By Laure Claire & Benoit Reillier
Platforms are the dirty little secret of many hyper
Platform businesses, such as eBay, Google and Facebook have been
booming over the past few years. More recently firms like
Twitter, Airbnb or Etsy have further confirmed the potential of
these new, ecosystem driven, business models.
In fact the value created by platform businesses, be it for
shareholders or society as a whole, in the past 10 years or so is
unprecedented. Three out of the five largest firms in terms of
market capitalisation in the world (Apple, Google and Microsoft) run platforms, four out of the top five brands
in the world (Apple, Google, Microsoft and IBM) have businesses
underpinned by platforms and the majority of so called unicorn
businesses, VC funded over the past 10 years and now valued
at more than $1bn, can be described as platforms.
Platform businesses are powered by unique economic
- They are not linear "input/output" firms but complex
Traditional businesses have a linear mode of operations. Some
inputs are purchased (e.g. raw material, energy, services…) and
subsequently transformed and sold at a margin to target customer
groups. This is the mainstream paradigm that can still be found in
many traditional businesses as well as in most business books,
management programmes and case studies.
Platform businesses are different. They create value by
attracting different sets of customers, matching them, connecting
them and allowing them to transact. They enable and facilitate
transactions (think market places such as eBay with sellers and
buyers, app stores matching apps and users, etc.).
The platform dynamics and interplay between customer groups is
often complex. Intervention on one side of the platform (be it a
pricing, marketing or product decision) can have far reaching
consequences on the other side of the platform and the overall
ecosystem. eBay's mandated free shipping policy for some product
categories is an example of such difficult decisions (that
increases the costs on the sellers' side of the platform) with a
strong positive effect on the consumer side and generating an
overall positive effect for the platform (increased sales or so
called Gross Merchandise Value). Internalising these, often
political, decisions is at the heart of the platform governance and
requires systemic thinking.
- They benefit from positive externalities & network
For example, when you search on airbnb for a place to rent, you
benefit from comments posted by other guests (positive
externality). The more places available to rent, the more
useful the service for prospective guests (network effects).
- Once a critical mass has been reached growth trajectory is
self-sustaining (for a while!)
Airbnb needs to attract enough people on both sides of the
platform (hosts and guests) in key locations in order to be viable
and reach critical mass. Airbnb is a great company but this has a
lot to do with the fact that they have now reached a critical mass…
an airbnb with only one flat would be significantly less
Platforms can grow exponentially but also unravel if the
ecosystem is not strong enough. Examples of spectacular downfalls
include Alta Vista or more recently RIM/Blackberry.
Platforms often feed powerful
Of course the world is not split between pure platforms and
traditional businesses. In fact many firms adopt hybrid business
models to enshrine the value of platform businesses at the heart of
a complex ecosystem that also include some more traditional
activities. Business models also morph over time, and may start as
a platform or evolve into one after having experimented with other
Apple manages platforms around its operating system OS X and its
app stores, uses a value added resale model for iTunes and runs a
more traditional global hardware business for its computers and
phones. These various parts are however reinforcing one another and
creating a formidable ecosystem that is valuable, rare and
difficult to replicate: the very definition of a competitive
advantage. The market place of Amazon, combined with its own
distribution activities, hardware offering and cloud based web
services also require an ecosystem approach to be fully
What is becoming increasingly clear however is that traditional
management models and frameworks need to be revisited to capture
unique economic characteristics of these platforms and associated
Yet many questions remain…
- Why have platform businesses been so successful compared to
traditional business models?
- What are the different kinds of platform businesses out
- What are the underlying economics of such businesses?
- What are the new strategic and management principles that can
be developed to best support the success of such businesses?
- How to successfully manage emerging platforms and mature
- How to reinvent management for platforms and ecosystem based
- What are the pitfalls to avoid and key challenges to
- What does the future hold?
We will try to shed some light on these tricky questions over
the next few months…
Laure Claire and Benoit Reillier are co-founders of
Launchworks Ventures (www.launchworksventures.com), a
boutique consulting firm based in London, UK. Launchworks Ventures
provides strategic advice to digital, telecoms and tech companies
with a particular focus on platform businesses.
 Over the past five years (as of Feb
6th 2014) Google stock has increased by 204%, eBay
by 293%, Amazon by 428%, Apple by 399%, …
 Market capitalization as of Feb 4 2014.
 You may want to read the excellent
 An externality occurs when individuals or
firms are impacted, positively or negatively, by an economic
transaction that is independent of them. For example, if you
appreciate the perfume of the lady (or aftershave of the guy)
sitting next to you on the tube, you benefit from a positive
externality (provided you didn't buy the perfume!). If the person
next to you starts to light up a cigarette… you may be in for a
 Network effects appear when the value of a
product or service increases with the number of users. For example
the value of a telecommunications network increases for all users
each time somebody joins (same side network effect). In platforms,
cross market network effects often occur (buyers benefit from more
sellers joining ebay, renters from more airbnb hosts, etc.).
Network effects are often related to positive externalities.