The Future of Platforms

Platforms power the world’s most valuable companies, but it will get harder and harder to capture and monetize their disruptive potential.

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Disruption 2020

What will it take to innovate and compete over the next decade? These articles examine some of the biggest challenges companies will face, such as building the future workforce and identifying tomorrow’s disrupters. Included are contributions to MIT SMR’s special issue on disruption, published in memory of Clayton Christensen.
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Image courtesy of Jean Francois Podevin/theispot.com

The world’s most valuable public companies and its first trillion-dollar businesses are built on digital platforms that bring together two or more market actors and grow through network effects. The top-ranked companies by market capitalization are Apple, Microsoft, Alphabet (Google’s parent company), and Amazon. Facebook, Alibaba, and Tencent are not far behind. As of January 2020, these seven companies represented more than $6.3 trillion in market value, and all of them are platform businesses.1

Platforms are also remarkably popular among entrepreneurs and investors in private ventures. When we examined a 2017 list of more than 200 unicorns (startups with valuations of $1 billion or more), we estimated that 60% to 70% were platform businesses. At the time, these included companies such as Ant Financial (an affiliate of Alibaba), Uber, Didi Chuxing, Xiaomi, and Airbnb.2

But the path to success for a platform venture is by no means easy or guaranteed, nor is it completely different from that of companies with more-conventional business models. Why? Because, like all companies, platforms must ultimately perform better than their competitors. In addition, to survive long-term, platforms must also be politically and socially viable, or they risk being crushed by government regulation or social opposition, as well as potentially massive debt obligations. These observations are common sense, but amid all the hype over digital platforms — a phenomenon we sometimes call platformania — common sense hasn’t always been so common.

We have been studying and working with platform businesses for more than 30 years. In 2015, we undertook a new round of research aimed at analyzing the evolution of platforms and their long-term performance versus that of conventional businesses. Our research confirmed that successful platforms yield a powerful competitive advantage with financial results to match. It also revealed that the nature of platforms is changing, as are the ecosystems and technologies that drive them, and the challenges and rules associated with managing a platform business.

Platforms are here to stay, but to build a successful, sustainable company around them, executives, entrepreneurs, and investors need to know the different types of platforms and their business models. They need to understand why some platforms generate sales growth and profits relatively easily, while others lose extraordinary sums of money.

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Topics

Disruption 2020

What will it take to innovate and compete over the next decade? These articles examine some of the biggest challenges companies will face, such as building the future workforce and identifying tomorrow’s disrupters. Included are contributions to MIT SMR’s special issue on disruption, published in memory of Clayton Christensen.
See All Articles in This Series

References

1. Based on public stock market valuations on Jan. 22, 2020: Apple, $1.4 trillion; Microsoft, $1.3 trillion; Alphabet/Google $1 trillion; Amazon, $937 billion; Facebook, $633 billion; Alibaba, $602 billion; Tencent, $483 billion.

2.The Crunchbase Unicorn Leaderboard,” TechCrunch, accessed July 2017, https://techcrunch.com.

3. H. Somerville and P. Lienert, “Inside SoftBank’s Push to Rule the Road,” Reuters, April 12, 2019, www.reuters.com.

4. R. Verger, “Someday, You Might Subscribe to a Self-Driving Taxi Service, Netflix-Style,” Popular Science, March 15, 2018, www.popsci.com.

5. C. Mims, “How Self-Driving Cars Could End Uber,” The Wall Street Journal, May 7, 2017, www.wsj.com.

6. J. Palmer, “Here, There, and Everywhere: Quantum Technology Is Beginning to Come Into Its Own,” The Economist, March 9, 2017, www.economist.com.

7.List of Companies Involved in Quantum Computing or Communication,” Wikipedia, accessed May 26, 2018, https://en.wikipedia.org.

8. S. Aaronson, “Why Google’s Quantum Supremacy Milestone Matters,” The New York Times, Oct. 30, 2019, www.nytimes.com.

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Comment (1)
Amby Nair
A great article giving a state of "platform" industry and what to expect. I have noticed many technology product companies or IT dept an org mimick platform org model. I wonder if the author has done any research work on platform org within an enterprise?