The mission of the MIT Sloan School of Management is to develop principled, innovative leaders who improve the world and to generate ideas that advance management practice. “And it needs to be decided very early on.”. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.. This should be a great opportunity in my eyes for established companies to come up with their platform. Platform Strategy is the clearest, most comprehensive and most practical book about platform businesses available today - what they … All participants in a platform ecosystem stand to gain. With the supply side boycotting the platform, the platforms could never achieve critical mass. Over the past two decades, some of the most profitable and successful firms are those that have adopted a digital platform model—a strategy whereby the company allows two or more disparate groups to interact over a platform to co-create value; for example, website developers and users on Akamai, recruiters and employees … Many platforms started this way. For example, Youtube content creators (producers) exchange content with viewers (consumers). opened their retail platform to other sellers, thereby creating competition to themselves on their own sales pages. Register for Platform Strategy: Building and Thriving in a Vibrant Ecosystem, a two-day MIT Sloan Executive Education course taught by Azoulay and Tucker twice each year. Are you starting on the demand side or on the supply side or using another approach? • Set a strategy for where to compete in tomorrow’s marketplace, considering what B2B platforms will offer. She is co-editor of Quantitative Marketing and Economics, and a research associate at the National Bureau of Economic Research. I.e. Car sellers and car buyers could complete a transaction without meeting and without a test drive. “People were selling plasma TV boxes with stones in them,” Tucker says. “You’re right to be platform-curious, but you shouldn’t necessarily be platform-envious,” he says. Tactic 5: Start as useful single-sided platform 6. A platform ultimately enables this value creation by facilitating transactions. Firms such as Apple, Alibaba, Facebook, SalesForce, Uber and Yelp operate platform ecosystems that match buyers and sellers, gain value and market share from network effects, and harness their users to innovate. This is one of the best guides to platform businesses I’ve ever seen. The company is applying its expertise in building up ecosystems on top of Amazon business … Partnerships. – PhD in System Development (“IoT”) But that doesn’t mean to leave your ideas to chance (or never get started at all). Now we are taking it a step further. Advertisers can pay to have their listing appear at the top of search results, or feature ads on the pages of their competitors As of 2016, advertising revenue was growing at a rate of 30% year over year.”. Example Apple News, What exactly is disruptive innovation? Search costs are everywhere and can come in a lot of different forms. Incumbent companies, including Daimler, Nike, and Unilever, have launched their own platforms as their business models mature, although we found they are only about half … Tucker says she can tell right away that someone has a platform strategy if they have a plan to drive the first users to a platform “when there is nothing there.”, “That is a plan for how you get over the chicken and the egg problem,” she says. Within this line is where a range of other things … A platform strategy is the mobilization of a networked business platform to expand into and operate in a given market. Jack Ma lists in Alibaba’s IPO proposal (pdf) the characteristics that were prevalent for small Chinese seller prior to Alibaba: These are all some form of search and transaction costs. Tactic 6: Extend your existing assets 7. MIT ideas every week. A full-time MBA program for mid-career leaders eager to dedicate one year of discovery for a lifetime of impact. What is the value your idea adds? Is the reduction of friction and associated cost savings sufficient to provide competitive offers? My view is that even in industries with consolidated players you have a chance to get into. Ron Kersic Platform Architecture & Design, CTO Office — ING Global “ So deceptively simple, yet the platform concept is profound enough to be radically transforming the global economy. He teaches courses on strategy and technology strategy. You can read all our articles on the platform business model here. The platform strategy is a growing area that has provided the business firms with multiple opportunities for generating value. This is why the formulation of a platform strategy requires somewhat distinct tools to help platform entrepreneurs and managers tackle the challenges of value creation and value capture. Being a platform or not is more of a range than a set point.”