms, there are basic principles and architectural characteristics that underly all of them.
- An understanding of the fundamental characteristics of platforms makes it possible to turn strategic opportunities from products and services into more valuable platforms.
- All companies aspire to create platforms but often lack the tools and methods needed to build them. New platform models and approaches can help.
In 1939, Dow Chemical introduced polyethylene to the world as an insulating material for radar cables. In the 79 years since, the Dow polyethylene platform has grown to encompass six distinct product families selling over forty product categories into multiple markets across a wide variety of industries. Today, thousands of companies use polyethylene (along with complimentary materials and components) in an estimated 2 million plus products generating over $10B each year in revenue.
In 2008, Apple introduced the “App Store” with 500 applications. Today, the App Store contains over 2 million apps from nearly 500,000 developers. And it generates over $10B a year for Apple (their cut).
In the years since the App Store was introduced, platforms (and articles about platforms) have proliferated. From 3M’s 46 technology platforms, to Uber and Airbnb’s multi-sided platforms, to DSM’s portfolio of platforms to literally hundreds of other examples, platforms are a hot topic.
Despite the obvious differences between polyethylene and the App Store, they are both platforms. Their similarities and differences can shed light on the ways companies, even companies fully embedded in the industrial, B2B, world of physical products, can build platforms that go beyond products and services.
Platform Fundamentals
A good starting point for understanding platforms is the description from the research of Carliss Baldwin and Jason Woodard (from Harvard Business School and Singapore Management University, respectively):
Platform architectures are modularizations of complex systems in which certain components (the platform itself) remain stable, while others (the complements) are encouraged to vary in cross-section or over time. Among the most stable elements in a platform architecture are the modular interfaces that mediate between the platform and its complements. These interfaces are even more stable than the interior core of the platform, thus control over the interfaces amounts to control over the platform and its evolution.[1]
In other words, the fundamental characteristics of a platform are:
- Open – Enabling the creation and evolution of assets and actors that expand the universe of platform usage and influence.
- Rule-based – Containing a set of persistent interfaces that enable coordination among actors, access to complementary assets and enforcement of rules the platform participants must follow.
- Coordinated – Creating a means to manage and coordinate a complex ecosystem of interacting actors and assets (these are the complements referred to above).
These fundamental characteristics are manifested in a bewildering array of different platform designs and functions. But despite this wide variation, it is possible to create a framework that establishes a common lens through which one can analyze and assess any platform, no matter how unique. The framework can also be used to build new platforms. Such a framework is shown below.
A Platform Framework Architecture
A platform consists of the following constituent parts:
- Actors – who use the platform for their own ends (individuals, organizations, communities)
- Providers – actors who contribute assets that the platform manages and controls
- Creators – actors who build things from the assets the platform provides
- Adopters – actors who buy and use the things that are built from the platform
- Assets – the capabilities and tools made available to platform actors
- Technology – physical and digital assets (the “atoms and bits”) used to design and build solutions
- Solution – products and services that are adopted and used
- Business – functioning businesses built around solutions
- Interfaces – the governance rules about how actors behave, and how assets are used
- Transactions – the means and type of value exchange between actors
- Protocols – the ways in which assets interact with each other and with actors
- Information – The ways in which actors can see how the platform is functioning
Different platforms are all simply variations of:
- Who can be (and is encouraged to be) an actor,
- What assets are made available, and
- How enabling or constraining the interfaces are (i.e., the types of rules and how strictly they are enforced).
The Dow polyethylene platform is a non-digital technology platform (it was established in 1939 after all!) in which Dow is essentially the only asset provider to the platform (there are many other PE suppliers, but not to Dow’s platform). Dow enforces a very limited set of interfaces that consist primarily of purchase transactions and application engineering support. Despite this limited scope, the Dow polyethylene platform allows those with the appropriate design and development capability to create new offerings that have not been anticipated by Dow. In addition, every R&D advancement in performance, cost, and functionality benefits the whole universe of applications and businesses that use the platform – and potentially opens new applications. If Dow improves its polyethylene asset, as happened with the development of their Ziegler-Natta catalyst technology, it benefits all platform actors.
The Apple App store platform is a digital business platform in which there are a suite of assets (modular software libraries, ads, in app purchases, etc.) provided by an extensive ecosystem to developers. These developers , in turn, create solutions (the apps) and new businesses. These are adopted by App store customers utilizing an extensive, yet very strict and enforced set of interfaces.
Other technology, solution and business platforms can be analyzed using this framework. It is interesting to look at the similarities and differences between Airbnb and Uber, for example, or the 46 technology platforms that 3M touts. It is also interesting to use the framework as a tool to think about the platforms you can build.
The Digital Imperative
In 1939, when Dow first introduced polyethylene as a product, there was no digital world. Building the polyethylene platform required face-to-face interactions and manual effort that resulted in methodical expansion of the platform and creation of new polyethylene products and markets.
Today, companies exist in a digital world that enables orders of magnitude greater and faster connection, interaction, and influence than even just 10 years ago. There is no question that today, building a platform requires digital implementation. Marc Andreessen’s famous article in the Wall Street Journal, “Why Software is Eating the World” is truer today than when he wrote it in 2011.
For many companies, especially those embedded in the physical, industrial, B2B world, the issue is how to marry physical products that have been traditionally been sold within a highly constrained supply chain, with digital systems that expand the design palate into the digital realm – an enabler for modern day platforms. The answer lies in the elements of the above framework above, all of which can be implemented using digital assets. It just takes the imagination and commitment to do so.
Building Platforms
One approach that has been successful in getting companies to engage in ‘platform thinking’ is to take the opportunity concepts already in the front-end pipeline and intentionally ‘platformize’ them. This is often easier to do than it may seem. Many of the opportunities under consideration may already have strong platform attributes. It just takes a little extra work to flesh out the platform hiding within. To do so, use the framework outlined above and ask the following questions:
Regarding the Actors…
- How can we expand the actor community in multiple directions?
- Which types of actors are absent or under represented?
- Can we create a multi-sided platform?
Regarding the Assets…
- How can we expand the asset base with complementary assets from others?
- Can we expand from a technology platform, to a solution platform or a business platform?
- What new competencies do we need to build/acquire to make the platform successful?
- Regarding the Interfaces…
- What rules can we impose that will let all actors work smoothly with each other?
- What digital systems can we create that will enable transactions between asset owners and adopters?
- What types of information interfaces do we need to allow platform actors to make the best decisions?
Conclusion
In their book Machine, Platform, Crowd[2], McAfee and Brynjolfsson make a compelling case that platforms are overtaking products as a key driver of value creation. They primarily focus on digital platforms but give a slight nod to the physical product realm when they state “… our analysis applies as much to the physical world as to the digital world.” The problem is that they give very little direction on how to do this.
It will take more work before a full model and theory of platforms emerges, one that can be readily adopted in all situations. Until then, frameworks such as the one presented here can be used to build new platforms and platform capabilities that will accelerate value creation above and beyond what is possible with product and service offerings.
[1] Baldwin, C. and Woodard, C.J; The Architecture of Platforms: A Unified View; Harvard Business School Working Paper 09-034; 2008
[2] McAffee. A. and Brynjolfsson, E.; Machine, Platform, Crowd: Harnessing our Digital Future; W. W. Norton & Company; June 27, 2017