What distinguishes a platform strategy?

by Philip Boxer PhD

What distinguishes a platform strategy is the way it extracts value from the relationship to demand, not the characteristics of the platform itself.1

Richard Veryard asks does everyone (except Google) have a platform strategy?  The consensus appears to be that it does not, because as Richard argues in Google as a Platform (not), while it ‘gets ecosystems’, its approach to it is  ‘closed source’2, contrasting with the open source approaches of an Amazon or an Apple.

If we follow Haydn Shaughnessy’s argument for why Amazon succeeds, a platform strategy succeeds because it enables businesses within its ecosystem to create shared value; its use makes possible the development of complex option portfolios for pursuing business opportunities, assuming it has cloud characteristics and can minimise friction in establishing new connectivities; and its owners know how to use the platform to pursue radical adjacency:3

The ability to go beyond normal business practice and to seize opportunity in widely adjacent markets – think Apple in music, smartphones and, soon, TV.

This does not appear to be what Google is doing, with its continuing reliance on its advertising revenues, and with everything else it does being seen as a means of building traffic on which its revenues depend.

But what about a different perspective on this?  Amazon and Apple are pursuing direct value4 from their products and services that are in turn dependent on building  indirect benefits for the customers and businesses within their respective ecosystems.  But Google’s strategy is to pursue indirect value5 – the value it extracts  from the indirect relationships within the web-sphere from enabling advertising, explicitly subordinating the direct value of its products and services.  This is a strategy for pursuing asymmetric demand. This suggests that we need to think about two things:

  • firstly what constitutes a platform strategy (enabling the creation of shared value within an ecosystem); and
  • secondly whether or not the platform is used primarily for capturing direct (one-sided) or indirect (multi-sided) value.

I propose that it is this second thing that distinguishes the platform strategy.6 What about shared value? This is still being created because of the focus on the performance of the ecosystem rather than just on that of the supplier, whether the platform is being used to pursue direct or indirect value itself…

Looked at in this way, we can draw a parallel with the difference between acute and primary health care: both forms of care depend upon playing a valued part within larger ecosystems, but while the former aim to capture direct value from acute episodes of care, the latter aim to capture indirect value through the way they enable patients to manage their long-term risks of becoming unwell.7

Notes
[1] Note that the platform strategies described here use network-based architectures. See ideologies of architecture
[2] ‘Closed source’ is contrasted with ‘open source’ in Architectures that integrate differentiated behaviors, in which the platform supports indirect value for the customer, but does so through providing its own portfolio of complementary products and services.
[3] Real options are used in Evaluating platform architectures within ecosystems: modeling the supplier’s relation to indirect value. To be effective, these valuations have to be defined using a structural model of the supplier’s ecosystem and its relation to demand.
[4] Direct value is value captured from the direct relationship with a customer, the direct value being a cost to the customer of the direct benefit they derive from the direct relationship. From the supplier’s perspective, this is referred to as a ‘one-sided’ relationship because there is only one relationship to consider.  In Amazon’s case for example, I end up paying money to Amazon for the book.
[5] Indirect value is value captured from the direct customer’s relationship with other customers and complementors – relationships that are indirect from the perspective of the supplier, making the supplier’s relationship with the customer ‘multi-sided’.  This indirect value is a cost to the parties to an indirect relationship of the indirect benefit they derive from using the supplier’s service.  In Google’s case for example, the advertiser pays Google for being linked to the customer’s situation in which the customer is searching for something.  The advertiser gets linked and the customer gets to use a Google ‘product’.  (More on complementors etc can be found in asymmetric demand is multi-sided demand.)
[6] Richard’s use of ‘positional’ to describe Google’s strategy only works if we define their business model as extracting ‘rent’ from their proprietary search capability. And it is true that Google pursues the first two of the three asymmetries in the way its uses its technologies and market channels in delivering its services. But here I am arguing that their pursuit of the third asymmetry through the capture of indirect value makes their strategy ‘relational’ – Google is  endlessly trying to find ways of being indirectly useful within the context of the customer’s working/searching situation.
[7] This brings us to the world of edge-driven collaboration and many of the challenges facing government in how it evaluates services for its citizens (for exampling investing in e-Government).

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