How does a company offer a new platform? Not by starting with one.
This is the third in a three-part series on how to manage a platform for massive growth. Here we we take a look at how to start a platform and some platform best practices. Read part one: “What Comprises a Platform,” and part two: “Platform Growth Strategy.”
Myth: There is a market for platforms.
Reality: Platforms are only one link in a chain to market. Nobody buys platforms alone.
If there is no market for platforms, how does a company get started offering one? There are two paths :
- Open up a previously closed ecosystem: Use existing market relationships to convert an existing product line to be platform-based.
- Create an ecosystem in a new market from scratch: Identify a new market and create a platform and ecosystem technology from the start.
In both cases, it’s essential to prove the value of the full value chain. So typically, and directly following myth No. 1 in the early days, a platform company will build a platform “killer app” to prove the end-to-end value of systems built upon it. Facebook initially built its full value chain selling social networks to universities and high schools.
A recent enterprise offering to help calculate sales tax in India became so widely used that the pull-through revenues to the underlying platform produced a return on investment (ROI) on the platform investment in just one application.
Both approaches cost time and money to nurture developers who are passionate about your platform and users who are passionate about your ecosystem providers. Indeed, the investment of time and money required is probably the explanation for Geoffrey Moore’s “chasm” between the creation of a great innovation and its widespread usage. Amazon, for instance, wasn’t profitable until year six. And Salesforce.com has yet to turn a profit after 18 years.
The chasm for platform companies can indeed be deep and hard to cross.
Maintaining Platform Integrity Over Time
Constant evolution is a prerequisite for the platforms that are exposed to ever-changing market trends. They need to be highly responsive to foresee and take on new challenges. Facebook being caught off guard with the problem around “fake news” in late 2016 can be cited as an example. What if Amazon allowed fake products to be sold or shipped toys in place of Rolex watches? What if Lyft does not vet its drivers carefully?
Platforms are responsible not just for the integrity of interactions conducted upon them but also for “utility” functionalities, such as reliability, security, integrity, high availability, usability, performance, and trust. The vendors must adapt to changes and be well equipped to confront new vulnerabilities.
Myth: Platform vendors don’t need to be very prescient, they can depend solely on their ecosystem vendors to track their market.
Reality: Ignoring market forces can mean the end of a platform.
Manual Versus Automated Delivery
Most platforms offer automated services that replace humans in the loop. There is no customer service agent behind your Amazon book, there is no dispatcher for Uber. Human involvement is inevitable in many systems: cleaning up translations done using artificial intelligence (AI), handling high-risk cases in medical and security screening services, and extending further to human-intensive services such as accounting, legal, and consulting services.
Human-in-the-loop platform opportunities are by and large an open playing field today, especially for enterprise applications. Although automation is certainly increasing in many domains, complete automation is not always the best — or even a possible — solution.
Myth: All platform solutions must be fully automated, without a human in the loop.
Reality: For many use cases, it is best to find the optimal balance between human and automated processing.
A successful platform strategy contains the following steps:
- Understand the dynamics of platform business models. Read Invisible Engines and articles on the economics of these models; read Chris Smith’s post on Medium, What I learned from 100s of hours studying platform businesses.
- Invest in making your technology open and accessible to vendors. Provide simple interfaces, such as RESTful ones, that allow new companies to plug in to your technology. Build some sample applications to demonstrate their value.
- Early on, build the entire chain to market yourself to be able to drive early revenues and address issues with the platform technology. Practice caution while expecting continual and substantial revenues in this model.
- Invest substantially in creating a developer ecosystem. Be generous, practice “developer love”: free training, free marketing, prizes, free startup advice, and a developer support team with an unmatched customer service culture. Make your software usable and publish examples of its use.
- Showcase the strongest developer solutions at international conferences and with full-court-press marketing. Your marketing can also be a valuable platform service for ecosystem vendors.
- Work closely with developers to identify re-implemented functionality, thereby continually improvising and adding features.
- Keep your platform value proposition in mind — more than anything it should be easy to use. Keep in mind that developer costs include their time and effort as well as the risk of a platform failure.
- Watch out for unintended consequences for platform abuse, such as Facebook’s “fake news.”
- Seek “pull through” opportunities, vendor solutions that require substantial revenues from your platform. Supporting these vendors’ business models has a substantial benefit for you as they are your best innovation resource.
- Finally, understand the ripple effects your platform model will have on multiple stakeholders beyond your ecosystem. A platform for tax calculation must be compatible to developers and partners as well as tax auditors and government agencies. Apple’s iTunes serves the entire music industry comprising of musicians, record labels, and others — all under one roof.
By taking the time to learn about platform business models, your company has a shot at the winner-take-all dynamics of this lucrative opportunity.