kidmercury

In the previous post, the Yin/Yang of business strategy -- products vs. platforms -- was defined and explored in the context of the current Web. This post will take a look at how product companies can adapt to become more platform-oriented.


First, let's revisit the product vs. platform paradigm, as illustrated in the image below.





The trick is to ask and answer the question, "How can I leverage my product strategy to create a platform?" Let's explore each one individually:

Abstract asset of choice. Trade in the algorithm for user attention. As organizations realize that platform strategies are the dominant form of competition online today, more and more companies will realize the value of open source strategies and will choose to give away their algorithm and intellectual property in exchange for user attention. The key is to not think of your algorithm as something that can be sold, but rather as a platform that can help someone else create value and profit. You can profit via revenue sharing arrangements.

Profit strategy. Product-oriented firms are constantly trying to differentiate themselves, and are looking for great new product innovations for which there is little competition, great demand, and an ability on their part to produce a sufficient supply. This allows them to charge a higher price and reap larger profit margins.

In a platform strategy, the name of the game is market share; attract everyone's attention, and then make the market between other product companies and prospective buyers/sellers. In light of this, one very feasible way product companies can make the switch to becoming a platform company is to cannabalize their product as much as possible by pushing profit margins down to zero or as close to zero as possible. This allows it to become more of a broadcast product -- not a niche product. As such, it can attract attention (especially if it is a good product), and thus the creation of a platform becomes more feasible.

Operational strategy. Product-companies tend to favor artists and craftsmen who take great pride in their work; they give their all to the product. Great products are, and perhaps always will be, necessary and a source of competitive advantage. Platform companies need to bear this in mind, but must also think of themselves more as a mediator/diplomat that brokers the transaction. Platform companies are negotiators; they connect pieces to create more value for everyone. This requires a different mentality and culture than a craftsman who is dedicated to the dream of creating an ideal product.

In conclusion: to make the switch from product to platform, companies need to still create great, fantastic products -- but these products must now be cannabalized so as to garner attention for the platform and to help create an ecosystem that generates wealth for its value-adding participants.

The next post will examine organizational structure that platforms need to effectively evolve and compete with other platforms online today.

Articles in This Series

Products vs. Platforms: The Yin/Yang of Business Strategy
Flippin' the Script: How to Switch from Being a Product to a Platform
Built for Evolution: The Organizational Structure of Platforms
The Future of Platforms: RIP Nations and Corporations