Since we declared our love to platform businesses in a previous
post it is only fair for us to try to provide a definition
of what we mean by platforms before explaining in more detail why
we love them.
A plank, a raised floor, Lady Gaga's favourite
The apparently innocuous question around the definition of
"platforms" raises in fact many issues. The traditional definitions
of the term are not overly helpful and even its business usage
seems to be loosely used in the context of "something upon
which you can build something else".
It is in this latter context that a manufacturer would for
example say that "the Jaguar X type uses the same platform as the
Ford Mondeo". This is a very generic use of the term and we believe
we need to think through a more precise definition for what we
refer to as "platform business model" like eBay or others.
Comparing business models: Producing &,
Distributing vs. Connecting?
In order to better understand the characteristics of what we
call platform businesses it is helpful to compare and contrast them
with other traditional business models.
Everybody knows and understands what we call "input/output"
businesses… these are simply traditional "linear" businesses
usually buying raw material (inputs), transforming and combining
them is a value adding way as part of the production process and
selling the end product (output) at (hopefully) more than
This (arguably large) category of businesses which includes most
manufacturers and even services companies (we don't like it but
economists see consultants as raw material) is at the heart of
management sciences today and what is taught in business
Another type of business, often complementary to the
"input/output" business is the distribution centric business.
Distribution is arguably a subset of the traditional "input/output"
business and these can be vertically integrated. Other times
distribution businesses are stand-alone and acquire products that
they resell and distribute for a margin. Independent car dealers or
retail stores are typical distributors.
Three different business
Platforms: businesses connecting different customer
groups for them to transact.
Business models belonging to the last category that we call
platforms don't produce anything and don't distribute other goods
or services. What they do isconnect different customer groups to
enable transactions. Think about eBay and the value it creates in
connecting buyers and sellers for a wide variety of goods.
These platform businesses typically create value by:
i) acquiring a critical mass of customers in each group (e.g.
buyers AND sellers on eBay);
ii) matching them through (e.g. through a search interface
in eBay's example);
iii) connecting them so that they can exchange (e.g. ask
questions on goods before buying);
iv) enabling a transaction so that purchase can be made (e.g.
goods paid for and sent on eBay).
Often online platforms can optimise their entire process in near
real time thanks to built in big data feedback models. If there is
a bottleneck forming at one of the stages of value creation then
management attention can almost immediately focus on what the issue
might be. Please note that traditional marketplaces or even estate
agents are types of off-line platforms that have existed for
centuries but while the principles of the business models are not
knew technology is enabling them to address high growth markets
like never before.
The definition proposed above works well for our purpose but in
real life we further sub segment the platform category in order to
account for different flavours of platforms. But before we do this
in our next post here is a little exercise for you… the next chart
shows the top 60 global brands by value
 (the ranking is actually quite correlated with market
cap). The ones with a large logo have grown by more than 25% last
year… now let's see if you can find the platform ones?
We'll try to identify the platform firms in our next post,
propose some helpful sub categories and introduce the concept of
 Interbrand, 2013
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.