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How Platform Strategies Continue to Create Value

Platforms were considered small and even quirky additions to business strategy. This is no longer the case: Now, more than ever, platform-centered markets are booming, and business-to-business and business-to-consumer platforms, such as Amazon and Facebook, have become household names. 

By Geoffrey Parker, Marshall Van Alstyne, and Peter Evans
Illustration by Leigh Wells

Platform Strategies
Image by Leigh Wells.

Platforms were once considered small and even quirky additions to business strategy. This is no longer the case: Now, more than ever, platform-centered markets are booming, and business-to-business and business-to-consumer platforms, such as Amazon and Facebook, have become household names. Meanwhile, incumbent companies are racing to catch the wave. In 2018, companies deploying platform business models continue to surprise and challenge conventional approaches to creating value.

Platform companies have also been among the first to recognize and harness data-centric strategies, and many have moved to the forefront of a wide range of disruptive technologies, from cloud computing to Internet of Things. In the process, platform companies have become powerful engines of innovation that play an increasingly integral part in economies throughout the world. 

There is a tremendous need to understand the economic, policy, and management sides of platforms and to learn from visionaries on the leading edge, such as Airbnb, Uber, and Topcoder. The journeys shared by the companies at the 2018 MIT Platform Strategy Summit—where more than 300 leading executives, entrepreneurs, technologists, and visionaries gathered to offer insight, share experiences, and envision a way forward—illustrate several key principles that represent the locus and control of platform value today.

Executives building and operating platforms pointed to the interplay between technology, scale, and smart risk management. Michael Morris, the CEO of Topcoder, which provides an on-demand global network of designers and technologists to small businesses, observed that to reduce transaction costs and grow network effects, companies must manage risk. Intelligently absorbing risk helps pull new transactions onto the platform and grows the enterprise.

For MuleSoft, a provider of API services, the transition from manual to self-service options reduced friction and accelerated employee onboarding times from weeks to minutes. MuleSoft’s chief technology officer Uri Sarid said, “There has to be value in the platform, and self-service reduces friction in setup. Service in seconds is digital; service in days is not.”

There are numerous and varying implications for emerging technologies. Eamonn Maguire, global lead in financial services at KPMG, led a discussion with Gerhard Lohmann of CFO Reinsurance, Jalak Jobanputra of FuturePerfect Ventures, and Kiran Nagaraj of KPMG about blockchain technologies and where they might also contribute to reducing friction across platforms. Naturally, the answer was “it depends.” Some argued that blockchain still cannot match current transactional means of processing international payments. Others pointed to the significant gains that could be made in deploying blockchain to improve the efficiency, security, and transparency of areas like insurance, which are notorious for complex, siloed, paper-based processes.

As platforms mature, they often become more complex and more specialized. This creates new management challenges and the need for more sophisticated decision engines to harness value.

Uber provides a case in point. Irfan Ganchi and Ahmad Anvari, Uber’s top product management executives, pointed out that Uber now does 5 million forecasts every minute to balance supply and demand. But forecasts are not enough: The company also has had to develop sophisticated incentives to act on these estimates.

The company deploys dynamic pricing as one lever for minute-by-minute matching of riders and drivers. Over longer intervals by week, month, and quarter, it uses incentives such as guaranteed surge and marketing and various customer relationship management strategies. As the company has moved into food delivery with its Uber Eats service, forecasting and incentives should advance cross-platform network effects—among drivers, couriers, restaurants, riders, and eaters. While Uber has particular challenges associated with being hyper-local, the company’s experience illustrates the heavy investments that platforms are making into advanced decision engines.

Many companies have built data analytics teams. However, Airbnb’s leadership team is taking things a step further. As head economist Peter Coles explained, the company believes data is so strategically important to its success that it is building an internal data university for its employees, now numbering more than 3,000. The vision is to empower every employee at Airbnb to make data-informed decisions by providing data education that scales by roles and teams across the entire organization.

Realizing this vision requires investment in training as well as in tools and company-wide data infrastructure. This points to the fact that platforms may be data-rich, but the value of this bounty cannot be harnessed without dedicated investment in skills development across the organization and supporting infrastructure and tools.

Rapid innovation around AI will further challenge companies to embrace data-driven business innovation and new skills development. This was the central theme of the panel chaired by Mona Vernon, chief technology officer at Thomson Reuters Labs. As Michael Palumbo, the technical product manager of Rolls-Royce’s R2 Data Labs, said, the “people who can cleanly identify problems and next steps” will be in high demand as jobs evolve in an era of AI. In a cautionary note, Ian Myers, CEO of NewsPicks, pointed out that platforms themselves can introduce bias, as content recommendation engines are designed to give users more of what they have already consumed—demonstrating some limits of technology that companies should consider.

The power of the platform to create value can also be seen by helping companies discover new revenue streams. The most common secondary data use today centers around advertising, but we expect many more uses as data rights are worked out and markets in data develop. The potential for both healthcare delivery and development was discussed by Alice Raia, vice president of digital presence technologies for Kaiser Permanente, and Valérie Abrell Duong, vice president of information technology and solutions for Sanofi. Thomas Friese, vice president of Siemens Healthineers Digital Ecosystem Platform, described how external parties seek access to their image database in order to develop new services.

Productivity is one measure of value—but not the only one. Diversity has also shown to be a driver of value for organizations, and there is growing evidence that diverse teams are sharper and more creative than homogeneous teams. Yet, the tech sector is an area that often lags significantly. For example, tech employs half as many African-American and Hispanic workers compared with the rest of the private sector. Can a platform help?

Rodney Sampson, the cofounder of Opportunity Hub, believes it can. He and his team are drawing on platform principles to connect demographic groups that are underutilized and underrepresented in the tech community with companies that are looking for talent. As part of its strategy to expand supply, Opportunity Hub has inked a partnership with the Flatiron School, a coding bootcamp recently acquired by WeWork. In addition to programming and data analytic skills development, the “inclusive ecosystem,” Sampson explains, also provides unique networking opportunities (such as a scholarship to attend the South by Southwest conference), startup resources, workspaces, and access to funding programs.

Fragmented markets have been longstanding hunting grounds for platform business models. This continues to be the case in ever more complicated and splintered markets, such as music.

In examining the intersection of music and platforms, Nathan Hanks pointed out that major brands spend more than $20 billion annually, but music currently captures only $2 billion because of the splintered nature of the market. Music Audience Exchange, which Hanks founded, helps to flip the model where the brand makes a promotional piece for the artist, which is then matched, leveraging music metadata collected by the platform to audiences across multiple media channels from TV to streaming services. This is possible in part because platforms separate access from ownership, as Joe Belliotti, founder of Noisegate, noted.

Platform innovation strategies can also serve investors. Nick Terzo highlighted how Royalty Exchange is building music rights in ways to make them more accessible to a range of institutional investors. Fabrice Sergent noted that, despite the extreme fragmentation of the live music market, Bandsintown now has 38 million registered fans and 430,000 artists since it was founded in 2007.

In short, the adoption of platforms continues to transform industries and create new value where it did not exist before.

This article originally appeared in MIT Sloan Management Review. Thayer School professor Geoffrey Parker is the director of the master’s of engineering management program. Parker wrote Platform Revolution: How Networked Markets Are Transforming the Economy—and How to Make Them Work for You (W.W. Norton & Co., 2016) with Marshall Van Alstyne, a professor of business and the chair of the Boston University Information Systems Department. Peter Evans is a principal in the KPMG Innovation & Enterprise Solutions group. The authored co-chaired the 2018 MIT Platform Strategy Summit.

Categories: Features

Tags: faculty, platforms, research

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