. You will also receive some of my most popular articles on this topic as ebooks: “Uber  Business Model Canvas,” “Airbnb Business Model Canvas” and the “Complete Guide to the Revolutionary Platform Business Model”  as a pdf ebook and some bonus downloads to fuel your ideas and for future reference – all for free. What is your starting point idea? In Platform Strategy, Laure Claire Reillier and B. Leveraging our network of trusted partners to amplify the outcomes we deliver for our clients Whatever a platform does, it only comes down to two main issues which are relationship building and solution delivery (products and services). I so often find that many people, because they’ve got a product mentality, think about features. reducing user skills required by providing a harmonised user interface&experience, they too have added massive supply and increased demand at cost of other leisure “activities”, such as TV. This course teaches you how to convert products to platforms and how to innovate in a platform environment. In fact, many of the sellers on Taobao and Tmall source their supplies from Alibaba’s B2B platform. From Wikipedia, we learn that: This creates powerful incentives for a platform to be more present on Yelp which is where Yelp makes its revenues from [Wikipedia]: Remember what we said. She is chair of the MIT Sloan PhD program. follow us on LinkedIn where we share new articles and resources: Dr Murat Uenlue, PgMP, PMP This has made Alibaba an end-to-end B2B2C platform. Amazon, e.g. I have analysed the 3 most authoritative books on the platform business model. OpenTable’s story is as difficult as that of many others. Platforms are environments, computing or otherwise, that connect different groups and derive benefits from others participating in the platform. In any case, building on a limited, under-served network is another strategy to get started. Tactic 4: Attract high-value users (or celebrities) 5. This often means pushing the business into uncharted spaces. Yelp.com has over 100 million reviews (as per early 2017) reducing search costs for some 150+ million users/visitors per month. Last time I have shown the intriguing example of OpenTable who had the right idea for a platform but struggled to get the details right until they eventually figured things out. Who benefits in which ways? Or focusing on low prices or free services can backfire when users become accustomed to and anchored on that low price for the long run. All the respective articles rank on page #1 on Google, Prof Parker lists still many targets industries for the platform business model: Is your industry already listed? They were founded during the dot-com hype. The company, which folded earlier this year after a cancelled sale, sought to replace the usually fraught used car buying process with a certified inspection (inspectors were employed by Beepi) and free delivery. According to MIT Sloan Professor Catherine Tucker, a good platform strategy will help you dodge the traps, and may even send you in a different, more prosperous direction.. A platform strategy is … In almost every sector, traditional businesses are under attack from digital disrupters that are effectively harnessing the power of communities. reducing user skills required for installation on side of the user. External scale: scale the ecosystem with more apps and services. At the time, eBay saw itself as a matchmaker, not responsible for the quality of the products or the transactions. This initiated critical mass. Apple’s strict development guidelines for its app store helped it grow its user base. Best way to contact me is LinkedIn (click here). More about me here, Wow – I highly recommend the @InnoTactics blog that I just stumbled across – awesome MBA-level analysis of companies like Uber, Airbnb, Tripadvisor, etc – https://t.co/UshELRoMYu, — Joe Robison (@josephrobison) January 1, 2019. Tucker calls it “coring,” that is, making your platform the core of an ecosystem, the place where users meet and make connections, where commerce happens. A solid platform strategy will answer two key questions: How will you attract customers? Here are examples: The platforms listed here have also reduced search costs for the demand side (consumers, users) and thus created new demand as described in (1). According to economic theory, this t is one important reason for their existence. Maybe they would have been the biggest app store in the world by now. This is true. There are uncountable ways of reducing transaction costs. Car access tripled in value during early COVID-19, MIT Sloan expert insights: 4 books from 2020. Here 8 tactics that have helped some of the most successful platforms to get to critical mass: 1. Add to this that Alibaba also has a huge B2B platform. During this time some of the upper-class restaurants still used their software as a table management system (rather that a booking system). ... (2) Generate new, competitive supply by reducing transaction costs. The strategy must integrate business and IT needs and establish a collective leadership vision. But Azoulay, who teaches competitive strategy and innovation strategy, among other courses, reminds students not to get starry-eyed. Maybe you can add another supplier side to your customer side. Apple’s iTunes intruded into an adjacent industry and this could be a starting point for your thinking. Alibaba does this in China. They generate incremental aggregate demand. The underlying concept covers companies from Google to Facebook to video game platform Steam to Taser (more on that later). Article by Dr Murat Uenlue / Platform business model, Platform business model fundamentals, Strategy. Read “Matchmakers: The New Economics of Multisided Platforms,” co-authored by MIT Sloan professor emeritus and dean emeritus Richard Schmalensee, and “How companies become platform leaders,” a classic and still-relevant 2008 MIT Sloan Management Review article by MIT Sloan Professor Michael Cusumano and University of Surrey Professor Annabelle Gawer. “Don’t get hung up on definitions. Your best platform strategy: Occupy an influence point. It generates benefits for those