Platform companies, from controlling to orchestrating resources

In October 2007, Brian Chesky and Joe Gebbia had just moved to San Francisco, California. Although they are both industrial designers by training, at this time they were both jobless. In an attempt to earn some money, they decided to let out their apartment to people visiting a local trade show. When all was said and done, the two friends realized that their little deal had earned them the equivalent of a month’s rent — and almost without lifting a finger! Eager to repeat their lucrative adventure, Chesky and Gebbia designed a basic website for sub-letting their apartment and inviting other residents of the city to do likewise. And so, Airbnb was born! In under 10 years, this pioneering company has created an enormous following and highlighted a disruptive business model: the platform. Geoffrey Parker defines the platform company as “a business based on enabling value-creating interactions between external producers and consumers via an open, participative digital infrastructure”. The model is not in itself new — it’s a form of intermediation or matching — but the digital revolution has facilitated its adoption by a wide range of businesses.

Welcome to the platform age!
Platforms have conquered whole swathes of the economy over the past decade. As Uber upended urban transport, car-pooling, apartment rentals, crowd-funding, and service exchange exploded. Amazon-type marketplaces have successfully diversified off ers both horizontally, by integrating third-party resellers, and vertically, by steadily integrating services upstream (such as payments and financing) and downstream (delivery, installation, maintenance). Vertical integration strategies have spawned giant networks, such as Alibaba, an online marketplace that also doubles as an online bank, which in 2016 became China’s top market capitalization. Platforms, which are now all around us, are the big winners in the digital revolution. Facebook, Google, Netflix — most of the success stories over the last 10 years have been based on the platform model. Accenture’s Vision Technologies 2016 report underlines this growth: the top 15 platforms already account for $2.6 trillion of market capitalization worldwide. The sheer scale of the prosperity enjoyed by these newcomers is almost unnerving. Indeed, the list of victims of the “platforming” revolution is long, and includes temping agencies, local stores, online retailers, banks, music publishers, transport companies and energy suppliers. Even the major industrial corporations are threatened. France’s traditional rail carrier SNCF, for instance, has seen its profitability undermined by car-pooling and crowd-shipping (sharing the cost of transporting goods) platforms, as these new actors, who do not own any infrastructure, nibble away at the market shares of its core activities.

Agility: the platform company’s main competitive advantage
Why is the platform model so effective compared to the pipeline approach of traditional firms?
• Platforms relinquish ownership: While pipelines rely on their ability to control “rare” and limited resources (raw materials, industrial processes, land parks, intellectual property, etc.), platforms employ a model where most of the value is generated by an ecosystem. In other words, a platform’s most valuable asset is its network.
• Platforms focus on the quality of the interactions between the various communities they connect and the governance of the ecosystem. Pipelines, on the other hand, concentrate on optimizing their processes and access to resources in relentless pursuit of lower production costs and greater efficiency.
• Platforms mainly target increasing the value created for all their communities. They help them grow using iterative and circular approaches that are fed by continual feedback. In the pipeline model, by contrast, the goal is to maximize customer value.
All this means that platforms defer the costs and unwieldy operations of the production chain over their entire ecosystem. In addition, platforms do not need commercial intermediaries or centralized marketing departments (marketing is transferred to the actual users through recommendations). Consequently, these firms are lighter, more responsive and more adaptable than pipelines.