Successful platforms balance competing interests

It’s not an exaggeration to say that multisided digital platforms — that is, platforms that connect two or more user groups — drive the modern economy. Five of the 10 largest companies in the world by market capitalization use them, and enterprises in health care, utilities, and other traditional industries are embracing open platforms as well.

Multisided platforms aim to reduce friction by providing a marketplace to connect innovators and customers. But it’s not always clear how companies that are known for the products they sell can not only launch a platform but also generate value from it.

A new research briefing by Martin Mocker, a Reutlingen University professor and MIT Center for Information Systems Research academic research fellow, and CISR research scientist Ina Sebastian looks at how companies can ensure that multisided platforms meet the needs of various constituents, using Salesforce as an example.

Balancing competing interests

In 2004, Salesforce launched a digital platform that allowed customers to access and customize the company’s customer relationship management software. Soon after, Salesforce opened the platform to company partners, allowing them to build their own apps and offer them to Salesforce customers. Today, the Salesforce platform (now branded as the Einstein 1 platform) generates about $6 billion in annual revenue, or nearly 20% of the company’s total.

Running this platform business involves balancing the needs of three groups of constituents, Mocker and Sebastian write. They are:

1. Customers, who want enhancements to the Salesforce software they already have and not “technology for technology’s sake,” in the words of Salesforce chief technology officer Parker Harris. They also want it to be relatively easy to implement third-party apps.
2. Internal product teams from inside Salesforce, who don’t want third-party apps to be regarded as a replacement for the work they do. Nor do they want to see their access to development resources limited as the platform grows.
3. Partners, who want to be part of a community that’s encouraged to innovate through access to exclusive resources such as free licenses and training resources. In exchange, they don’t want to be told what types of tools to develop.

Taking the long road to success

About 4,500 partners have created 7,000 apps for the Salesforce platform. The apps are available for sale on its AppExchange marketplace, with Salesforce collecting 10% to 25% in royalties per purchase. More than 90% of Salesforce customers use a third-party app from the marketplace. 

This success didn’t happen overnight. One decade after it launched the platform, Salesforce leadership said it was uncertain whether the technology “would ever result in significant revenue.” 

Clearly, the company didn’t give up. To balance the needs of constituents and achieve success, Mocker and Sebastian identified three lessons from Salesforce:

1. Identify the primary source of value. For incumbent companies, this means finding ways to better meet the needs of existing customers. Companies should not necessarily expect to create direct revenue from partners at the outset. 
2. Align internal and external interests. Governance policies are necessary for balancing the competing needs of internal product teams and external partners. This can be difficult: Neglecting the inner platform will hurt the core product, but limiting investment in external users is a recipe for failure.
3. Optimize value for the entire ecosystem. Partners need value too. Demand too much in royalties or offer too little in resources, and they may feel like victims of extortion. Of course, partners need customers as well; invite customers to the platform too early in the game, and they may quickly leave because they won’t see the value. 

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