What's Your Platform Strategy?

What exactly is a platform?

Platforms connect two or more sides of a market—buyers and sellers, renters and property owners, users and application developers, and so on. In the past, we've associated this word with innovation platforms, where companies build a core technology and others participate in that ecosystem. For example, Microsoft created the Windows operating system and software developers designed applications for Windows. But the big growth in platforms today is in what we call transaction platforms, where interactions or transactions between sides of a market take place on a platform, such as Amazon, eBay, Uber, or Tencent (WeChat). Many companies are increasingly operating as both innovation platforms and transaction platforms, recognizing that they need to excel in both to maximize the value of their ecosystem.

What inspired you to create the program Competing in the Age of Digital Platforms?

Platforms are big business—and big disruptors. The top five companies in the world today, in terms of market capitalization, are platform-based businesses. Virtually every company on the planet either wants to become a platform or has to be involved with a platform in order to sell its products and services. In this 21st century business model, the world's largest taxi company has no vehicles, the world's largest provider of accommodations owns no real estate, the world's largest media company produces no content, and the world’s largest retailer has no inventory. The world is moving in this direction and all companies need to understand the implications.

Platforms present enormous opportunities but also pose serious risks. By focusing on the strategic challenges and opportunities associated with platform businesses and markets, our program will help business leaders formulate strategies to create value while minimizing the costs and risks of creating, managing, or engaging with platforms.

What are some of the roadblocks to building platform-based businesses?

In the program, we discuss four key challenges. First, given that platforms connect different sides of a market, who are the sides and what value is being created for each side? That might seem to be a simple question, but a platform often involves more than two sides. For example, consider Facebook, which has advertisers, community members, application developers, and content providers all participating in its platform.

Second, companies face a chicken-or-egg problem. For the platform to deliver value, it has to have many participants; one side does not get value until the other side is large in number. So, how does the company get everyone engaged? Third, how does a company build a business model that makes money? The vast majority of today’s platforms actually destroy value and lose money.

Finally, how does a company govern its platform? What is allowed to happen and what is not allowed to happen? We’re seeing many headlines related to governance lately because platforms are double-edged swords. They can produce enormous efficiencies and generate spectacular value. But they create opportunities for abuse of power—bullying labor practices, counterfeit goods, misuse of market power, or bad actors getting involved. In the program, we discuss a variety of ways managers can avoid falling into these traps.

What should executives keep in mind as they build platform strategies?

To create value, a platform has to reach critical mass. Platforms have the potential for a winner-take-all or winner-take-most outcome. Network effects play a big role, but are not enough to guarantee success. In the program, we discuss a framework for understanding why and how platforms succeed or fail. For example, a company might misprice access to the platform. It might not be aware that competitors are entering with niche or differentiation strategies. In addition, it's essential that the parties involved trust the platform owners. Too many platforms fail to build or maintain trust. Timing is also critical. Platforms can enter the market too early or too late. Finally, managers need to understand that even very successful platforms can disintegrate when they start to take their strong positions for granted and ignore key warning signs.

Smart strategies are also critical for companies whose go-to-market model may include third-party platforms. For example, Amazon has become a critical channel for companies across many industries. How does a major platform like Amazon impact your traditional routes to market? What are the risks and advantages of online marketplaces facilitated through platforms like Amazon? How do platforms change your relationship with your customers? Executives need to understand platforms' potential long-term effect on all parts of their business, from distribution to brand and beyond.

What executives benefit most from this program?

This is a strategy program for senior decision makers in any organization thinking seriously about platforms. Participants might include C-level executives or senior executives focused on strategy, innovation partnerships, or business development. The program is valuable for participants at any stage of platform engagement, whether they're embarking on a platform-based model, working to grow and sustain success, or just starting to think about what platforms mean for their business. Our cases engage with issues at every stage.

Startups with a platform-based business model can explore platform market dynamics and the many crucial decisions, options, and pitfalls associated with running a platform. Executives in established firms will also benefit, as every industry is being disrupted by platforms. These companies need to decide how to respond and defend their markets. Should they build their own platform? Acquire a platform? Work with an existing platform? The program provides insight into the dynamics of platform businesses and markets.

Finally, governments and non-profits creating platforms also will benefit from the program, though their economics are somewhat different.

What will participants be able to do when they leave the program?

The curriculum blends new case studies with faculty presentations and facilitated discussions around key issues related to platforms. Participants have the opportunity to exchange ideas with faculty who have been researching platform companies and issues around the world—as well as with peers who have been grappling platform challenges in their businesses.

Executives will be better prepared to design informed strategies that take into account the real dynamics of platform-based businesses and markets. They'll understand the challenges they need to address to build a successful business around a platform and they'll be better able to defend against platforms disrupting or affecting their market space, whether they're conventional market incumbents competing with platforms or platforms looking to maintain advantage. In addition, they will learn how emerging technologies are driving the evolution of platforms, which will help them plan for the future.