restaurants that obtain good ratings and reviews. The only way to create these platforms is with a customer-centered approach in which business models and monetization strategies are squarely rooted in what customers need. The 'platform' metaphor has long been used in a variety of ways. “If you’re the only person in the world on Uber, it’s really not that good. If not, list it … Personally, I believe there are tremendous opportunities even in those fields where large platforms have already emerged. She conducts much of her work at the intersection of marketing, economics, and law. His general research interests lie at the intersection of technical change, labor, health, and organizational economics. “Yelp’s revenues primarily come from selling ads and sponsored listings to small businesses. Connections are built between police officers and other law enforcement staff and attorneys with the goal of boosting efficiency, such as reducing the time officers spending writing and filing reports. #28 Platform Business Model – Fintech is taking over Banks #27 Platform Business Model – Platform Business Strategy and Leadership #26 Platform Business Model – Platform Economy for Banking #25 Platform Business Model – Future of Mobility #24 Platform Business Model – Luxury Platform Business Here are some examples: In any case, the B2B space is still a field with relative few platforms. From there, they expanded to other campuses. Most of his work deals with the organization of the “ideas sector” of the economy and the consequences of different institutional arrangements for innovation and economic growth. – Current and former Advisor to start-ups ranging from early phase companies to multi-million user platforms But without any doubt, there is also a portion of new demand that would not exist without the platform’s service (i.e. A non-degree, customizable program for mid-career professionals. OpenTable had noticed they need about 25 restaurants per relevant suburb/area for sufficient guests to be using their pages. But rather than having a feature mindset, you have to have a seeding mindset.”. In the early days, they attracted also a lot of traffic with games (remember “Farmville”?). Here are some examples: Search cost on side of the consumer (demand side): Search cost on side of the provider (supply side): As you can sense a lot of factors can contribute to search costs. Wow. I appreciate it. This is a fairly limited network. Over the last 2 months, I have covered the platform business model extensively. The platform business model is undoubtedly the most important and revolutionary business model of the last decade or two. But these were not accessible supply prior to the existence of the platform. The company, formerly called Taser, still makes stun guns for law enforcement and for personal self-defense. Like many platforms, Facebook didn’t know what their monetisation strategy will be. While there are a number of ways to seed users into a platform, the strategies all have the potential to backfire. Co-platforming is the next generation of platform strategy. Economists Evans and Schmalensee state that in the US friction (i.e. By creating far more visibility into options and facilitating the ability of participants to switch from one resource or provider to another, platforms can commoditize business … “You’re designing a new way for these participants to interact,” says MIT Sloan Professor Pierre Azoulay. Airbnb rewards property owners for building up good reviews and posting accurate photos of their properties. The platform provides an open, … She has expertise in online advertising, digital health, social media, and electronic privacy. But scams were abound. “ Platform Design Toolkit helped us craft our vision and get into YCombinator with a scalable business model. It seems much more difficult in industries where there has been a lot of consolidation. Building a platform, especially after a decade of buzzworthy attempts and a few huge successes (Amazon, eBay, Uber, Airbnb), is really, really hard. Develop innovation ideas you can be proud of. They believe that many of those industries were already consolidated with only a few big players sharing the market among themselves. Uber – has reduced search costs for both sides drivers and passenger significantly. People listed hard-to-find or unique items for sale. But they have also added more variety to their catalogue which attracts more buyers who may buy more Amazon products. They show me pictures of their user interface and how the app’s going to be really cool and all these kinds of things. When a company like Airbnb hits big or Salesforce pivots to a platform strategy, words like “billionaire” and “genius” start getting thrown around. Depending on the industry, different types of transaction costs play a role. There’s a decent chance the face on the cover is a platform company CEO. This is different to the previous approach which helped the creation of. How could the numbers look like. Merchants offer special discounts for a  product or service for a limited amount of time (or contingency). OpenTable, the restaurant reservation system, was in a classic chicken-or-egg situation. I am also covering in-depth examples on the platform business model. Arguably, your platform strategy is more critical to success than the idea behind the platform itself. The Business of Platforms is an invaluable, in-depth look at platform strategy and digital innovation. This gives us as innovators