Strategies for the Internet Age

In 2007 Apple was still struggling. Steve Jobs had returned as CEO– the iPod had been launched but the real magic was yet to come with the launch of the iPhone. Back then big names like Nokia, Blackberry, Sony Ericsson, Samsung and Motorola had a strangle hold on the mobile ph. market controlling90% of the profits. Fast forward eight years and the Apple iPhone generated 92% of the world profits leaving most incumbents losing money. How did Apple do it? The short answer is they didn’t! They used others to do it for them – its called a platform strategy.

Rather than creating a phone, Apple created a platform where app developers could connect with consumers. As the number of Apps increased so did the number of app users thus driving demand for the iPhone. As of 2015, there are 1.4 million apps for the iPhone generating $25 billion in business for the App developers.

Lest you think platform strategies will not affect your business pls reconsider. Alibaba and Amazon platforms have transformed how suppliers and consumers connect upending consumer markets from books to building supplies. Airbnb now has more beds for rent than Marriott and Uber is redefining what a ride service is. Although still in its infancy GE is looking to own industrial B to B transactions with its Predix platform.

Michael Porter’s five forces model doesn’t account for the multiplicative effect of a network and the value that it can create. Indeed, the power of suppliers and customers in Porter’s model may not be a threat at all but rather an asset in a platform strategy. Its imperative that companies understand the forces that can add or subtract value in their hemisphere. Here are a few things to consider in a platform strategy:

1. Competitive advantage comes from building a network of suppliers and consumers not from controlling scarce resource.

2. Facilitation of transactions is the focus rather than optimizing the value chain.

3. Maximize the value of the ecosystem not the value of each individual customer. This can mean subsidizing one customer to attract another.

Platform strategies are pushing Google into medical devices, Facebook into healthcare management, Tesla into infrastructure and power management(think batteries not cars) Apple into banking and GE into Oil and Gas and infrastructure. What were once stable slow moving industries –hotels, taxis, books, music have been upended by new incumbents who have figured out a platform strategy and enlisted the help of others to upend the industry. For many of us who graduated before 2000 this is a different mindset. Its not “if” a platform strategy will redefine your industry its when and who will control it!

Traditional strategies of controlling scare resources still apply and must be developed. However, in every industry where a pipeline strategy has been introduced it has dethroned the market leader. The rules of strategy for a platform world are different – learn them “or begin planning your exit”.