By Bhavin Shah, Senior Consultant
“A startup is a temporary organization designed to search for a repeatable and scalable business model.”
~ Steve Blank, American entrepreneur, educator, author and speaker
“Breaking an old business model is always going to require leaders to follow their instinct. There will always be persuasive reasons not to take a risk. But if you only do what worked in the past, you will wake up one day and find that you’ve been passed by.”
~Clayton Christensen, Harvard Business School Professor
“For CEOs today, it's all about achieving growth and efficiency through innovation. It's not about product innovation so much anymore as about innovating business models.”
~Ginni Rometty, Former CEO, IBM
“Information Technology is at the core of how you do business and how your business model itself evolves.”
~Satya Nadella, CEO, Microsoft
A platform business model brings people together and creates value by facilitating exchanges among them within a digital environment. As such, it is a business model – not just a technology infrastructure. Participants could be buyers and sellers or customers, suppliers, partners, developers, and other stakeholders, based on your company’s mission and objectives. The platform provides the governance structure and standards that facilitate interactions at scale. This ecosystem is a foundational part of the platform.
Examples of the platform business model are marketplaces (Amazon, Ebay), social networks (Facebook, LinkedIn), payment networks (PayPal, MasterCard), communication platforms (WhatsApp, Snapchat), etc.
How can a platform business model drive top-line and bottom-line growth?
Because it does not have an ecosystem, a traditional, non-platform business creates a linear-value chain. The platform model offers a greater value proposition, with multi-dimensional value networks and ecosystems.
Once in place, your platform-based ecosystem offers numerous business and financial benefits. These include:
- Extreme scalability – Digital platforms are inherently scalable. If you want to expand, scale, go after other industries and markets, etc., a platform business model is ideal. Once your ecosystem is in place, you’ll be able to expand your user base and services without proportional increases in costs. As your platform grows, you’ll enjoy better cost efficiency and profit margins.
- Built-in agility – A platform-based ecosystem model makes it easy to quickly make changes. This includes adapting to changing market conditions, introducing new features and/or experimenting with different services to meet evolving customer needs.
- Valuable network effects – As more participants join your ecosystem, your platform’s value increases for all users. This, in turn, can lead to rapid and exponential growth.
- Diversified revenue streams – Because it can be used in a variety of ways by a variety of participants, a platform-based ecosystem can often support multiple revenue streams. For example, transaction fees, subscription models, advertising fees, data monetization, partnerships and more.
- Lower market entry barriers – Traditional business models often require significant Capex/Opex investment in physical infrastructure. The platform provides a ready-made infrastructure, reducing the costs and challenges associated with building and maintaining a traditional business.
- Data monetization – Your platform will generate a wealth of data about user behavior, preferences and transactions. You can leverage this data for insights to tailor your offerings and strategies. You can also monetize it, such as through targeted advertising or personalized services.
- Enhanced customer engagement and loyalty – Platforms often offer features that enhance customer engagement, such as user reviews, social interactions and personalized recommendations. This fosters loyalty among users, encouraging them to stay within the ecosystem and conduct repeat transactions.
- Partnerships and ecosystem synergies – Cross-promotions, joint ventures, shared resources and other collaborations and partnerships within the ecosystem can benefit all participants.
- Global reach – Digital platforms can transcend geographical boundaries, providing you with a global reach. Tap into diverse markets without the need for a physical presence in every location.
- Investor confidence – Successful digital platforms with a strong user base and revenue streams can create investor confidence. This can increase your funding opportunities and valuations, and have a positive impact on your company’s overall financial health.
Technology is the heart of the platform business model
A platform-based ecosystem business model can create a competitive advantage that drives top- and bottom-line growth for your business. However, to sustain these advantages over the long term it is important that you carefully manage and nurture your ecosystems.
Technology, of course, is in the center of the platform business model and plays a critical role enabling platform ecosystems to create value for the business.
If you need help developing a technology strategy for creating or maintaining a platform business model, give us a call. This is another area of our expertise!
About Bhavin Shah
Bhavin Shah is a big-picture thinker and visionary global technology executive whose expertise in driving technology innovation, digital business model transformation and enablement of revenue and business capabilities creates value for customers, opportunities for employees and growth for shareholders.
About CIO Professional Services
Based in the San Francisco Bay area, CIO Professional Services LLC is a top-rated Information Technology (IT) consulting firm focused on integrating Business and Information Technology. Our consultants are all hands-on executives who are veteran CIOs and Partners of Big 4 consulting firms. Companies come to us seeking assistance with their information technology strategy as well as for interim or fractional CIO / CTOs, and negotiation and program management/project rescue assistance.
