Making a good platform

Why is a platform business model attractive

Success of Google and Facebook has certainly given credibility to the platform business model. A well designed platform can engage multiple groups of suppliers and buyers. And, as the engagement increases, it can build an ecosystem that is self-reinforcing which becomes its own competitive barrier.

The initial mental challenge with platforms is to NOT think exclusively of monetizing the final user base. Take Google as an example. On one hand, you want to make sure that your actual buyers, i.e. the advertisers, are getting good value. On the other, you want to ensure the end user experience remains relevant to keep the eye balls, which is what the advertisers are paying for in the first place.

Once you have figure out the balance, focusing on your key success factor actually becomes straight forward, albeit not easier. To borrow a well used business strategy jargon, you can really concentrate on your core competence. This is not to suggest that you abdicate the responsibility of engaging with your ecosystem. But, it does mean that you can more effectively leverage existing channels and tap into unmet demands.

A few observations on platforms

Prof. Kevin Boudreau of London Business School and Prof. Andrei Hagiu of Harvard Business School have written Platform Rules, an insightful paper on aspects of regulating a platform. This is an unique challenge since a well regulated ecosystem is fundamental in attracting participation.

Conversely, a fair question on platforms is how much control could a company exert in the functioning of the ecosystem. Specifically, how far can a company push its own product or agenda before the fear of lock-in surfaces?

Finally, platforms is not an exclusively software idea. Take Apple iPhone as an example. It is a very well designed product, like all Apple products. But, good design is an insufficient condition since PC is still the most dominant format. I would argue that one of the reasons that iPhone become such an iconic product is the fact that it is supported by a platform called iTune/App Store. As a platform, iPhone allows consumers of digital goods, movies and app's, to connect with suppliers.

In the example of iPhone, Apple gets paid by the end users when they buy an iPhone. App writers pay Apple's iTune market a fee to access the iPhone users. And, phone carriers provides the technical and product distribution network to proliferate iPhone.