Power of platform business models

Marshall van Alstyne (MIT) paints a compelling picture of the power of "platform business models" (like iTunes, Nike or Amazon), captured in this presentation from late 2013 (video, slides only). In my opinion, he gives an effective and powerful list of the factors fueling the business success of "platforms":

  • Direct connection to the consumers / users ...
  • ...and therefore an opportunity for data collection (data being the most fundamental asset and currency of the knowledge economy)
  • Network externalities (in simple terms: "more developers unwittingly attract more users, more users unwittingly attract more developers", this is why Google subsidized Android developers until they reached critical mass)
  • Radical consumer centricity
  • Openness to partnership with complementary services / players
  • A radical cultural shift from a product or service mentality to an "ecosystem" mindset, where companies often have to relinquish part of their total control over their products or services to profit from the ecosystem (Google does not control what applications are put in its store by developers, it just takes a cut of the profits)
  • Smart asymmetric pricing strategies based on a good understanding of multi-sided platform economics (e.g. a bar that offers free drinks for girls to attracts more girls and therefore more boys for whom the prices will be much higher).

The video is a bit long but I really recommend it for anyone interested in a thoughtful interpretation of why Apple and Amazon are such successes vs. companies that may have looked similar at some point but clearly did not achieve the same success.

Image source: Redactie Emerce

-- Yassine El Ouarzazi

Foundations as majority owners -- impact on performance

Book recommendation: Frugal Innovation