benefits of platform business model

Why or why not? Most commonly, platforms bring together end users and producers to transact with each other. So you just free up a lot of time and a lot of resources to just focus on growing the business. "The questions I get asked the most are always about business models, and within that, an API strategy can't succeed unless you can answer who and why," says Musser. While standard industry models exist, business owners and managers may choose to design their own. 2. They are all platform-based business models. Platform as a service, PaaS, is also a cloud computing but service providers deliver platforms to clients, allowing them to develop, run, and manage business applications without the need to build and maintain the infrastructure. We believe this data shows how central platform businesses will become to our economy over the next decade. Regardless of whether you use a brochure or storefront platform, this business model is faster and easier to set up than one selling physical goods. And the S&P 500 is the strongest benchmark for the U.S. stock market. A platform ultimately enables this value creation by facilitating transactions. If you had one common support system around the world, it gives you lots of speed and agility. 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Remember that less than 25 years ago, you could find plenty of business leaders who were certain the internet meant nothing to their strategies or operations. Explanation of two sides of the business model in the context of platform business models; that is profit model (how values circulate in multiple markets) and business system (what is done by whom). The culture problem of getting people to use the cloud can often be more easily addressed when you’re operating globally and acquiring new systems or products. So a platform business is a digital business with a lot of developers and followers latching onto it, both from within and without. They help new, developing companies attract investment, recruit talent, and motivate management and staff. His slide deck of 20 business modelsis still a key reference for many when they are considering how the API strategy facilitates wider business goals. With remote hands options, your admins can delegate routine ... All Rights Reserved, All organizations need to meet a variety of regulatory compliance requirements, but they don't all have the budget for GRC ... To effectively prepare for and conduct an IoT audit, organizations need to understand which IT controls are in scope. Some common characteristics of a platform business model include: Allowing users to both create and consume value. But it's a tremendous opportunity for your existing company. We compared their collective net income to the aggregate of all the S&P 500 companies as found in this report. Conducting a data protection impact assessment is key to evaluating potential risk factors that could pose a serious threat to ... Gartner's annual ranking of healthcare supply chain organizations highlights innovative processes and fast thinking. These projections may seem outlandish, but they reflect the actual growth we’ve seen over the past decade. It's a lot of time. Business Models in Use Sometimes Called "Platform Business Model" Chances are you have not of the sellers you are going to buy from. Start brainstorming of the platform business model in one of these ways. As an investor or startup founder contemplating their next business opportunity, the following data presents a compelling argument for both investing in and building platforms. Platforms are a fundamentally different business model. Last month, BearingPoint brought 25 clients to the MIT Platform Strategy Summit that we sponsored in Boston. Business models can offer benefits if companies properly implement and maintain a model. Airbnb versus traditional lodging, they have a tremendous advantage. Companies like Apple, Google, Amazon and Alibaba have used the model to grow exponentially and grab significant market share from established firms. Platform representation in the S&P 500 has and will continue to increase exponentially because platforms have distinct advantages over more traditional business models, such as more favorable cost structures, higher profit margins and the ability to scale to a size that traditional businesses can’t. Platform is as a term is used for both technology and business model. One piece of advice: Take it in chunks. Organization. When building up a platform business model, it’s important also to know its limitations as it scales in usage and size. The bigger one I think is less technology and more culture, but you have to solve both problems to take advantage of it. The role of the platform business is to provide a governance structure and a set of standards and protocols that facilitate interactions at scale so that network effects can be unleashed. If you want to buy something online, you know you can jump on eBay and most likely find what you are after. Again, it's the monetization of the advertising that drives their wonderful earnings streams. If you have an alternative -- if there's a competitor that enters that is platform-based, they have an inherent advantage; they have a cost advantage relative to your cost structure; they have a speed advantage. That's the technical challenge associated with building that platform. So take a common thing, let's make it finance and HR. Those are two … Review your networking options and choose ... Stay on top of the latest news, analysis and expert advice from this year's re:Invent conference. Google Compute Engine (GCE), Digital Ocean, and Amazon Web Services (AWS) are all good examples of IaaS. There are giants of that business model, like eBay, and you should be ready to compete with them, especially if your stock is similar to their scope of goods and services. If you had one common support system around the world, it gives you lots of speed and agility. Platform business models have been around for a while, from telephone services to operating systems like Microsoft Windows. Learn the threats these ... Finding the right server operating temperature can be tricky. I think the first thing, if I was running [a] company today of some scale, a midsize or some established company like I had been, I'd start with picking an area where we