The digital revolution has changed virtually everything about the way companies do business, from what a business model looks like to how companies interact with their customers. But perhaps one of the most dramatic shifts that has taken place in recent years is the transition from a product-based economy to a platform-based economy.
While companies once competed with each other to offer the best product, today’s born digital firms are vying to create the best platform. Driven by the power of digital technologies, platform ecosystems are laying a completely new foundation for what “value creation” means. And we don’t have to look far for examples of success stories; from Uber and Airbnb to Facebook and Google, today’s leading companies owe their groundbreaking achievements to the technology platforms they built to support their business ideas.
But the most important thing that today’s companies need to understand about platform ecosystems is that they aren’t just for tech-based or digital companies. According to a recent article from Gartner, every organization—ranging from large, asset-heavy incumbents to nimble, asset-light startups—needs a digital platform strategy, no matter what industry they operate in. But in order to develop such a strategy, companies first need a firm understanding of the basics of digital platforms, including what they are, what makes them possible, and what makes them successful.
What exactly is a digital platform?
What makes digital platform models special is that they are built on the principle of creating value externally; that is, opening new paths to growth by creating relationships between digital partners and communities of users. Rather than simply offering a product, platforms allow multiple participants the opportunity to interact with each other and to create and exchange value (whether this is a product, a service, or another type of offering) via the medium of the platform. The descriptive phrase “plug-and-play,” frequently used in discussions of digital platforms, can be a helpful way to think about how this model works.
Today’s digital platforms are further characterized by a number of key attributes, including:
Technology—The platform business model is technology-driven and enabled. It would not exist in its present form without current digital capabilities.
Community-based value—The value that digital platforms offer is directly proportional to the size of the communities they serve. The more users, the greater the potential value.
Trust—A key operating principle of digital platforms. Consumers and providers alike must be able to trust each other within the network, and must be able to trust that the platform itself is handling concerns like privacy and security appropriately.
Open connectivity—By sharing data with third-party developers, platforms can extend the ecosystem and create new possibilities for connection and exchange.
Scale—Due to frequent fluctuations in community size, digital platforms have the capacity to scale massively and rapidly without compromising performance.
User-friendliness—A central feature of the digital platform is ease of use for both consumers and providers. Users should be able to “plug-and-play” quickly, easily, and independently, with no special knowledge or training required.
What is driving the rise of digital platforms?
The digital platform explosion that our economy has seen in recent years is primarily due to three transformative technologies: cloud, social, and mobile. The development of the cloud has given rise to a global infrastructure for production; with cloud-based technologies, anyone can create content and applications for use anywhere else in the world. Social technologies have been the driving force behind the development of trusted communities that are essential for an effective platform network. Finally, thanks to mobile technologies, users can interact with the global platform infrastructure anytime or all the time, meaning that digital platforms can benefit from what is essentially a constantly connected network.
What are the building blocks of a successful digital platform?
For optimal success, digital platforms need to take the following three key “building blocks” into account:
Connection—In the same camp as ease of use, or user-friendliness, connection is all about how simple it is for users to plug into the platform in order to share and transact. This requires a focus on infrastructure that is designed to minimize obstacles and challenges and to enable easy interactions between participants. For example, through its hosting infrastructure, YouTube allows creators to easily connect with an audience. Similarly, though in a completely different industry, JC Penney’s digital platform connects shoppers with merchants by providing online store infrastructure to its boutique partners.
Gravity—As described, platforms need a certain critical mass in order to be able to operate effectively, and in general, the more users there are, the better. This means that gravity, or how effectively the platform can pull in users from both the producer and consumer sides of the equation, is of the utmost importance. Many platforms address this building block by focusing on designing and implementing incentives, reputation systems, and dynamic pricing models.
Flow—Easy connection to the platform is the first step; the step beyond that is known as “flow,” or the movement of value, whether exchanged or co-created, amongst a platform’s participants. In a sense, flow is all about the platform acting as a matchmaker, leveraging data to make the best matches possible between producers and consumers.