Platform thinking is a revolutionary new way of thinking about how markets work – how consumers, companies or brands, competitors and others interact and create value.[i]
The traditional way of thinking of markets is in terms of producers and consumers. Producers create value by optimizing a range of activities from procurement, design, manufacturing, branding, marketing to sales and service. The differences in the activities of competitors create their competitive advantage. A BMW becomes the ultimate driving machine or ultimate driving experience relative to Mercedes, Audi and others. The producer creates value for which the consumer is willing to pay a price. This is also called a “pipeline model” or “pipeline thinking” because a company competes by controlling and adding value along the activities or along the pipeline or value chain.
The new way of thinking about markets is in terms of participants that interact to create and consume value. Consumers are not just recipients of value, but active producers or participants of creating value and so are one or more producers. Value is created through collaboration, engagement, and interaction between participants.
If there is one group of producers and consumers, the business model is typically called a “platform.” Uber is an example. The participants are riders and drivers who create value which is orchestrated by Uber through a set of rules of governance. With Airbnb, there are travelers and hosts. A platform, then, is an open architecture with rules of governance designed to facilitate interactions.[ii] With more than one producer and various consumers, we typically talk about a digital ecosystem.
A digital ecosystem may be defined as interacting organizations that are digital connected and enabled by modularity, and are not managed by hierarchical authority.[iii] It is a way of providing adjacent products or services by collaborating with other companies or business units. One mechanism to create value is to share data generated on the platform. Uber entered food delivery with Uber Eats, which adds restaurants as an additional participant in the Uber ecosystem, and then built out the ecosystem to include Uber Health, Uber Freight, and Jump bike and scooter sharing, for example. The data and analytics applied to the sheer number of transactions helps optimize the platform and ecosystem and create value.
Digital ecosystems change the nature of competition from being firm-focused to being ecosystem-focused.[iv] Strategically, the decision is either to create an ecosystem and orchestrate it or to join an existing ecosystem. The Android ecosystem competes against the Apple ecosystem, a typical example of ecosystem competition.
A third business model is the interaction field.[v] Unlike platforms and digital ecosystems, an interaction field is not transactional but interactional. It feeds on continuous engagement, participation and collaboration between multiple groups; not just discrete transactions such as another ride with an Uber, or another booking on Airbnb. It delivers shared value to everyone; not just the platform owners or ecosystem partners. It creates new value that solves entirely new problems, rather than merely solving existing problems better or more efficiently, or merely taking out frictions or pain points in commerce or shopping experiences.
Flatiron Health, a Roche Pharma company, enables an interaction field that brings together patients, care providers and even competing pharmaceutical companies and regulators like the Food and Drug Administration (FDA) in a continuous interactions of millions of patients, care providers sharing data about every single instance of cancer treatment. The interactions are rich exchanges of learning with depth that has enabled a larger network of companies like pharmaceutical companies and life science companies to collaborate with the FDA to approve therapeutic solutions earlier and more effectively treat cancer patients.
Like all new business models that have emerged in recent years, this new model creates value through three major effects: network effects, virality and learning effects. Network effects kick in when a product or service on offer becomes more valuable as more people contribute to it. Think Airbnb. The more Londoners offer their spare rooms or stately homes or canal barges to travelers through Airbnb, the more valuable the service becomes—greater selection, increased availability, more variety and choices.
Second is virality – as people find value in the offering they voluntarily become advocates for it and encourage others to join. Think GoPro, the action camera that has a commanding market share among extreme sports enthusiasts, surfers and snowboarders. GoPro benefits from the viral effect. It encourages surfers to share their pictures or videos on the GoPro channel which posts them on many social media sites and other channels. This creates virality because like-minded surfers share the content with others, which makes more people want to shoot videos or content, with translates to more sales of cameras, hopefully via GoPro cameras.
Third, as the brand applies human knowledge and artificial intelligence to the great amounts of data being collected, the learning effects emerges – that is, the more information the brand or product gathers and synthesizes, the more valuable it becomes. Tesla cars collect more data through sensors and cameras than other manufacturers which enable machine learning in its Autopilot software which increases driver safety. Tesla gets smarter as you drive. And even smarter the more Tesla drivers there are.
Platform thinking, hence, is a way to rethink, reimagine, and reset how companies and brands create value, and how to build and scale companies and brands. Platform thinking is a new way of how companies innovate. Innovation is no longer an exclusive effort within a larger array of companies, startups and a financial system of venture capitalists, etc. Platform thinking makes the much-hyped open innovation movement a reality in an agile and efficient way.
Platform thinking also impacts how customer experiences are created and delivered. Consumers or customers are no longer just recipient of customer experiences, but experiences are cocreated and shaped by consumers.
Platform thinking changes how we connect with consumers or customers. No longer is marketing or communications about pushing messages on to audiences. No longer is selling about converting consumers along the various stages of the funnel toward purchase. Marketing, communications and selling are about connection – engagement and interaction, and creating a gravitational force that pulls consumers in and empowers them.
Platform thinking affects every function of a business, every department of an organization, and every stakeholder in a society. It even changes the nature of the firm, what Marshall Van Alstyne calls the “Inverted Firm” which shifts “production” from the inside to the outside.[vi] It is a form of rethinking capitalism from focusing on shareholder value to shared value maximization.
[i] The first use of the term can be found in: Sangeet Paul Choudary (2014), “A Platform-Thinking Approach to Innovation,” Wired.com, https://www.wired.com/insights/2014/01/platform-thinking-approach-innovation/
[ii] Marshall Van Alstyne, Geoffrey Parker and Sangeet Paul Choudary (2016), “Pipelines, Platforms, and the New Rule of Strategy,” Harvard Business Review, vol. 94, no. 4, pp. 54 – 62. Geoffrey Parker, Marshall Van Alstyne, and Sangeet Paul Choudary (2016), Platform Revolution: How Networked Markets Are Transforming the Economy – and How to Make Them Work for You, W. W. Norton & Company.
[iii] Michael G. Jacobides, Arun Sundararajan, and Marshall Van Alstyne (2019), “Platforms and Ecosystems: Enabling the Digital Economy,” World Economic Forum Briefing Paper, February, p. 14.
[iv] Michael G. Jacobides (2019), “In the Ecosystem Economy, What’s Your Strategy?” Harvard Business Review, September-October.
[v] Erich Joachimsthaler (2020), The Interaction Field: The Revolutionary New Way to Create Shared Value for Companies, Customers and Society, Public Affairs, New York.
[vi] Michael G. Jacobides, Arun Sundararajan, and Marshall Van Alstyne (2019), “Platforms and Ecosystems: Enabling the Digital Economy,” World Economic Forum Briefing Paper, February, p. 8.
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Erich Joachimsthaler, Ph.D.
CEO & Founder