from our guest blogger Peter Veil
Platforms are a very different kind of animal – if you don’t understand you get it really wrong.
This sounds like a simple truth but psychology and history show that most people and organizations can only extrapolate from the past to steer the future- This means nothing else but that whenever there is major disruption a lot of the established (and so far successful) systems/organizations miss the corner…
From my point of view there are two main things that are important to understand.
The first and most important factor is that platforms are non linear. Every normal business also shows economies of scale – the more you produce/sell the lower are your unit costs. You might also have positive effects in terms of customer attractiveness in the sense that a bigger business is able to build a better brand and therefore can achieve a higher price point. For platforms something of a fundamentally different quality is happening: the value to customers increases with the number of participants on the other side in a geometrical rate (well, that is less than exponential but still much more than linear…). This is a wonderful mechanism if you already have the necessary scale to make money, but to start a platform business the “chicken and egg” problem is one of the most difficult hurdles that you need to overcome.
The second factor is that the competitive logic does not really allow you to distinguish black and white between friend and enemy (or put it more mildly competitor vs. complementor/customer). As a successful platform is always designed as an ecosystem, you need complementors (e.g. a payment provider) that you work with in a collaborative way. But exactly this complementor of today might become your competitor tomorrow. With this point comes the constant need for balancing between openness and control. Of course it is easier to “stay in charge” if you control as much as you can (e.g. software API’s), but on the other hand you exactly need this openness to build your platform.
Easy in theory but difficult to implement? I think, yes. Few managers are really equipped to think in systems and in nonlinear ways. And the problem is probably rooted even deeper – successful platforms are never run by heroic managers. And this is unfortunately the predominant management style in classic linear industries…