From platform to product?

Over the past 20 years, we have seen the growth of “platform economies of scale,” which have led to a transformative business environment and changes in global economic wealth. Companies have been typically competing on products. Yet platforms generate move value. Platforms can create multiple revenue streams, while products typically generate just one. Of the ten largest companies by market capitalization today, seven are technology platform companies: Apple, Microsoft, Alphabet (Google), Amazon, Tesla, Facebook, and NVIDIA.

Most companies started with a product and then migrated to platforms. When Apple introduced the iPhone in 2007, the major phone manufacturers, like Nokia and Motorola, collectively controlled 90% of mobile phone market profits. By 2015, iPhone alone generated 92% of global profits, enabled by exploiting the power of its platform.

Zhu and Furr [1] define a four-step process to successfully transform from a product to a platform:

  1. Start with a defensible product and a critical mass of users
  2. Apply a hybrid business model focused on creating and sharing new value
  3. Drive rapid conversion to the new platform
  4. Identify and act on opportunities to deter competitive imitation

Seeding users and getting them to talk to create value are also considered key to a successful platform strategy by Church [2].

Building a successful platform confers great competitive advantages to a company. Platforms create ecosystem value by encouraging users to interact with the platform and offer different monetization options. According to Bonchek and Choudary [3], successful platforms achieve these goals with three building blocks:

  1.  The Toolbox creates connection by making it easy for others to plug into the platform
  2. The Magnet creates pull that attracts participants to the platform with a kind of social gravity
  3. The Matchmaker fosters the flow of value by making connections between producers and consumers

Do companies have to transition from products to platforms, or can they start with a platform and introduce a single or multiple products based on it? The recent proliferation of transformative cloud technologies has profoundly impacted the conventional strategy of leading with products. Companies do not have to own physical infrastructure and assets, and can iterate on platform and product designs quickly. According to Gay [4], “Applying the thinking behind platforms can make your company’s technology assets significantly more effective.”

Startups can define a platform strategy first and build an initial toolbox to enable users to interact with the platform and create value by connecting with consumers who can use the platform. They can also define the first products to be introduced based on this platform with the features desired by end users. The platform and products concepts can be validated by creating MVPs (minimum viable products) and using different go-to-market strategies to target the audience. “The platform and product strategy has to enable businesses to make quantified and qualified decisions,” according to Bourgeix [5]. “From marketing to operations, the platform and product technology of the future will require a multi-dimensional approach which embraces its use as beneficial to business needs.”

Companies can now lead with a platform and build products that allow its further monetization. The platform and products reinforce each other, creating a virtuous cycle. This can potentially enable companies to define their market niche and establish themselves as a leader with their coherent platform and product strategy.

References:

  1. Products to Platforms: Making the Leap by Feng Zhu and Nathan Furr, Harvard Business Review, April 2016.
  2. Platform Strategy, Explained by Zach Church, MIT Management Sloan School, June 16, 2017
  3. Three Elements of a Successful Platform Strategy by Mark Bonchek and Sangeet Paul Choudary, Harvard Business Review, January 31, 2013.
  4. How to Apply Platform Thinking to your Tech Strategy for Greater Success, by Patrick Gay, TechRepublic, March 2, 2021.
  5. Platforms and Technology Evolution, conversation with Pierre Bourgeix, CTO and Founder, Butchko ESI, November 2021.
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