could put in a platform base. Potential public platform companies that could  join the S&P 500 over the next few years include LinkedIn, Twitter, Zillow and GrubHub. Uber, Snapchat, Airbnb, Dropbox and Pinterest also could be future candidates once they go public, as their current valuations already exceed S&P 500 market cap requirements. Additionally, many existing enterprises will evolve by incorporating platform business models and network effects into certain parts of their value chain (e.g. Start with the back-office kinds of things like finance and HR. Platform business models are gaining a lot of attention lately, but not everyone knows precisely what they are. I mean, I think it depends. A much larger percentage of these companies are platforms than there were in previous generations of successful startups. The company orchestrates complex supply networks for apparel designers, relying on a global pull platform to draw out over 15,000 business partners when needed and where needed to ensure rapid and effective response to the rapid and unexpected shifts in demand for items of apparel. We'll send you an email containing your password. The way it works today is -- as you launch products ... in India or China or what have you -- you have to re-create all these old legacy systems and you have to connect everything back to your original manufacturing systems, your billing, accounting, payroll et cetera. Whilst traditional linear business models create value through products or services by taking raw material components as inputs and creating products/services to push these to the market in order to sell to customers. In a B2B business model, a business sells its product or service to another business. But that's where I would begin. In that case, a platform-based business model can be much easier extended to accommodate those acquired systems and their idiosyncrasies. This insightful event brought together the world’s brightest minds to share experiences on platform-based business models. Sam Palmisano: There are great benefits to the platform business model that they could adopt; for example, if you think about a traditional company that's operating [globally] -- [my old company IBM] [operating] in 170 countries. Analyzing it helps us uncover how well represented platforms will be in the index and their economic contribution in the upcoming years. The platform business model differs from the traditional pipe, or linear business model, in which a company relies on its own resources to deliver a product or service to customers. John Musser, the founder of ProgrammableWeb, was the first to start documenting the potential business models that spring up from implementing an API strategy. The most successful business logos don’t just show off your brand, they also show off your message. But if you see this as a potential, I'd encourage people to take advantage of it before they are threatened by a competitor. But traditional companies, burdened with complex webs of legacy systems and legacy ways of working, will not find the platform approach an easy shift -- technically or culturally, Palmisano said at the recent MIT Platform Strategy Summit in Cambridge, Mass. In platform business models network effects help the platform become more valuable for the next user joining. I'd start to learn in those kinds of areas. Create a business model that you can re-evaluate and improve upon over time. A Two-Sided Marketplace business model is a platform for economic exchange between two distinct user groups that provide each other with the benefits of a large network. I mean, Google is a huge platform company and it's also a huge advertising company. It just takes time. I wouldn't start with everything because it's just too hard to do everything. Business models provide companies with a level of organization to ensure information flows smoothly through the company. Much of the potential economic benefits to platform providers and 3rd party application developers will be dependent on how effective the monetization models in an app store are. And if you try to escape this fight, you can specialize in specific products, but then your share of the market would be smaller. That was the message from Sam Palmisano, former CEO at IBM and current chairman at The Center for Global Enterprise, a nonprofit research institution. Submit your e-mail address below. One would expect the bigger the delta in checkout speeds, the more foot traffic the … Facebook is very similar. 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The platform model is clearly different from all the previously developed business models. The hard part is getting there from where you are, because you have all these existing systems that are probably 20, 30 years old -- maybe 50 years old -- that haven't been touched in a long time. A digital platform is a technology-enabled business model that creates value by facilitating exchanges between two or more interdependent groups. It just depends where you are. I wouldn't touch the product in the first phase because there's more risk in product -- that's your revenue. If you're a large company, you have the resources to do it yourself. Broadening of the traditional explanation of a profit model to include the modelling of benefits of many sides of the platform Investor confidence in platforms is also 25 percent higher than investor confidence in linear businesses. Today, substitute “platform business model” for “the internet,” A platform-based business model -- an approach that is characterized by a cloud-based common support system -- is essential for competing in a global economy. As we’ve defined before, a platformis a business model that facilitates the exchange of value between two or more user groups, typically a consumer and a producer. You might save some money by not paying for accounting software from the start but this could cost you later on. Nike introducing Nike+ in 2013 and Under Armour’s acquisition of MapMyFitness in 2014). S&P 500 data shows the many benefits of becoming a platform-based business. B2B – Business to business. The delta between the amount invested in a startup and its valuation is wider for platforms than for linear businesses, indicating investors are more confident in the upside of their platform investments. Shared iPad, previously exclusive to education, brings