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January 21, 2016
Ecosystem, marketplace or conversation space: What’s the right platform for your business?
By: Balaji Ram

Online platforms are the "in thing," the most talked-about business strategy right now. In fact, if you’re not talking about them, people might think you’re from the Stone Age.

Successful platform stories are all around us—think Apple, Amazon, eBay, Facebook and Pinterest. What they have in common is that they bring together communities of interest, whether that be to find a great deal or simply engage in conversation. At the same time, they open their doors to third parties to create value for themselves and the platform.

But they’re all quite different:

  • Apple decided to support external ecosystems on its App Store, allowing third parties to sell their products, but it prescribes the interfaces and processes used.

  • Amazon and eBay offer a marketplace to link buyers and sellers, pairing them off to create value.

  • Facebook and Pinterest provide space for unmediated conversations; value is created by enabling conversations among users.

So, how do you migrate to the open world of platforms, especially if you have a traditional, conventional business model built around proprietary products and services, marketed through channels that you own, manage and govern?

Regardless of which type of platform you’re exploring, you first need to think about whether to become a platform provider or a platform user. Being a platform provider gives you better control and more leverage over the platform’s customers or consumers. Even though value is created by the third parties that choose to bring their products and services onto the platform, the value for the provider is disproportionately and exponentially higher than for the parties that transact on it.

Amazon’s and eBay’s valuations are many times more than those of the millions of buyers and sellers that contribute to them combined. Their proximity to the customer gives them deep insight into buying patterns and other behaviours. This is why some players – especially banks – have so far been wary of integrating their products and services into platforms they don’t control. Doing so would further remove them from their customers, and thus deny them full access to these critical insights.

There is also an inherent fear that the platform provider might use the intelligence they gather to offer a competing service at some point in the future. Inside banking boardrooms, the threat of competition from unexpected and tangential players like Facebook and Google is feared more than direct competition from other banks. It is this trust—or the lack of it—that distances them from being platform players or advocates.

On the other hand, becoming a platform provider is not easy, especially if you are also competing on the platform—for example, by selling your own products or services. Attracting external market participants can be a big challenge, and not everyone can build a platform in the first place.

I am not for a moment saying there is no value in a platform strategy—but organisations need to think hard about their approach or else it can backfire.

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