It seems that everyone wants to be a platform. Within Silicon Valley, at least, companies are either building a “platform”, or want to build a “platform”. It’s a term that’s thrown around a lot. But not all products are platforms, and not all platforms are sustainably valuable. Platforms become valuable over the long-term by designing around fundamental dynamics and preserving the trust of their beneficiaries.
This post is the first in a series exploring what it means to be a platform, and the responsibilities that come from being one.
To be a platform, there are three things that it must do (while delivering a compelling user experience):
- Facilitate interactions with third parties
- Enable and promote heterogeneous experiences
- Unlock and generate sustainable value for participants
These characteristics form a progression and compound upon each other. The absence of any one results in a different type of company (not a platform), operating under different market dynamics.
Facilitate Interactions with Third Parties
With a “classic” product, users interact only with the provider via their product. For example, users of a simple note-taking app interact with the provider exclusively through the functionality the provider built into the app (and, possibly, a support address). In a platform, users may interact with the product directly (a “single-player mode”, which makes a platform significantly more compelling), but also with other participants throughthe product. These interactions span a spectrum from personal to virtually anonymous. For example, users of a phone platform itself interact not only with the first-party apps, but also those made by a range of other developers, only some of whom are personally known to any user.
The user base of a platform consists of many roles, usually not mutually exclusive. For example, on the iOS platform, there is at least the role of a user, and that of a (third-party) developer. The roles, in relation to each other, result in compelling network effects for participants.
Enable and Promote Heterogenous Experiences
A platform allows a user to fulfill a variety of jobs-to-be-done (à la “There’s an app for that”). This increases the perceived value of the platform for users in consumer roles and increases optionality for all users. Over time, the possibilities encourage some set of consumers to become suppliers, a process that increases the long-term value proposition of the platform.
More importantly, heterogenous experiences avoid commoditizing suppliers, which artificially constrains possibilities (and, ultimately, profits) for suppliers. Commoditizing supply accrues benefits to the aggregator behind the platform, but doing so constrains or destroys value for all its users. Bill Gates ostensibly characterized platforms by the economic value captured by its users, which “exceeds the value of the company that creates it”. This is key to value creation and the viability of a platform.
However, unchecked growth in supplier diversity leads to decision paralysis for many users, and relegates most suppliers to the dusty corners of obscurity. A well-run platform has to take on the responsibility of organizing this information, surfacing its participants and their services to each other in a useful way.
Unlock and Generate Sustainable Value for Participants
Heterogenous providers are able to leverage the network effects of the platform to deliver value and capture economies of scale. For suppliers, the anticipation of sustainable value creation leads to increased investment in the platform, which is a self-reinforcing cycle. Furthermore, as the ability to create value grows, it can reach an ignition point, where suppliers come into existence simply to supply participants on the platform (think computer repair shops as desktop computing took off, or app development shops that emerged from the rise of mobile).
On the consumer side, value can come interactions with participants, as well as from the product itself. In fact, the sustainability of a platform is strongly correlated with the appeal of its single-player mode. Imagine if the iPhone had shipped without any built-in apps and depended entirely on 3rd-party developers — for the first few years of the App Store, the quality and selection of available apps likely would not have justified the price of the device. Even today, there are many people who buy iPhones primarily for the built-in functionality.
Examples of Platforms
- A full-fidelity web experience allowed users to interact with a large swath of publishers and web developers from launch. The App Store opened the floodgates for third-party suppliers.
- Apps take over the entire screen and deliver an immersive experience; the breadth of developer APIs allowed dozens of types of apps, from enterprise data management to 3D games, to exist on the same platform.
- For its users, the iPhone was at least an order of magnitude better at filling the role of a portable computer and information organizer than the devices that had come before. The App Store minted many successful developers, and entire companies have been formed to develop apps.
- Relative to its ecosystem, Slack’s “single-player mode” is its core use case — communicating with team members. Its range of APIs gave rise to a platform, where bots and in-app functionality (including their new Actions feature) are delivered by third-party providers.
- From my perspective, Slack just barely provides heterogenous experiences; messaging-driven interfaces dramatically homogenize the user experience and make it difficult for service providers to differentiate. However, Actions and Attachments diversify the experience that developers can build.
- Slack’s explosive adoption and stickiness of its core product indicate sustainable value for its daily users. The Slack Fund for developers and the anecdotal popularity of integrations with Slack indicate that it’s also generating value for its participants
- Not only does Salesforce have an app marketplace, it’s also birthed an industry of Salesforce consultants, developers, and “experts”.
- Customers manage to use Salesforce for everything from managing marketing leads to closing sales, customer support, and BI and analytics.
- Once adopted, Salesforce becomes deeply entrenched in many core operations of most of its customers. The customizability and APIs have minted entire companies dedicated to supporting integrations and developing on Salesforce.
Uber commiditizes their suppliers — quite literally. Drivers’ success are divorced from the service they provide; despite massive subsidies from the platform itself, drivers struggle to break even and thrive.
Facebook wants to be a platform, but their fundamental product is disintermediating suppliers and consumers. This is slightly different from strict commoditization, since suppliers are able to differentiate their brand to a limited extent, but no less dangerous to the supplier — they are at the mercy of Facebook’s algorithm. With algorithm-driven swings and companies like Zynga as a cautionary tale, suppliers struggle to create sustainable value on Facebook.
Platforms aggregate tremendous leverage and power for its constituencies. Built in a misguided way, they can be incredibly damaging. Done correctly, platforms are uniquely capable of providing value to a large amount of people.
The next post in this series will explore the shapes of platforms, and the types of value they enable.
Editor @ Disrupt Tech | Professional bug creator @ Trustwork