Platforms: the changing structure of value creation


Ross Dawson, chairman of the Advanced Human Technologies Group, opened his CeBIT 2016 presentation with the following quote:

Ranked by market value, 60 of the world’s 100 largest corporations earn at least half of their revenue from platform markets. – Prof. Thomas Eisenmann, Harvard Business School

No wonder, then, that platforms are kind of a big deal in today’s economies. And when you hear of the most successful platforms – Uber, Airbnb, Twitter – the results are evident.

Platforms are multi-sided markets that enable other people to create value by the way they interact with the platform, thereby connecting producers and consumers. What this creates, most essentially, is a positive feedback loop: more users create more value for users, and vice versa, and so the cycle keeps feeding into itself exponentially. It is because of this feedback loop that platform models are so successful, and while they don’t necessarily result in ‘winner takes all’ markets, they certainly can result in a ‘winner takes most’ market, with a platform taking up to 85% of market share, and even broadening the market further than that which previously existed.

It’s easy to see why more traditional markets are seeking to move into this space. Media dissemination is now happening largely on third-party platforms; car companies are now integrating third-party apps into their vehicles – even the home may eventually become a platform market, as security, entertainment and home appliance companies all vie to dominate in this space. As Dawson said, platforms are now at the heart of any valid business model today.

But this requires a fundamental shift in the way that many companies operate.

The focus necessarily moves to external value creation, rather than internal. Platforms must also be designed with unlimited scalability – the positive feedback loop is absolutely essential.

A key element of a platform is discovery – users have to be able to find what they’re looking for. To use Uber as an example, their app allows users to easily find the driver closest to them. A platform also needs a strong governance structure, with parameters for participation (e.g. Uber drivers’ cars have to be certain age), value sharing (e.g. Uber pool in the US, where people are able to share rides) and regulation. Trust is also essential (e.g. both drivers and customers can rate each other on Uber), as is a seamless user experience (e.g. Uber’s interface making it easy to order a car with only a couple of taps).

So what lies in the future? Dawson predicts that there is scope for health and education (e.g peer-to-peer learning) to move into this space. Cities like Sydney will also effectively become platforms for innovation. Even governments may have to rethink the way they operate, and essentially become enabling platforms. With platforms, the sky’s the limit.

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