Tech giants like Amazon, Uber, Airbnb, Paypal, Apple, Facebook, etc., have disrupted the market with their launch and have revolutionized the world of business. On the other hand, our hi-tech world is facing the problem of increasing dependency between products and services and in parallel, it is witnessing disruptive Industry Platforms and ecosystem. There seems to be a correlation between the problem and disruptive innovation. Let us take the example of Apple to understand this better.
Apple, along with its innovative design and capabilities found a way to bring together app developers and app users, thus engaging them in high value exchanges. This led to network effects with an increase in the number of participants on each side. Apple had thus disrupted the market by building a platform and increased its market share. The secret to Apple’s success is that it developed a platform where producers and consumers could interact by using its products and services (iPhone and iTunes) rather than just building a product!
What is the difference between a Platform and a Product?
Core Asset - A platform is an ecosystem with a monetizable core asset while a product works on the platform and helps in monetizing the platform’s core asset. Features of the product are its core assets.
Design - A platform is designed keeping both producers and consumers in mind while a product is designed keeping only consumers in mind.
Value Creation - In a platform-based business, value is created through the interactions between users and third parties. The firms charge platform users for accessing the platform. Hence, platform creates an ecosystem value. Products on the other hand create value by charging money for certain features/items based on customer needs. Products, thus create customer value.
Cost - In products, customer is the one who bears the cost as he is the one who consumes the value created. Platform economy isn’t straight forward. One or more parties pays a transaction cut. For example, a platform may charge for API, based on usage or a platform may incentivize a producer for participation. Similarly, the platform may monetize consumer attention.
Revenue Stream - Products have a single revenue stream while platforms have many.
Business Drivers - Enterprises and end users drive the product’s business while consumers and partners drive the platform’s business.
Why should a Platform be built?
Innovative - A platform helps the firm have an ecosystem of users, partners, collaborators and producers who contribute in one way or the other, generating enormous amount of innovative ideas which leads to increased innovation.
Faster Response Time - The core products and services change frequently, thus requiring the employees and the organization to act quickly.
Lesser Risk - Platform encourages diversification as the organization does not work on just one thing unlike products. This diversification reduces the risk in the market.
Huge Customer Base - Platform helps products and services work on it. More the products and services, more is the customer base.
Increased Brand Awareness - With huge customer base comes greater reach to a wider audience. This in turn leads to increased brand awareness.
Platform Product Management
Platform enables products to share information with one another. Hence, knowing when to scale in terms of new product lines is important for growth. Let us have a look at what platform Industry redefines product management is all about:
Look at the bigger picture - While product managers prioritize the features in a product, a platform product manager has to play a bigger role. He has to look at the bigger picture – which components that fit in and the ones that don’t and prioritize them. Platforms have a scalable architecture with multiple participants. Hence, looking at the bigger picture helps!
Look for long term rather than short term - A platform should fit the strategic vision spanning across multiple products. Trade-offs have to be made across products based on long-term goals which might reduce the short-term revenue generation.
Understanding the customer is not enough - The platform product manager has to consider multiple personas before taking any decision. The stakeholders are more and belong to a wider range. One product’s customer experience enhancement might affect another product’s customer experience within the platform. Hence, while making trade-offs, both the customer and his/her customers have to be considered to understand their needs better.
Players in a Platform and Platform Strategy
Platforms have 4 main roles for its players – Producers, Consumers, Owners and Providers. Understanding the roles and the transaction between them is important for platform strategy.
- Owners have control on the intellectual property and governance.
- Providers serve as an interface with users of the platform.
- Producers are the ones who create offerings.
- Consumers use the offerings created by producers in the platform.
Platforms resolve conflicts between its participants and decide who the participants are and how the value created is divided. The value could be social currency or meeting the psychological needs of the users.
From marketing perspective, platforms require a ‘pull strategy’ rather than a ‘push strategy’.
From an operations standpoint, platforms need not own all the assets to create value and its variable costs are outsourced. Most of the assets of a platform are information technology assets, thus reducing the hardware and infrastructure costs.
Major Factors Considered While Building a Platform
- More Drivers – More the number of participants, more is the demand and hence lesser is the price
- User Generated Content – Participants of a platform generate content and hence ideas which lead to innovation
- Implicit Value Creation – Through interactions, the users of a platform help improve the experience and create value
We are now aware of how the companies in hi-tech industry are creating disruption through platforms and what they offer to the users, markets and firms. Platforms do cater to a wide range of industries such as e-commerce, travel and transportation, etc., and information based industries are more likely to be impacted. The question that arises here is about the extent of impact on information technology. Will platforms also work for industries with strict regulations, like banking?
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