Platforms. Everyone’s building one. Many will fail. Make sure yours isn’t one of them.
Sure, Uber is (ostensibly) worth $66 billion. And Airbnb continues to grow, despite legal and regulatory challenges. But have you checked in on Groupon recently? Despite a few major players, many digital platform companies fade quickly or are never noticed at all.
That’s understandable. Platform companies are really hard to get right, MIT experts said time and time again in the past year. But there is a path to success.
Here’s what we know:
Digital platforms are remaking the global economic map.
A recent study found the largest platform companies are young, public, and American. China is the second-largest platform market. Asia and Africa are poised for growth, while Europe lags behind. Former IBM CEO Samuel Palmisano discussed this growth at last month’s MIT Platform Strategy Summit.
Successful platforms reduce frictions between people and organizations.
Making life and work easier for both sides is more important than having novel technology, says MIT Sloan professor emeritus and dean emeritus Richard Schmalensee, co-author of Matchmakers: The New Economics of Multisided Platforms.
“It’s not finding some clever technology connecting A types and B types more easily,” Schmalensee says. “You have to make the connection more valuable, something you can get paid for enabling.”
Ecosystem management and governance are a must. A major benefit of platforms is that anyone can connect to them and use them. But platform companies must have a mechanism to determine when to step in and guide changes or halt behavior. MySpace failed in part because users were driven away by a glut of unanticipated advertising, spam, and pornography, says Geoffrey G. Parker, a visiting scholar and research fellow at the MIT Initiative on the Digital Economy. Parker is the co-author of Platform Revolution: How Networked Markets are Transforming the Economy — And How to Make Them Work for You.Read “The return of platforms (and how to not fail at building one).”
Trying to do it all is to court certain failure. Platform companies must choose between more content and exclusive content and between a mass market or a niche market, researchers in Italy and Spain wrote in MIT Sloan Management Review. They also caution against overlooking the value partners bring to a platform ecosystem. The article includes lessons learned from failure at Groupon and Blackberry, and from an early stumble by Amazon’s Kindle.
Read “How to avoid platform traps” at MIT Sloan Management Review.
Product companies are attempting to transition to a platform model. The strategy will vary by industry, but the trick is to use a platform or network approach to get closer to the customer for insights into pricing, network effects, supply chains, and strategy, according to a blog post from MIT Sloan Executive Education.
Read “Why platforms beat products every time” at MIT Sloan Executive Education.
MIT professors are teaching platform strategy to executives and entrepreneurs.
In Platform Strategy: Building and Thriving in a Vibrant Ecosystem, MIT Sloan professors Pierre Azoulay and Catherine Tucker show how business strategies can be revised to find success building a platform. Azoulay discusses the course in the short video above.