90. What makes platform businesses SO successfulMar 16, 2022
Facebook disrupted the media market forever. The Apple App Store created the app economy, valued at $6.3 trillion today. What makes platforms like these SO successful?
In this episode, you will learn the core concepts behind platform businesses, so you can identify platforms in the making or build them yourself.
This is the beginning of a mini-series on platform fundamentals at Tech for Non-Techies.
Learning notes from this episode:
- Platform businesses have been around for millennia. A market square is a platform business. Technology just allowed these businesses to reach more scale and make more money than ever before.
- Most traditional businesses are pipeline businesses. A pipeline business employs a step-by-step arrangement for creating and transferring value with producers at one end and consumers on the other. For example, Ford makes cars and sells them to consumers.
- Pipeline businesses grow and prosper if they have Supply Economies of Scale. If Ford makes lots of cars, the cost of producing each car falls.
- Platforms dominate if they have Demand Economies of Scale - this is another term for Network Effects.
- A Network Effect is a phenomenon whereby a product or service gains additional value as more people use it. For example, if you are the only person with a telephone, it is useless. The more people have telephones, the more useful the network. Therefore, network effect growth is exponential, not linear.
(Source: Platform Revolution, Sangeet Paul Choudary, Geoffrey G Parker, James Foster)
- Some businesses combine pipeline and platform fundamentals in their business models. For example, Apple's hardware is a pipeline business, but the Apple App Store is a platform. They support each other: consumers buy iPhones to get access to the App Store.
- Established platform businesses are very hard to compete with because they have strong network effects. This means they create natural monopolies and operate in Winner Takes All markets.
- One of the biggest problems platforms have to solve is the chicken and egg problem: if your success depends on users interacting with each other, how do you get your first users? We will cover this in next week's episode.
Listen here on Apple Podcasts.
Listen here on Spotify.
There are 2 ways to apply this work to your unique challenges:
- If your company is going through digital transformation and you want your non-techie teams to be active participants
- If you want to grow revenue via innovation
Then get in touch with us about bespoke training & consulting on [email protected]
For individuals, if you want any of the following results:
- Build tech ventures as non-technical innovators
- Become smart tech investors as VCs or angels
- Succeed in a company going through digital transformation
- Transition career from a tired old business to a fast-growing tech company
Then Tech For Non-Techies membership is for you.
(Photo by Renate Vanaga on Unsplash)
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