“The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and Power”
(Visiting Professor, IIR, Hitotsubashi University / Professor, MIT Sloan School of Management)
This lecture summarizes some key findings from a new book by Michael Cusumano, Annabelle Gawer, and David Yoffie of the same title as the lecture. We will examine myths and realities associated with digital platforms – businesses that connect two or more market sides, and have supply or demand sides driven by network effects. Platform companies are now the most valuable companies in the world and the first trillion-dollar businesses. The talk will focus on how digital platforms differ from conventional product or service businesses, and why some markets produce spectacular winner-take-all-or-most outcomes while others result in spectacular financial losses. A key point is the division of all platforms into two basic types. Innovation platforms, like Google Android, Apple iOS, Microsoft Windows, or Amazon Web Services, connect billions of smartphone and computer users to producers of complementary innovations. Transaction platforms, like Google Search, Baidu Search, Amazon Marketplace, Facebook, Taobao (Alibaba), WeChat (Tencent), Uber, Didi Chuxing, or Airbnb, connect billions of buyers, renters, or seekers of information to millions of sellers, asset owners, or advertisers. The most valuable companies are actually “hybrids” that operate and connect both types of platforms. The hybrid strategy accelerates growth and value but makes platforms strategically complex as well as difficult to regulate. Platforms that survive and go public had comparable revenues to peer companies in the same industries but achieved these sales with half the number of employees, twice the operating profits, and twice the market values as well as higher growth rates. However, many platform ventures fail or fail to make any profit. We will discuss why “platformizing” a bad business does not make it a good business, and how platforms have become “double-edged swords.” That is, platforms have an equal ability to organize economic activity efficiently as well as to abuse increasingly powerful market positions or be subject to misuse by platform participants.