From Harvard Business Review
Platforms have become one of the most important business models of the 21st century. In our newly-published book, we divide all platforms into two types: Innovation platforms enable third-party firms to add complementary products and services to a core product or technology. Prominent examples include Google Android and Apple iPhone operating systems as well as Amazon Web Services. The other type, transaction platforms, enable the exchange of information, goods, or services. Examples include Amazon Marketplace, Airbnb, or Uber.
Five of the six most valuable firms in the world are built around these types of platforms. In our analysis of data going back 20 years, we also identified 43 publicly-listed platform companies in the Forbes Global 2000. These platforms generated the same level of annual revenues (about $4.5 billion) as their non-platform counterparts, but used half the number of employees. They also had twice the operating profits and much higher market values and growth rates.
However, creating a successful platform business is not so easy. What we call “platformania” has resembled a land grab, where companies feel they have to be the first mover to secure a new territory, exploit network effects, and raise barriers to entry. Uber’s frenetic efforts to conquer every city in the world and Airbnb’s desire to enable room sharing on a global scale are the two most obvious recent examples.
The problem is that platforms fail at an alarming rate. By identifying the sources of failure, managers can avoid the obvious mistakes.
To understand why and how platforms fail, we tried to identify as many failed American platforms as possible over the last twenty years that competed with the 43 successful platforms. The 209 failures allowed us to extract some general lessons about why platforms struggle.
Read the full post at Harvard Business Review.
Michael A. Cusumano is the SMR Distinguished Professor of Management at the MIT Sloan School of Management. Previously he held a joint appointment in the School of Engineering. Professor Cusumano specializes in strategy, product development, and entrepreneurship in computer software as well as automobiles and consumer electronics.
David B. Yoffie is the Max and Doris Starr Professor of International Business Administration at Harvard Business School.
Annabelle Gawer is the chaired professor in digital economy, head of the department of digital economy entrepreneurship and innovation, and director of the Surrey Centre of Digital Economy at the University of Surrey.