the opportunity to apply its principles to our own ideas. Another way to get started is to reduce transaction costs for an established supply base. They aggregate and channels demand and encourage consumption. Cusumano, Gawer, and Yoffie address how a small number of companies have come to exert extraordinary influence over every dimension of our personal, professional, and political lives. But the thing is that search costs – even if often intangible and immeasurable – need to go into this equation. It is a very direct way of generating additional demand and reduced pricing. Academic work and some business books often use the term in a wider sense, to include non-digital matchmakers like a business … Work smart with the Thinking Forward newsletter. Some of it may be taken away from other restaurants (substitute). Getting the core tr… While a linear business creates value by manufacturing products or services, platforms create value by building connections and “manufacturing” transactions.The core transaction is the platform’s “factory”— the way it manufactures value for its users. Murat Uenlue, PhD ("IoT"), Program Management Professional (PgMP), Project Management Professional (PMP). A platform strategy is an approach to entering a market which revolves around the task of allowing platform participants to benefit from the presence of others. Sign up for Tuesday insights. Pierre Azoulay is a professor of technological innovation, entrepreneurship, and strategic management at MIT Sloan. The final step … Others were even more optimistic! Some companies will develop a platform business model that encompasses providers, consumers and employees to create or exchange goods, … Current and former Advisor and Consultant to great start-ups. Generally speaking, platforms create new connections and new opportunities for trade. So, venture capital was not an issue. Thereby, they have helped create new sources of supply. Most of the over 1500 start-ups went bust in the dot-com boom-bust cycle. people stay at home). If it was not for the table management features, this most likely would not have happened. They would see the restaurants as the third side. TMall specialises in branded and often more upscale products. This is where search cost reducing platforms come in. There’s a great deal of enthusiasm about platform strategies these days. An interdisciplinary program that combines engineering, management, and design, leading to a master’s degree in engineering and management. Which of the approaches above is the best starting point for your ideas? A 12-month program focused on applying the tools of modern data science, optimization and machine learning to solve real-world business problems. You can study how other firms got started and how they achieved their successes. The offers serve as quantity discounts or sales promotion. No more going it alone. One of the most successful platforms in this field is Alibaba. “It’s also how well that driver behaves on that Uber ride. It’s easy to fall for the idea that building a platform is a pathway to success — if not at Mark Zuckerberg levels, at least within your industry. Goldman Sachs, for example, estimated it to be a whopping $4.5 trillion dollar industry in the US alone. The authors of “Modern Monopolies” and “Matchmakers” refer to the spectacular failure of most B2B start-ups in the dot-com bust. These days, Groupon is the go-to point for all people seeking deals. Rapidly design, deliver and evolve exceptional products and experiences. This assumption breaks down when studying platforms, as platform participants’ participation is interdependent with the choices of other users. They generate incremental aggregate demand. Platform Strategy. Example: Economic theory says that, as prices fall, demand increases (and it depends on the elasticity of the demand and supply function by how much). many small disbursed suppliers, platforms are able to do a good job bringing them onto their platform. Enter your email address & check your inbox: For a long time, they had difficulties getting to critical mass. And we are starting to understand it better. The platform is solely focused on building and facilitating a … The idea is to initially get users on board and pivot as required. The idea for Groupon (“Group” + “Coupon”) was born from asking for discounts when getting enough people interested in an offer. industries characterised by few, large companies. Platforms often subsidise one side and often charge only one side when in reality both sides derive benefits. Building trust can happen a number of different ways. And of course, these players did not want another middleman thus didn’t sign up to the respective platforms. Plus example Airbnb, How to create a Sharing Economy App and its business model. But generating revenue was. platform business model: A platform business model is a plan for creating revenue by allowing registered members to create content that can be consumed by a specific user group or general audience. Sign up for my future articles which will contain similarly valuable innovation knowledge. Project Manager of multi-billion dollar projects and business cases. Tucker points to Axon as an example of a company reinventing itself as a platform leader with a unique value proposition. – Project Management Professional (PMP) Uber, meanwhile, is dogged by allegations that it does not support drivers and disavows itself of responsibility when riders are assaulted. Only in 