Skip to 0 minutes and 10 secondsHello and welcome back The preceding sections gave us clear indications as to how important platform innovation is becoming. Let’s now discuss why this is. Business strategy traditionally has been about product innovation. In the traditional product strategy model, firms create and capture value by developing differentiated products for specific customer needs. Platform strategy shifts the focus from differentiating one’s products to encouraging mass-market adoption of a platform technology. All this in order to enhance the number of interactions between users and suppliers. Now making this shift is not easy, so why are an increasing number of firms making it? Well, for one while a product results in a single revenue stream, platforms generate multiple revenue streams. Let’s visualize this.
Skip to 1 minute and 10 secondsA platform company typically builds a critical mass of users and revenues through a limited number of killer applications of its own. To give you an example, amongst Google’s killer apps are Search, Youtube but also Maps. The platform company then brings in third party suppliers on its platform through services like Google Play and Android application. All this to fuel further innovation and bring in many more revenue streams. Interestingly, the platform company, Google in this case, does does not own or control these apps but gets a percentage on their sales. As of June 2017, Google Play harboured 3 million applications from external developers. And Google commands a 30% transaction fee on each one of those.
Skip to 2 minutes and 5 secondsWhat is more, beyond application fees Google gathers all the application user data on its Big Data platform, allowing it to rake in more than 17billion US dollars per years in advertising revenues. It pays to be a platform company! As the example of Google demonstrates, information digitization has opened up dizzying Big Data intermediation possibilities that spur on the shift to platform innovation. A shift from product to platform strategy has the added advantage of not having to optimize or control an internal value chain from invention, production through marketing for all new products and services. All that matters is having the ability to attract and match user and supplier groups. Let's have a look at the Google platform
Skip to 3 minutes and 3 secondsThe real engines of Google's Big Data platform are its supply and demand interfaces that match app developers and app users. Application developers use the Android development software kit to provide a constant supply of new or improved applications to Google’s platform. Users get access to these applications through the Google Play app.
Skip to 3 minutes and 30 secondsNow as a result of not having to do the hard graft of developing all products and taking all the customer innovation risks, platforms are often asset-lighter than product-focused firms, even when they accommodate thousands of different products and services. For instance, Airbnb does not own any hotel infrastructure, Uber does not own cars, Amazon leaves much of the costly inventory work to its suppliers etcetera... Of course, becoming a platform is not easy. That is why established firms like Apple and Google typically go for a hybrid product-platform strategy. Historically, Apple has made most money selling premium hardware products. For more than a decade, however, it has connected all its products as well as third party supplier apps to a common platform.
Skip to 4 minutes and 24 secondsSimilarly, Lego makes most of its money from its established products. But a significant share of its revenues comes from its platform ventures, for instance the Mindstorms platform. In what follows I shall explain what types of industries are more likely to witness a shift to platform strategy; and what the building blocks are of platforms. So please stay tuned!
Why are companies shifting from a product to a platform strategy?
In this video, we explain the reasons why companies are shifting from a product to a platform strategy, drawing on the examples of Google, Airbnb, Apple and Lego.
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