Innovative Business Ideas

Platforms overrunning traditional pipeline businesses

03 June 2016

Platform

Edwin Sim looks at how platforms are transforming business strategy.

Apple, Uber and Airbnb are overrunning incumbent product-push pipeline businesses by exploiting platforms and leveraging new rules of strategy.

In a recent Harvard Business Review article, “Pipelines, Platforms and the rules of strategy”, the authors said in today’s digital internet environment, scale trumps differentiation.

“Platform businesses bring together producers and consumers in high-value exchanges.”

Platforms – major assets

In contrast to traditional product pipeline sales organizations, a platforms chief assets are information and interactions, the sources of the value they create and their competitive advantage.

Using these innovative digitally-enabled concepts, HBR said Apple conceived the iPhone and its operating system as more than a product or conduit for services.

“It imagined them as a way to connect participants in two-sided markets – app developers on one side and app users on the other – generating value for both groups.”

Network effects

As participants on each side increase, network effects, which are central to any platform, begin occurring.

Apple conceived iPhone and its operating system as a conduit that could distribute numerous products and services.

By January 2015, the company’s App store offered 1.4 million apps and had cumulatively generated $25 billion for developers

Critical lessons

Apples success in building a platform business within a conventional product firm hold critical lessons for companies across industries.

Firms that fail to create platforms and don’t learn the new rules of strategy will be unable to compete for long.

Major environmental change

Today all businesses must understand that platform businesses such as Uber and Airbmb bring together producers and consumers, are gobbling up market share and transforming competition.

Moreover, traditional pipeline product-selling businesses that fail to create platforms and learn the new rules of strategy will suffer.

Today’s new rules

With a platform, a business’ critical asset is the community and its members’ resources.

Its strategy shifts from controlling to orchestrating resources, from optimizing internal processes to facilitating external interactions, and from increasing customer value to maximizing ecosystem value.

The new environment

In the new environment, competition invariably emerges from seemingly unrelated industries or from within the platform itself.

Firms must decide what types of businesses will be permitted on to the platforms and what they’re allowed to do there, and must track new metrics designed to monitor and boost platform interactions.

Networks invert the firms

HBR said traditional pipeline firms have long outsourced internal functions such as customer service.

Today’s platform companies are shifting even further, moving toward orchestrating external networks that complement or entirely replace the internal functions.

Outsourcing extended

In the past, pipeline companies supplied design specifications to known suppliers.

Today, they tap ideas they haven’t yet imagined from third parties they may not even know.

Firms are being turned inside-out as value creating activities move beyond their direct control and their organizational boundaries.

Marketing

Marketing will no longer just be about creating internally managed outbound messages.

Platform companies’ marketing efforts help create and propagate consumers’ messages.

For instance, travel destinations marketers ask consumers to submit videos of their trips and promote them on social media.

Online eyeglasses retailer Warby Parker in the US encourages its consumers to post online photos of themselves modeling different styles and ask their friends to help them select the best options.

Information technology

In today’s platform environments, traditional internal enterprise systems switch to supporting external social and community networks and open their networks to their external ecosystem.

Operational realignments

Traditional pipeline value-chain centric companies thrived by managing just-in-time inventory.

Today’s platform business manage “not-even-mine” inventory, including rooms (Airbnb), vehicles (Uber), apps or other assets owned by network participants.

“If Marriott, Yellow Cabs and NBC had added platforms to their to pipeline value chains, then Airbnb and Uber and YouTube may have never come into being.”

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