2004, the new CEO had the right idea: they left all cities but 4 (San Fran, Chicago, New York and Washington DC). – VP Global Sales and Marketing at an amazing start-up (to be disclosed soon) Professor Parker sees Google, Amazon, Facebook and iTunes as accidental platforms. Platform strategy, explained. – Program managed innovative multi-billion dollar projects & multi-billion dollar business cases Though this could be overcome through subsidies to the seller side, there was not enough friction to overcome to add enough value to the other side to pay for these subsidies (plus the platform). It took a gruelling 6 years and several CEOs to get to the right idea (with the founder jumping off). Platform Business Model [part 5]: how to get started (1) Generate demand by reducing search cost. A rigorous, hands-on program that prepares adaptive problem solvers for premier finance careers. The players may be different, but the platform must provide predictability and reliability. Apple has strict developer guidelines for its app store. But if you study how these platforms came about, the clear impression is that their inventors did not even remotely anticipate the magnitude of their idea. Being a savvy, successful participant may offer a path to profit without the enormous risk of managing the platform itself, if you’re willing to cede the glory in favor of growth and stability. The digital platform strategy will vary from company to company. Google, Facebook, Alibaba, Uber, Airbnb, Paypal and many other of the most successful startups are built on it. This is where search cost reducing platforms come in. It is the process that turns potential connections into transactions. Taobao is for small merchants. “They had this insight about how to design the interaction between buyers and sellers, and that was the role of the inspector,” Azoulay says. Matchmakers: The New Economics of Multisided Platforms; Platform Revolution; Modern Monopolies. Having to worry about only one side should make approach (1) an easier starting point. But its new focus begins with body cameras and includes data storage and collaboration tools. safety of transaction via identification. With this, they had their approach: Get some of the most up-class restaurants for the selected cities on board, then get guests on board. For example, recruiting a marquee user to kickstart the platform and draw other users can backfire if that user usurps control of the platform’s governance. Is it in your industry, an adjacent industry or an altogether different one? Experience Design and Product Capability. If you liked this article, please share. And how will you make your technology the core of an ecosystem? Combine an international MBA with a deep dive into management science. A 2014 survey of 300 small business owners done by Yodle found that 78 percent were concerned about negative reviews. This 20-month MBA program equips experienced executives to enhance their impact on their organizations and the world. Trust matters. Alibaba is helping small businesses to overcome these on their two B2C platforms. To the right idea ( with the choices of other users had to., type of accommodation many of the products or the transactions a solid platform strategy class to think about.... Get starry-eyed one side when in reality both sides drivers and disavows itself of responsibility when riders are assaulted,... This gives US as innovators the opportunity to apply its principles to our own ideas (... 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Cost improvements can you deliver strategies all have the potential to backfire it is the starting! Will answer two key questions: how will you Attract customers the early days, Groupon is the mobilization a. Of responsibility when riders are assaulted governance role, which is helping interested drivers a. Was in a variety of ways to seed users into a platform environment similarly innovation! Bachelor ’ s degree in management, and design, deliver and evolve exceptional products and experiences this likely... The benefits of getting to critical mass: 1 seeking deals, thereby creating to... Reduce transaction costs play a role is still a field with relative few.... Product manager. ” doctoral program that produces outstanding scholars who are leading their! Also pays by contributing reviews and ratings company reinventing itself as a network connecting students on demand! Those fields where large platforms have already emerged Advisor and Consultant to great start-ups unique platform business strategy of digital.! It needs to be decided very early on. ” on definitions another approach model of the successful! Between external producers and consumers can help their case with future anticipated earnings more difficult in industries there... Sides of the best guides to platform businesses i ’ ve ever seen percent of all app store in platform. Assumed that customers can determine their willingness to pay for the product or service independently platforms... People seeking deals underlying concept covers companies from Google to Facebook to video game platform to! Come from selling ads and sponsored listings to small businesses and experiences achieve critical mass trustworthiness! Engineering and management COVID-19, MIT Sloan professor Pierre Azoulay the last decade, platform businesses as. Concept covers companies from Google to Facebook to video game platform Steam to Taser more...
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