The Three Building Blocks of Platforms

Sangeet Paul Choudary | February 9, 2013 | 1,192 Comments

Note: This post first appeared on Harvard Business Review. I am delighted to have coauthored this with Mark Bonchek. The framework presented in this piece is foundational to my work on Platform Thinking and will be referenced in some of the subsequent posts.

We typically think of companies competing over products — the proverbial “build a better mousetrap.” But in today’s networked age, competition is increasingly over platforms. Build a better platform, and you will have a decided advantage over the competition.

In construction, a platform is something that lifts you up and on which others can stand. The same is true in business. By building a digital platform, other businesses can easily connect their business with yours, build products and services on top of it, and co-create value. This ability to “plug-and-play” is a defining characteristic of Platform Thinking.

Consider the market for smartphones. Nokia and Blackberry today are a shadow of their former glory. Their technology and products lag Apple and the Android ecosystem. But the triumph of Apple and Android is not from features and functions. It is from the app store on which external developers create value. Microsoft has gotten excellent reviews for the technology in its new phones, but it is the ability to create a successful platform that will determine its ultimate success.

The use of platform thinking extends beyond the tech sector. Retailers are shifting from distribution channels selling products, to engagement platforms co-creating value. Online retailers like eBay, Etsy, and Amazon led the way, and now traditional retailers are following.

JC Penney has made platform thinking a pillar of its reinvention strategy. Its stores are featuring more and more “boutiques” managed by others. It is no coincidence that JC Penney’s CEO, Ron Johnson, was previously at Apple. Johnson has said, “All those boutiques are the apps. What J.C. Penney is creating is a new interface.” While JC Penney’s pricing strategy has been controversial,analysts have been very positive about the in-store platform.

Nike is also shifting from products to platforms. Building on the success of its Digital Sport products, Nike recently launched its Nike+ Accelerator to help companies build on the Nike+ platform. Nike’s announcement reflects platform thinking. “We are looking for people who want to create companies that build upon the success of [Nike+] to make the world more active.”

The rise of platforms is being driven by three transformative technologies: cloud, social, and mobile. The cloud enables a global infrastructure for production, allowing anyone to create content and applications for a global audience. Social networks connect people globally and maintain their identity online. Mobile allows connection to this global infrastructure anytime, anywhere. The result is a globally accessible network of entrepreneurs, workers, and consumers who are available to create businesses, contribute content, and purchase goods and services.

Readers will recognize a number of intellectual foundations to platform thinking. These range fromGeoffrey Moore’s ecosystems to John Hagel and John Seely Brown’s focus on “pull.” Where traditional ecosystems push, these new platforms pull. Platforms also rely on the power of network effects — as they attract more users, they become more valuable to those users. And there’s a growing academic literature that explores the unique quality of value creation on what are called “multi-sided platforms.”

In our view, the success of a platform strategy is determined by three factors:

Connection: how easily others can plug into the platform to share and transact

Gravity: how well the platform attracts participants, both producers and consumers

Flow: how well the platform fosters the exchange and co-creation of value

Successful platforms achieve these goals with three building blocks:

The Toolbox creates connection by making it easy for others to plug into the platform. This infrastructure enables interactions between participants. For example, Apple provides developers with the OS and underlying code libraries; YouTube provides hosting infrastructure to creators; Wikipedia provides writers with the tools to collaborate on an article; and JC Penney provides stores to its boutique partners.
The Magnet creates pull that attracts participants to the platform with a kind of social gravity. For transaction platforms, both producers and consumers must be present to achieve critical mass. Apple needed to attract both developers and users. Similarly, eBay needed both buyers and sellers. Platform builders must pay attention to the design of incentives, reputation systems, and pricing models. They must also leverage social media to harness the network effect for rapid growth.
The Matchmaker fosters the flow of value by making connections between producers and consumers. Data is at the heart of successful matchmaking, and distinguishes platforms from other business models. The Matchmaker captures rich data about the participants and leverages that data to facilitate connections between producers and consumers. For example, Google matches the supply and demand of online content, while marketplaces like eBay match buyers to relevant products.

Not all platforms place the same emphasis on all three building blocks. Amazon Web Services has focused on building the Toolbox. Meanwhile, eBay and AirBnB have focused more on the Magnet and Matchmaker role. Facebook has focused on the Toolbox and Magnet, and is actively building its Matchmaker ability.

In the future, we will see more and more companies shifting from products to platforms. Even those in the extermination business may worry less about building better mousetraps, and more on building mousecatching platforms. For example, imagine a smart mousetrap with sensors that wirelessly communicate to a cloud-based MouseCatcher service. Homeowners and exterminators could monitor the status of the trap on their smartphones, receiving a text message when it is out of bait or needs checking. Smart traps already exist. But the shift from products to platforms would focus on building the service (the Trapp Store?) that enables anyone with a smart trap to connect and communicate.

Every business today is faced with the fundamental question that underlies Platform Thinking: How do I enable others to create value? Building a better mousetrap still might not have the world beat a path to your door. But the right platform might just do the trick.