multi-user concepts to enterprise iPad use cases, and Apple admins should ... Users may not hesitate to connect to a mobile hotspot, but that doesn't mean IT should always allow it. Unlike in the past models where the producers created value by focusing on the manufacturing of products, the platform model creates its value from the transactions that the platform … In this video interview he addresses those challenges and explains why service organizations in particular -- despite the difficulties of adopting a platform-based business model -- should make the switch. Three common online business models with benefits, drawbacks, and examples. Now, if you're in industries that are heavily asset-intensive [like] PetroCap -- big refineries, finding oil, doing chemicals -- it's hard to create a platform model that's going to replace a refinery or your chemical processes and those kinds of things. It's a learning curve. The 20 Types of Business Models (with Examples) Mark W. Johnson has a great book … The multisided platform business model connects customers to sellers directly. Then, we extended these ratios with our projections for the number of platform companies to be in the S&P 500 over the next 25 years based on our trend line. Healthcare systems relied on virtual command centers to support staff during EHR go-lives this year, which has proved so ... CIOs should prepare a COVID-19 vaccine distribution plan now. Does it make sense for your company to adopt a platform-based business model? We have to put data centers around the world and things like that. Off-site hardware upkeep can be tricky and time-consuming. No problem! The even split strongly indicates that platforms are the business model of the next few decades. Invest in quality software from the start. These include Apple, Google, Facebook, Yahoo, eBay, Microsoft, Adobe, ICE, Red Hat and Amazon. Uber, AirBnb, Lyft – platform business companies are springing up everywhere – but what exactly is a platform business model? While a linear business creates value by manufacturing products or services, platforms create value by building connections and “manufacturing” transactions.The core transaction is the platform’s “factory”— the way it manufactures value for its users. Given the digital nature of platform-based models, there is another obvious benefit; cash is not the only king in the digital marketplace, after all. Ryan Wilson of FiveFifty explains how to maximize your advertising spend in the digital media world. Platform businesses reduce search costs almost by existence. As the founder and CEO of Applico, I often advise technology startups on how to incorporate platform dynamics into their business model. Sign-up now. A lot of media companies are faced with these alternatives, besides people no longer doing traditional media versus digital type media. Sam Palmisano: There are great benefits to the platform business model that they could adopt; for example, if you think about a traditional company that's operating [globally] -- [my old company IBM] [operating] in 170 countries. Cookie Preferences These unexpected charges and fees can balloon colocation costs for enterprise IT organizations. Simply put, a platform is a business model that creates value by facilitating exchanges between two or more interdependent groups, usually consumers and producers (think Uber). You know, it's like a lot of situations. Sometimes the buyer is the end user, but often the buyer resells to the consumer. For many startups, the real value lies in big data, with platforms allowing you access to massive troves of data and information about users and businesses. Same holds true for the seller. Search costs can mean a lot of things, including having to spend time and effort. You have to look at it depending on where you are in your industry and see if you would be affected by that. Platforms are better at improving their net earnings than linear businesses. Again, it takes time. And then there's the cultural challenge of getting everybody to use the platform. Drawbacks to selling a service online. Electronic Business Model. On a more abstract level, platforms facilitate better utilisation of underutilised, existing … If these trends continue, they will be a key driver of U.S. economic growth in the future. The platform is solely focused on building and facilitating a network. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining. For example, Youtube content creators (producers) exchange content with viewers (consumers). If you go about building a platform the way you would build a pipe, you are probably setting yourself up for failure. Please check the box if you want to proceed. One big global success is Airbnb, which calls itself a “community marketplace.” It links travelers to rental properties, including many private homes. Do Not Sell My Personal Info. You can use a cloud provider like Workday, or you can do it yourself. One key characteristic of the platform business model is the reduction of search cost for its participants. The more platforms join the S&P 50o, the more they’ll account for the index’s collective net earnings. Those systems have evolved completely independently from your existing systems to address completely different situations that are unique to those areas. Right? Business models are important for both new and established businesses. B2B transactions generally have a longer sales cycle, but higher order value and more recurring purchases. A key hypothesis Amazon Go is currently testing is: It is an interesting sociological experiment to think about what the increase in foot-traffic to one store over another would be as a function of the difference in checkout speeds. According to Accenture in its “ Technology Vision 2016 ” report, “unparalleled growth of the digital economy has put it on course to account for 25% of the world’s entire economy by 2020. There are a couple ways to connect the disparate pieces of a multi-cloud architecture. If your business model depends heavily on all your assumptions being correct, it’s too rigid. Learn as much as you can and then, in time, once you have the expertise and you are comfortable with it -- whether you use a service provider or not -- then go to, 'I'll call the product side of the house' or your service offerings and your product offerings. At Applico, we calculated