Strategy and Approach
So, how to go about platform and ecosystem strategies? Should you build one or join one?
Entering the platform business?
As a strategist, you should ask yourself: will you enable third party transactions?
If yes, you are moving into the platform business. If not, don’t bother about platform strategies for your own business – but maybe think about joining a platform.
However, when you want to bring together two-sided markets, you need to provide value to transactions – you need to inject trust, make a fragmented market transparent, resolve inefficiencies in the market, bring a lot of users to the table, provide superior matchmaking, etc.
If you also provide the product/service for the buyers yourself you are not only starting to compete with the sellers on your platform, you may also move from quadrant (C) – platform – to quadrant (A) – product/service – over time, losing the platform appeal as you are not exclusively in the “value from transactions” business anymore. However, this is a strategic move that we can observe in the market again and again.
As a case in point, Amazon started out as a book seller. Only later it opened its website for third party booksellers – a concept they have extended into their online “Amazon Store” across all possible retail categories today. Therefore, Amazon moved the the other way: from quadrant (A) – product/ service – to quadrant (C) – platform. If you are a retailer thinking about opening a store-in-store on Amazon it helps to understand platform strategies and in particular Amazon’s actual strategy. At first sight, it may look tempting. Amazon provides you with reach and a lot of potential customers. However, Amazon may also become your direct competitor instead of just providing value to your transactions. Amazon collects data on your product and transactions and may be in an advantageous position to compete with you, cloning your value proposition and offering. If you take Amazon’s vision seriously (and you should), take a close look as it says “Our vision is to be earth’s most customercentric company”. So make no mistake: Amazon will always give preference to their end customers. You are not the primary customer of Amazon as a third party store. Maybe you are better off by joining another platform, one that is strategically better aligned with your own interests (like Shopify for example). Joining a platform is also a strategic decision (not only to become one) and for any business, it is good to understand the dynamics of platform strategies from all sides.
Of course, the strategic move in the other direction, from quadrant (C) – platform – to quadrant (A) – product/service, is also common.
When Uber begins to treat its drivers as employees instead of independent self-employed contractors, this is certainly not a deliberate move. However, we can witness the strategic implications by way of example. As soon as Uber’s drivers become its employees it basically starts providing the product/services by its own means (even if the cars may still be owned or leased by the drivers). In that, Uber becomes much more like a traditional taxi company – a single-sided business. And that is neither what Uber wants to be nor what their investors want Uber to be. Uber’s fight to keep its status as a platform that enables transactions between passengers and drivers is not only about their costs but inherently about its business model. And that is even more fundamental for Uber’s self-conception than just defending the benefit of being asset-light as a platform business. From Uber’s perspective, its approach to assert control over the way its drivers work (setting fares, terms & conditions, etc.) serves to create trust, efficiency, fairness, predictability, quality, and transparency – success factors for any valid platform. On the other hand, we can see that the increasing public resistance Uber is facing from workers and regulators reveals another problem: that of platform power and monopoly. In the case of Uber however, the hard logic of platforms may by itself render its strategy unsustainable as Uber is subsidizing both sides of the market (drivers and riders). As a consequence, Uber may in reality look more like a single-sided business. In that, Uber has less platform power as it may seem when investors discontinue subsidizing a money-losing business. After all, failure is more likely than winner-takes-all in platform strategies.
Entering the ecosystems business?
As a strategist, you should also ask yourself: will you provide (and orchestrate) complements from other actors for an overall value proposition?
If yes, you are moving into the ecosystems business. If not, you may well be part of an ecosystem (e.g. as an SAP implementation partner) or use aspects of ecosystem approaches (e.g. for growing faster internationally through partners). Therefore, you don’t necessarily need to be the owner of the entire ecosystem. However, if you want to be the creator of an ecosystem it will be a good exercise to first assess under what circumstances you yourself would join the ecosystem as a complementor in order to understand the multifaceted value you need to create and the associated success factors for shaping such a system.