Understanding Platform Design
The new essential skill to Shape Strategies and Markets
Thinking about platforms as a firm’s natural extension to mobilize and conquer markets is a good step to really understand their potential as tools. Implementing a platform strategy is the only way firms can achieve (exponential) high-growth up to quasi-monopolistic positions. Platform firms become “enabling monopolies” without falling in the pitfalls of large scale bureaucratization.
In traditional organizations, large scale growth usually leads to bureaucratization and cost implosion. Long tail customers provide too small revenues in face of non-negligible marginal cost of product personalization for industrial players.
Long tail markets need mass market personalization, since every customer has a different need: for an industrial brand, providing organized & centralized services to cope with infinite different expectations, would be an unsustainable cost burden. In this context, platforms offer brands the opportunity to behave as “enabling” hubs for entities in the ecosystem (often individuals, sometimes firms, big and small) to allow them to self-organize and create value by interacting, creating relationships and “transacting” value units among them, thus reducing the marginal cost, radically.
The marginal cost of enablement is smaller than marginal cost of personalization.
Platforms resonate with Von Hippel’s User Toolkits for Innovation: the tools firms use to empowers users self customize their products. Platforms “mobilize third-party producers to invest in and deploy the latest functionality” or to impersonate it. To achieve this, platform owners must be open not only at the “long tail” level, but also produce ways for third parties to access the lower infrastructure and platform’s core components (e.g. with APIs) and reshuffle and remix it.
FROM IMPLEMENTING LINEAR BUSINESS MODELS TO DESIGN FOR INTERACTION IN ECOSYSTEMS
When facing platform design you need to leave behind the idea of organizing production linearly. Linear business models, with a service provider and a service recipient, a customer, are now marking time.
The Platform Design Toolkit was originally created in 2013 exactly to overcome the linear thinking implied by the Business Model Canvas (BMC): BMC is great tool to model linear businesses but fails in modelling emerging, multi-sided, ecosystem based, platform models where different players — all with their different motivations to join — participate in the whole value creation process.
Platform design doesn’t deal (just) with business models but also with what John Hagel effectively calls, a shaping strategy:
“an effort to broadly redefine the terms of competition for a market sector through a positive, galvanizing message that promises benefits to all who adopt the new terms”
John Hagel III
ENTITIES, MOTIVATIONS AND INCENTIVES
With the aim of allowing platform designers to face the daunting task of considering multiple perspectives and spot all the players that can join a market shaping strategy, one can use the first two canvases making the Platform Design Toolkit.
The Ecosystem Canvas helps designers identify and position all the players — or, better, the “roles” they can play— and classify them in four different categories: owners, external stakeholders, peers and partners.
Peers are entities (small and midsize businesses for example) that behave as a single, identifiable player with a specific interest and identifiable objectives a platform’s value proposition should meet.
Peers operate in the long tail — the part of the market which is fragmenting — and therefore it’s not economically viable and interesting, for a large company, to play in that context of the digital marketplace; large firms usually go for the concentrating part of the market (infrastructures or customer relationship/platform business). Peers are typically individuals and small-medium ventures. Peers can be usually re-segmented in two types: Peer Consumers — interested in consuming value — and Peer Producers, interested instead in producing value on the supply side.
On the same side of the spectrum (the producing one) there are also Partners: professional entities that seek to create additional value and to collaborate with platform owners at a stronger level of relationship a “strategic” one. Typically, partners are businesses or professionals that tend to become specialized in a niche, provide advanced or premium services and that — in general — want to improve, become better and monetize their own capabilities. Partners want to stand out from the crowd as “the best ones”.
PERFORMANCE PRESSURE AND LEARNING: THE SECRET OF PLATFORMS
The tendency of evolving towards professionalization (for example by becoming a partner), reflects another key aspect of platform success: being a powerful context for learning (we’ve been speaking about this already).
Platforms work as spaces where participants can find guidance, support services: eventually a way to confront with the increasing complexity they face in their lives, due to the increasing rate of disruption: being able to advertise their specific value to a larger pool of recipients, the best professionals can find astounding opportunities for business growth, stability and recognition.
According to Tim O’Reilly one of the key duties of platforms is indeed to reward these best performers by “investing in reputation systems, search algorithms, and other mechanisms that help bring the best to the top.”
WHAT TRANSACTIONS AND EXPERIENCES SHOULD YOU DESIGN IN A PLATFORM?
Entities involved in an ecosystem may find two macro-types of incentives in joining it and starting to produce value through it: intrinsic motivations (advantages in joining the system vs. playing independently on the same market) and give-take opportunities (possibility to build relationship, transact and trade value with other players, through the platform).
The latter can be identified easily and are often underestimated in importance: platforms have the role of helping brands complement traditional services that are costly and don’t cope with the long tail. Peer to peer transactions, by leaving players in the ecosystem to serve each other independently, are cheaper for a platform owner. Here’s the difference between building an hotel and helping people rent each other’s rooms.
Building platform’s value propositions in line with existing intrinsic motivations is core to the shaping strategy: convincing everyone in the ecosystem that betting on the platform-infrastructure will be a winning move is essential to the platform’s success.
EXCHANGES ENABLED BY SUPPORT SERVICES
Also the platform provides services to its own ecosystem. A particular class of services, Enabling Services, are those targeted to helping the more professionalized, the partners, to generate more value from their professional capabilities: get more visibility, market opportunities and eventually improve as professionals or commercial entities.
In a similar way Empowering Services are created to help peer producers to hone their capabilities and to start to learn and potentially evolve eventually and into Partners.
The ultimate motivation for a platform to provide enabling and empowering services is to allow more value creation. Platforms and ecosystems grow and stay competitive by leveraging on economies of scope: peer to peer economics are a powerful tool to ensure that the brand can provide an infinite number of different experiences, starting from a common technology infrastructure.
Platform enabled ecosystems provide a mean to generate a mass personalization that is human, contextual and tailored through peer-to-peer conversations. When I book a room on Airbnb: besides being able to target almost every city angle — according to my needs — I can also freely interact with the host and accommodate for my peculiar needs to the detail (arrival time, special needs, etc…) and feel welcome.
Channels and contexts let exchanges flow: in virtue of the motivations for giving and taking (identified thanks to the motivation matrix) entities in the ecosystem set up for transactions through available channels that exist exactly to avoid the necessity of workarounds.
Platforms also provide top down, industrialized services to peer consumers as complementary parts of the experiences provided by the ecosystem by means of the peer to peer and partner to peer transactions.
As an example, beyond providing the typical application marketplace, all major smartphone operating system brands such as Google and Apple, provide and monetize a bulk of, platform provided, consumer services such as email, storage and more, around which the experience is complemented by means of independently developed applications.
Platforms have multiple value propositions: Core Value Proposition and ancillary ones. The Core Value Proposition is usually targeting consumer peers, if not because they’re typically the larger set of players in the system, because they are often the ones paying fees in exchange of value.
Platforms are simply the future of business models, you might want to know more about them.
PS: If you liked this post, please recommend by clicking on the little ♡ icon.
This is a short resume extracted from the whitepaper:
From Business Modeling to Platform Design:
How the Platform Design Toolkit can help organizations to craft shaping strategies to explore and transform markets, with smaller investments required
This series is supported by
SWIFT Innotribe.