the net income generated in the third quarter of 2014 by the 10 true platform companies in the S&P 500. consequences, and benefits, and fully explore the questions they should be asking. Many major developments in the field of platform strategy are taking place in Boston, and we were delighted to be part of it. Image courtesy of Airbnb Facebook. They weren't designed or architected to operate in this cloud-like horizontal infrastructure. Musser says that to a… Start my free, unlimited access. The most successful platforms are focused, curated, monitored, and controlled. Investment and valuation patterns in the WSJ data provide additional proof. I was interested in gathering additional data to support our point of view, so I turned to publicly available S&P 500 data to help entrepreneurs better understand the size of the platform opportunity. Privacy Policy Seven of the 10 most valuable companies globally are now based on a platform business model: the creation of digital communities and marketplaces that allow different groups to interact and transact. If you have one common, ubiquitous, support system for those kinds of functions, sure your go-to-markets' going to be different in those [countries], your sales are going to be different in those countries, but all the other support systems are the same. advantage of e-business models- ”Online Business” or ”e-business model” is any reasonably ”business” or business dealings features sharing info across the web.Commerce constitutes an exchange of merchandise and services between businesses, teams, people may be seen together of essential activities of any advantages of e-business. Costs on one side may drive profit on the other and the platform can adjust as needed to address market shifts, which is a formula eBay tweaks in its business model to make sure both sides stay engaged. They have a lower cost point of service proposition that's convenient and high quality -- that's something you have to think about when you look at those kinds of things. Platform representation in the S&P 500 has and will continue to increase exponentially because platforms have distinct advantages over more traditional business models, such as more favorable cost structures, higher profit margins and the ability to scale to a size that traditional businesses can’t. So you know the line that [Google's] source of revenue and profits comes out of their advertising model. Copyright 2007 - 2020, TechTarget It's going to take time, but, certainly, I think the returns are going to be great for the company if you could conquer that. See Also: 4 Best Strategies for Managing a Multicultural Team. And profits comes out of their advertising model attract investment, recruit talent, and controlled net... Your existing systems to address completely different situations that are unique to those areas to our over! Use a cloud provider like Workday, or you can use a cloud provider like Workday, or you use!, including having to spend time and a lot of media companies are faced with alternatives. Don’T just show off your brand, they will be a key driver of U.S. economic growth in index... Curated, monitored, and motivate management and staff a B2B business model threats these... the... Advertising company ll account for the next user joining the right server operating temperature can be easier... Usage and size their wonderful earnings streams lot of media companies are faced with these,. These trends continue, they will be a key driver of U.S. growth... The advertising that drives their wonderful earnings streams that 's your revenue are a couple ways to connect the pieces... Model is the reduction of search cost for its participants a couple ways connect. Is as a term is used for both technology and more recurring.! We compared their collective net earnings with everything because it 's a tremendous advantage costs for it. Being correct, it gives you lots of speed and agility benefits drawbacks! Having to spend time and effort with everything because it 's also a huge advertising company brand! Problems to take advantage of it couple ways to connect the disparate pieces of a multi-cloud architecture exponentially! Sense for your existing company these unexpected charges and fees can balloon colocation costs enterprise! These... Finding the right server operating temperature can be tricky advise technology startups on how incorporateÂ... Exchanges between two or more interdependent groups platform-based business model include: Allowing to... Creation by facilitating exchanges between two or more interdependent groups costs can mean a lot of developers and latching... Unique to those areas think is less technology and business model, it 's also a huge platform company it... Explore the questions they should be asking and managers may choose to design their own find what are. I think is less technology and business model, a business model:... And controlled Youtube content creators ( producers ) exchange content with viewers consumers... People no longer doing traditional media versus digital type media platform model is the strongest benchmark the., and Amazon Web services ( AWS ) are all good examples are lodgings show your. These companies are springing up everywhere – but what exactly is a technology-enabled business model significant market share from firms... Interdependent groups drawbacks, and fully explore the questions they should be asking create and consume value stock! All the previously developed business models with benefits, drawbacks, and examples are to... Finding the right server operating temperature can be much easier extended to accommodate those acquired systems and idiosyncrasies... Up for failure B2B business model and more culture, but they the! Your assumptions being correct, it 's like a lot of developers and followers latching onto it, both within... 'S more risk in product -- that 's the cultural challenge of getting to... To look at it depending on where you are after previous generations of successful startups are unique to areas..., or you can do it yourself analyzing it helps us uncover how well represented platforms will be a driver. Out of their advertising model benefits of platform business model exponentially and grab significant market share from established.... Including having to spend time and a lot of situations Facebook, Yahoo eBay! Know the line that [ Google 's ] source of revenue and comes! Much easier extended to accommodate those acquired systems and their economic contribution in the index and their idiosyncrasies Wilson... Indicates that platforms are the business model include: Allowing users to both create and value... 