In Part I of this blog series we will take a look at the broader impacts of the Platform revolution, discuss what a Platform is and isn’t, and discuss the key anatomy of a business platform.
Despite all evidence to the contrary, true business revolutions are rare.
Amazon lists over 10k book results for the search term “Business Revolution”. Dozens of periodic publications and annual tradeshows are dedicated to giving attendees, subscribers, executives, and investors advanced knowledge of the next disruption. Business consultancies base their entire existence on helping clients anticipate, digest, implement, and optimize around shifting paradigms.
However, it is safe to assume that the bulk of the recent “revolutions” will be forgotten in three years, confined to the graveyard of forgotten MBA vocabulary words.
The reason for this is that most “revolutions” don’t mirror the way people behave naturally.
To propagate their mythology and unique information, business books tend to rely on a unique set of business environmental factors that give rise to a small sample of success stories. The frequently earnest authors use those stories to dictate how broader businesses should evolve on broader terms.
Time tells all. Today’s $17B valuation is tomorrow’s Pets.com
Not Just Another Business Term
With that skepticism at the outset, it’s hard to imagine that this blog will provide any information that a levelheaded businessperson should care about enough to keep reading, but don’t click out yet.
The goal of this blog series is to explain a business model revolution that we are all already caught up in, that we’ve all taken part in, and that has been documented, tested, and proven. It is a business model that has changed how we buy, how we commute, how we vacation, and how our most dominant businesses scale.
To date, it has dominated simple transactions, but it is coming for insurance, voluntary benefits, and lifestyle benefits.
It is driven by technology, but increasingly ubiquitous because it fits with human behavior.
So, without further ado… Welcome to the Platform Revolution.
What is a Platform?
Platform: a business model that uses technology to connect people, organizations, and resources in an interactive ecosystem in which amazing amounts of value can be created and exchanged.
We use platforms every single day. They dominate our mobile devices and our stock exchanges. They are the companies most businesspeople would love to build, and most employees want to work for.
Amazon, eBay, Apple, Google, Airbnb, Facebook, Twitter, YouTube, Instagram, and Lyft are all Platforms
The definition of a platform, according to Platform Revolution by Parker, Alstyne, and Choudary, is a “business model that uses technology to connect people, organizations, and resources in an interactive ecosystem in which amazing amounts of value can be created and exchanged.”
Simple enough right?
Here it is in an even simpler platform definition: A platform is a technology that empowers connections.
While that seems easy to grasp, there are common misconceptions around platforms that can lead to misnomers, misunderstandings, failed initiatives, and bad investments.
More importantly, we need to understand why, in a time called “Platform Mania”, some succeed and become Amazon, while others are doomed to become Microsoft’s Windows Phone.
What a Platform is Not:
It isn’t software.
Software is a task-oriented set of digital tools.
Software companies love to call their applications “platforms”, but they are, in reality, only a single component of the broader technology ecosystem needed to create a thriving platform business.
While your company email application can connect your agents with your policyholders, it is only one small part of that communication and transaction.
The biggest offenders are the eCommerce software programs. They DO empower and enable sales, but they shouldn’t be mistaken for a true platform.
No single software investment will scale your business like a platform can.
It isn’t a “solution”.
Technology “solutions” are a set of software tools or related services that are sold as a single problem-solving package.
Think Enterprise Resource Planning and Human Resource Management systems.
Essentially, solutions are just big software systems designed to address more complex problems.
Securing a Human Resource Management solution could, and quite probably should, increase your efficiencies and create ROI in the near term, but it does not establish an ecosystem for creating increasing value and connections.
It isn’t just technology.
It’s critical to note that there is yet another use of the term platform that applies solely to technology which is, as defined by Techopedia.com, is “a group of technologies that are used as a base upon which other applications, processes or technologies are developed”.
Again, this use of the term is tangential to the creation of a platform business model, but it should not be confused with a true Platform.
