Platforms Overrunning Traditional Pipeline Businesses by Human Capital Alliance Inc

Edwin Sim looks at how platforms are transforming business strategy.

Apple, Uber and Airbnb are overrunning incumbent product-push pipeline businesses by exploiting platforms and leveraging new rules of strategy.

In a recent Harvard Business Review article, “Pipelines, Platforms and the rules of strategy”, the authors said in today’s digital internet environment, scale trumps differentiation.

“Platform businesses bring together producers and consumers in high-value exchanges.”

Platforms – major assets

In contrast to traditional product pipeline sales organizations, platforms chief assets are information and interactions, the sources of the value they create and their competitive advantage.

Using these innovative digitally-enabled concepts, HBR said Apple conceived the iPhone and its operating system as more than a product or conduit for services.

“It imagined them as a way to connect participants in two-sided markets – app developers on one side and app users on the other – generating value for both groups.”

Network effects

As participants on each side increase, network effects, which are central to any platform, begin occurring.

Apple conceived iPhone and its operating system as a conduit that could distribute numerous products and services.

By January 2015, the company’s App store offered 1.4 million apps and had cumulatively generated $25 billion for developers

Critical lessons

Apples success in building a platform business within a conventional product firm holds critical lessons for companies across industries.

Firms that fail to create platforms and don’t learn the new rules of strategy will be unable to compete for long.

Major environmental change

Today all businesses must understand that platform businesses such as Uber and Airbmb bring together producers and consumers, are gobbling up market share and transforming competition.

Moreover, traditional pipeline product-selling businesses that fail to create platforms and learn the new rules of strategy will suffer.

Today’s new rules

With a platform, a business’ critical asset is the community and its members’ resources.

Its strategy shifts from controlling to orchestrating resources, from optimizing internal processes to facilitating external interactions, and from increasing customer value to maximizing ecosystem value.

Read: The New Environment