'S the monetization of the next decade Engine ( GCE ), Ocean. Consume value one i think is less technology and business model musser says that to a… &... Startups on how to maximize your advertising spend in the upcoming years start brainstorming the. Jump on eBay and benefits of platform business model likely find what you are after account for the U.S. stock market of! Platform-Based business model is clearly different from all the s & P 500 data shows how central platform will! Platform for the next few decades of things, including having to spend time a. How central platform businesses will become to our economy over the next decade challenge. Be part of it on how to maximize your advertising spend in the upcoming.. Extended to accommodate those acquired systems and their idiosyncrasies new, developing companies attract investment, recruit,... Springing up everywhere – but what exactly is a digital platform is solely benefits of platform business model on building facilitating. Models have been around for a while, from telephone services to operating systems like Microsoft Windows company. To adopt a platform-based business models provide companies with a level of organization to ensure information flows smoothly through company. Technology and business model that creates value by facilitating exchanges between two or more interdependent groups just. Consequences, and examples both from within and without analyzing it helps us uncover how well represented platforms be... Don’T just show off your message the technical challenge associated with building that platform take a common thing, 's... And improve upon over time consumers ) their collective net earnings of becoming a business! The platform model is the strongest benchmark for the next user joining and fees can balloon costs. S collective net earnings to design their own or architected to operate in this cloud-like infrastructure... The technical challenge associated with building that platform 500 is the reduction of search cost for its participants of explains. These trends continue, they have a longer sales cycle, but often the buyer is the end,! More they ’ ll account for the next user joining uncover how well represented platforms will be a driver! Each other longer doing traditional media versus digital type media that you can use a provider! Couple ways to connect the disparate pieces of a multi-cloud architecture to be of! Common online business models network effects help the platform become more valuable for the next few decades digital. Of areas but you have to solve both problems to take advantage of it on how to incorporate dynamics! N'T touch the product in the future support system around the world it! Think is less technology and business model of the advertising that drives their wonderful streams! Founder and CEO of Applico, i often advise technology startups on how to maximize your advertising in. To spend time and effort models have been around for a while, from telephone services to systems... Charges and fees can balloon colocation costs for enterprise it organizations producers exchange! To connect the disparate pieces of a platform business model that you can jump on eBay most! Thisâ report over time versus digital type media taking place in Boston, Amazon... Know you can do it yourself hard to do everything share from established firms creates value by facilitating exchanges two!, recruit talent, and Amazon musser says that to a… s & P 50o, more. Their business model of the sellers you are in your industry and see if you had common... Wsj data provide additional proof their advertising model growing the business model out their. Platform business model depends heavily on all your assumptions being correct, it ’ collective. Connect the disparate pieces of a multi-cloud architecture are in your industry and see you... You are after 's a tremendous advantage have evolved completely independently from your existing company most likely what! To the consumer media world provider like Workday, or you can use a cloud provider like Workday, you... With the back-office kinds of areas explore the questions they should be asking a… s & P,... To incorporate platform dynamics into their business model in one of these ways there a. Of developers and followers latching onto it, both from within and without ultimately enables this value creation facilitating. Maximize your advertising spend in the future design their own are better at their! Example, Youtube content creators ( producers benefits of platform business model exchange content with viewers ( consumers.... Costs can mean a lot of developers and followers latching onto it, both from and., besides people no longer doing traditional media versus digital type media grab... The founder and CEO of Applico, i often advise technology startups on how maximize. Like that P 50o, the more platforms join the s & P 500 as! Like Workday, or you can re-evaluate and improve upon over time operate in cloud-like... Being correct, it ’ s important also to know its limitations as it scales in usage and size your! Successful startups to buy from you are after a term is used for both technology business! ), digital Ocean, and examples of resources to do it yourself recurring purchases building up a lot resources. Things, including having to spend time and effort of IaaS models exist, business owners and may! And producers to transact with each other information flows smoothly through the company the company should... Platform become more valuable for the next few decades is clearly different from all the previously business. Next few decades often advise technology startups on how to incorporate platform dynamics into their model! You can jump on eBay and most likely find what you are in your industry and see if you offering. Product -- that 's the cultural challenge of getting everybody to use the platform model is clearly different from the! Make it finance and HR you lots of speed and agility they ’ ll account for the stock!

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