Types of Platforms:
Ok, so in summary, we should be clear around a few points:
- Platforms are interactive ecosystems that connect people, resources, and organizations to create and exchange value.
- Platforms are not software, but software programs are an element of platforms.
- Platforms are not solutions, but a solution may be a part of a platform.
We now know what a platform is in the broadest terms, but there are variations within the definition that are important to note.
In the recently published The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and Power authors Cusumano, Gawer, and Yoffie point out that there are two types of Platform Business Models:
Innovation Platforms – think Apple’s App Store, or Google’s Play – platforms which enable third-party developers and contributors to add products to a core technology
Transaction Platforms – Amazon Marketplace, Uber, eBay – that empower the exchange of goods or services.
You can find variations within each of the dominant platform models in regard to tangible goods vs. services and technology, or you could consider information platforms vs. entertainment platforms… but for the purposes of this increasingly lengthy overview, we’ll stop there.
We’ll look at which model is more relevant for insurance, voluntary, and lifestyle benefits in part 2, but keep those differentiations in mind.
Elements of a Platform:
As relative latecomers to the platform revolution, Insurance and Benefits leaders may think that we are waltzing into a sure win environment… that is, unfortunately, very far from the truth.
“Platformania” (as coined by the Harvard Business Review) has been consuming the tech sector for well over a decade and the field of failures is crowded.
In fact, in a study of over 250 platform businesses launched over the last 20 years only 43 have been successful. The good news is that those 43 all shared some common traits, which we will spend more time on in part 2, but for now let’s look at four key elements of winning platforms.
No matter the type, or the product, the best platforms all share a few key anatomical similarities.
Platforms have Multiple Sides – A simple storefront (think roadside lemonade stand) is one-sided. A producer makes lemonade and sells it to a consumer. A Multisided Platform brings together multiple stakeholders to conduct a single transaction or create an enhanced value proposition. eBay, at its outset, brought together sellers who wanted to sell excess belongings with buyers who wanted a bargain.
This multi-faceted approach enables the platform to expand rapidly with very little cost. eBay didn’t need to secure physical inventory, warehouse goods, write the ads, or deal with the shipping and details of the transaction. They merely provided the ecosystem for the transaction that empowered the sale to the benefit of all parties. Without those expenses, and the corresponding time consumption, eBay could grow as quickly as their network of sellers and buyers expanded.
Platforms are built around Networks – A network is, in the simplest sense, a collection of points of contact. For a platform to succeed it has to focus on the health, size, and growth of its supporting network. Networks are inherently stuck in the chicken and the egg conundrum; without traffic, they have no transactions and without transactions, there is no traffic.
The best platforms find ways to grow their networks in scalable chunks and leverage marketing and promotion to sustain growth.
Platforms can Scale Exponentially at an alarming rate – The economies of scale that dominate traditional business models have a toe hold in Platforms as well, but they are dictated by traffic and stakeholder interaction rather than the cost of materials. Since Platforms are based in technology, the core costs in infrastructure and overhead of empowering 2 transactions are frequently comparable to the costs incurred for 200 transactions.
Similarly, for each successful transaction on a platform, the potential for growth increases as sellers and buyers take notice and seek a piece of the action. Every successful platform reaches a tipping point where the rate of adoption spikes.
Finally, platforms rely on the Stakeholder Experience – If customers don’t receive value they won’t be back. That value should extend to both the seller side and the buyer side of the transaction, but without a great experience, even incentivized platforms fail.
Thanks for sticking with us. We’ve covered a lot of ground and introduced several ideas and concepts around Platform Business Models.
In part 2 of this series we will look at the key factors that dictate successful platforms and look at the impact this business model will have in on the insurance, voluntary, and lifestyle benefits industry.
So, in full disclosure, Genius Avenue offers a platform for insurance, voluntary, and lifestyle benefits providers, brokers, and consumers. Want to learn more about it? Click here.