“It costs WHAT per person???” I shouted loudly at the lady who told me it would cost $35 per person to get me and my family to the airport on the hotel airport shuttle. At this point in the trip, we had lost some money due to some unexpected circumstances, so there was an unhealed wound that fueled my anger. $35 per adult and $20 per child, meant we would spend $110 on a ride to an airport less than 30 minutes away, for a flight to a destination less than 2 hours away. We had no intention of doing that! My husband tried to negotiate but the lady adamantly refused and walked off in a huff. How rude! Anyway, we quickly decided to get an Uber. Guess what? The ride cost us only $11. A tenth of the cost the hotel tried to charge us!
This leads me to the core of my article: The Platfomarization of the World! I know it sounds like a big word, but stay with me. I want to show you how the platform business model has revolutionized things and perhaps inspire you to apply it to models you have built your life, career and/or business around.
I couldn’t get past the fact that the trip to the airport which cost us $11 was the same trip someone had rudely insisted will cost $110! All thanks to Uber. You know Uber – The Ridesharing taxi company whose name has become an adjective for success “Uber-successful”. With Uber, car owners have access to thousands of clients. Wherever you are, you can get a ride closest to you at the tap of a button. There is higher access to efficient and comfortable rides (well, most times), thanks to Uber.
How is Uber able to create so much value in the transportation industry without owning a vehicle, or hiring a single driver? Good question! They created a platform that facilitates an exchange of value between drivers (car owners) and riders.
“A platform is a business model that creates value by facilitating exchanges between two or more interdependent groups, usually consumers and producers”
In a nutshell, platforms enable easy exchange of goods and services on a very large scale. While traditional businesses create value by manufacturing products or services, platforms create value by building connections and facilitating transactions between consumers and providers/producers. The inventory is owned by the third-party (Producer) while the platform gets compensated for connecting Producer/Provider to the Consumer.
That’s what Airbnb – the online marketplace which lets people rent out their properties or spare rooms to guests, did. That’s what Coursera and Udemy did with online courses. It is also what Alibaba and Amazon did with online retail. These companies don’t directly create and control all their inventory – Airbnb doesn’t hold houses as assets neither does Uber have cars in its inventory. Freelancer doesn’t provide the services offered on their platform. Ebay does not manufacture the products sold and Facebook does not create all the content generated each day.
Instead, these platforms create a means of connection between producers and consumers worldwide.
There are different types of platforms. Some are more focused on reducing transaction costs eg. Uber; while some provide infrastructure for their users to create e.g. Android. Some are Content platforms e.g. YouTube, some are social platforms e.g. Whatsapp while some are a mixture of both eg. LinkedIn. Whether software, videos, written content, groceries or code, platforms allow producers to create and exchange with consumers.
This concept is not entirely new, remember Auctions and Bazaars of the 90’s? The organizers didn’t necessarily own products. They created a marketplace for buyers and sellers. Shopping malls also run on the same concept, the owner(s) of the malls are not necessarily retailers. They provide a suitable, accessible and visible brand, on the back of which retailers can sell their goods while giving consumers a one-stop access to a wide range of goods. Today, Amazon Marketplace has done the exact same thing – think of it as your Online Shopping Mall.
Businesses used to compete over Products or Price. In today’s digital age, competition is increasingly over platforms. Those who build better platforms, have an advantage over the competition. By building a digital platform, other businesses can easily connect their business with yours, build products and services on top of it, and co-create value.
Platform businesses have proven to be successful. In 2016, four of the top five on Forbes’s list of most valuable brands were platform companies. Today, the world’s five most valuable brands are platforms.
Have you noticed that most of the successful startups are platforms? Whatsapp, Instagram, eBay, Slack, Kickstarter, (In Asia) Rakuten, Flipkart, (In Nigeria) Paystack, etc. Tencent, now the most valuable company in Asia, has nearly a billion users on its WeChat messaging platform and is by many estimates the largest gaming company in the world.
Also, investors seem to love platforms more than traditional business models. You don’t need to think too deep to see why – platforms can scale to a size that traditional businesses just can’t. They deliver faster growth, better return on capital, and larger profit margins. According to Harvard Business Review, platform businesses are valued 2-4 times higher than traditional businesses. Data predicts platforms will make up about 5% of the overall S&P 500 by 2020.
How Platformarization benefits you and is changing the world?
- Economic Savings: From the story in my first paragraph, you can clearly see how my family saved $99 in 5 minutes. On the part of the business owner, suddenly you have access to a wider variety of customers nationwide and even worldwide in some cases.
- Creation of New Markets: Platforms expand the market reach beyond the original location. In the case of many of our examples, the products and services sold on platforms are connecting people in different continents to one another for business transactions.
- Value-Add: Platform businesses add value and are relevant to the whole world in many ways. E.g. Uber helps to utilize assets that would have otherwise been sitting idle i.e. cars. A statistic shows that cars are parked 95% (or at least 93%) of the time. Coursera, Udemy and the likes have put so much educational content from top schools at the fingertips of everyday users like you and I, who would otherwise have spent a lot more money to physically attend these courses.
