Platform thinking: how to succeed in the internet age

How does a business succeed in the internet age? Think platforms, not pipes, says Sangeet Paul Choudary, an author, founder and CEO of Platform Thinking Labs, and co-chair of MIT Platform Strategy Groups.

Choudary was at the #ThinkPH forum sponsored by social news network Rappler in Manila this week to explain these two business models.

Pipes, he says, have been around for as long as our industries. “Traditionally, the world moved in a straight line. I think of it as pipes.”

Companies create something of value, push it down the pipe, and people wait at the other end to consume it. The model is linear. Choudary further explains this is because traditionally, value was created within the confines of an organization. “In the past, the only way you could make people work together was by putting them inside an office, inside a factory, and organizing them in a straight line.”

Then the internet happened. It brought about a shift in the way the world works, and gave rise to platforms. “The internet no longer needs us to be in one place and coordinate all of our actions, working in a straight line to create value. New forms of value can be created when people are dispersed because now a central network coordinates all of their activities.”

So unlike pipes, platforms allow people to create and consume value or, in other words, “share” value. “In this model, the business acts as an infrastructure where external parties create value and consume value. The business manages the interactions between these two sides […] it owns nothing,” Choudary points out.

Why did Nokia and Blackberry lose almost all their market share as internet access was democratized over the last eight years? How did Apple and Google grow to be tech giants? What did Facebook do right that Myspace didn’t, causing it to fail?

You see, Apple, Google, and Facebook are platforms where apps (in the case of the iOS and Android) and content (in the case of Facebook) are created and consumed. Nokia and Blackberry were pipes, while Myspace fell short of being a platform.

How platforms are disrupting traditional industries

So what are the characteristics of a platform, how do you build it, and what functions does it need to perform for it to succeed? Choudary cites “repeated” things that platforms do when they disrupt industries.

1. “They remove inefficient gatekeepers”

Platforms solve inefficiency by providing solutions that allow businesses to scale fast. They get rid of middlemen or gatekeepers who decide what the market wants. Choudary says a good illustration of this is Amazon. With Amazon’s ebooks, publishers don’t have to produce, store, and distribute physical copies. Authors can even self-publish on Kindle for free. Traditional publishing “works really slow,” notes Choudary, while Amazon “lets the market decide what the market wants.”

And it’s not just publishing; it happens in other industries too. “VCs (venture capital firms) have gatekeepers, that’s why crowdfunding is becoming so popular. The music industry has gatekeepers, that’s why Justin Bieber had to be [discovered] on the internet whereas the Beatles had to audition club by club,” he adds.