- Transaction Costs: Platforms make transactions simpler, faster and cheaper, thus saving a lot of time for all parties. The Uber driver does not need to spend time creating awareness of his “taxi-side-hustle”. My family did not have to waste time and money calling everyone we know to suggest an alternative ride to the hotel’s option. If we even tried to find random taxi drivers and negotiate the price, we may have missed our flight.
- Empowerment: Platforms have opened up new careers and empowered people with skills. Think about your favorite apps 🙂 Ideas are coming to life fast and solving problems daily because these App Developers are empowered by Android and iOS. Google and Apple provide the infrastructure and market while the Developers focus on their skills. Recently, Abisoye Ajayi-Akinfolarin was celebrated as a CNN Hero. She runs a nonprofit called ‘Girls Coding’ that teaches disadvantaged girls in Lagos, Nigeria computer coding and in turn builds their confidence and transform their lives. One of her students, 17 year old Sharon lives in Makoko, a slum in Lagos where people live in shanties above water and in extremely poor living conditions. Sharon is the 11th child of her parents, her mum is a trader and her dad is a fisherman. Most of the families there are not educated, the men are the fishermen and the women sell the fish caught by the men. Through the coding program, Sharon has now created a website called ‘Makoko Fresh’ which is a platform to sell the seafood the fishermen in Makoko catch everyday directly to consumers. This will inevitably empower the community as there are less middlemen, and the fishermen get more revenue than they ordinarily would. See video below.
Even if you’re not building a platform business, you need to understand how platforms work because these principles can apply to any type of business. Whether Startup or Thriving Business, everyone can benefit from platform thinking – brand awareness, increased innovation and reduced risk of being run out of business. Here are some of my tips for applying platform thinking to your business:
Gone are the days of running businesses in an insular way, nowadays you must relate with your competitors and complementary businesses to stay ahead of all that is happening in your industry.
Here are some tips on what you can do to start thinking this way:
You can start by answering the following questions?
- What value are you currently creating?
- How are you creating that value?
- What else could you do to complement the value you are creating? E.g. Partnerships?
- Who is your target audience?
- Who do you partner with, if any, to create this value?
- How does the value you create interact and interface with consumers, competitors, other businesses etc..
Take some time to consider the following:
- Brainstorm: Think up innovative ways to extend your value/business reach. Survey your customers to know what services or products they would like you to offer. And when you’re tempted to limit yourself, remember that Facebook started as a networking website for undergraduates in University and Amazon as an online book seller!
- (If you are an employer of labor) Hire those with Innovative-Thinking: Find and empower employees who are comfortable with change. In 1995, Amazon sold only books. Today, it sells almost everything you can think of. In 2006, Amazon launched Amazon Web Services (AWS) which provides on-demand cloud computing platforms to individuals, companies and governments, on a paid subscription basis. This service currently provides 11% of Amazons total revenue. In 2007, Amazon launched the Kindle (electronic book reader). In 2010, it started publishing books making it easy and seamless for writers to get their books into the hands of readers worldwide. Resistant employees won’t let a bookseller become a cloud-computing giant, manufacturer, publisher and retailer.
- Invite Others: Find partners with complementary interests. Just imagine if Apple continued to only make and sell fancy computers – they won’t be that relevant today. With a platform that branches into music, commerce, telecommunications and education, Apple became the world’s first trillion-dollar public company this year, 2018.
- Go digital to Grow your Customer Base: If you haven’t already, going digital goes a long way in growing your customer base and getting visibility into your business. What can you do to get people talking about your brand and possibly promoting it? Can you: Create an app? Build a fanbase around your product? Blog about your skills? Use social media to attract more customers? Amazon has consistently outperformed traditional retailers.
- Create a Platform product: Build something that others can collaborate on and derive value from. For inspiration, look at what YouTube has done with videos; Coursera with Online courses; Etsy with handmade items; Amazon and Alibaba with an online worldwide marketplace.
Generally speaking, platforms have become dominators in their industry and this may sound far-reaching as an everyday entrepreneur. However, you must remember that it’s not about the complexity of your solution or how fancy your technology is, it’s about how much of an enabler you can be and how open you are to exploring ways of getting your products and/or services in the hands of your target audience.
If for any reason you got a late start in your industry, it’s not about being the first. Uber was not the first ride-hailing platform, Google was not the first search platform. Facebook was not the first social platform. The list goes on and on.
In conclusion, I’ll leave you with three questions to stimulate Platform Thinking:
- What value do I create?
- Can I create or leverage a platform to sell this value (See the video above of 17 year old Sharon from Makoko in Lagos, Nigeria)
- How can I leverage current platforms to push my products and/or services?
There is no one and no area that has been left untouched by Platformarization. Every industry has several examples of companies that have disrupted that industry with Platformarization. Here are two examples each from several industries:
So, what Value are you creating? How can you implement “Platform thinking” in your life today?