Still Thinking Like a Product? Start Thinking Like a Platform

Every so often, a technology buzzword comes along that lives up to the hype. "Platform" is one of them. The five largest companies in the world—Apple, Amazon, Alphabet, Microsoft, and Facebook—are all platform companies. Taken together, they have a market value of almost $4.7 trillion.

Platforms don't just belong to the giants, either. There are more than 300 smaller "unicorn" startups, companies with $1 billion-plus valuations, which are lately platform based and add more than $1 trillion to that growing number. Moreover, Accenture predicts that by 2021 platform ecosystems and digital assets will be a core component of corporate valuations and capital markets.

Following the Lead of the Most Successful Companies of All Time

These companies are among the most successful—not just over the past year, or the past decade, but of all time—because they've discovered a fundamental rule about business: Platforms beat products every time. This concept isn't new; MIT professor Marshall Van Alstyne first mentioned it several years ago, but the point is no longer academic. We now have abundant evidence that platforms work, and that they are a necessity for succeeding in the digital economy.

But what is a platform? At the most basic level, platforms are digital places where companies, suppliers, and customers come together to create value that provides a benefit to everyone involved. Let's look at the Apple App Store as an example. The platform gives developers a way to sell apps, gives customers a steady stream of new software, and gives Apple a small portion of ongoing revenue.

Apple also provides a clear example of a platform becoming bigger and better than a single product. The Apple iPhone is a game-changing device on its own, but its true potential—for innovation and revenue—was only unlocked once Apple opened the platform to third-party developers.

The Salesforce.com AppExchange offers a similar example on the B2B side. The Salesforce.com CRM is a powerful standalone solution, but the add-ons in the AppExchange give it almost unlimited potential for growth. In fact, the AppExchange—and all of the economic activity it generates—will soon be worth almost five times more than Salesforce.com itself.

The AppExchange may be the best known B2B platform, but other successful examples are on the rise. ADP, Intuit, ABB, Nuance Healthcare—companies in a wide range of verticals are launching digital platforms to connect developers and customers to their products and services.  

Two Simple Questions that Will Tell You If You're Ready

Clearly platforms can deliver tremendous value, but can—or should–every company be one? There are successful platform companies in every industry, from healthcare and manufacturing, to mining and aerospace, to agriculture and retail. But another company's success shouldn't be the reason you launch a platform. To get a good sense of your readiness for a platform business model, you should be able to answer "yes" to these two questions:

1.) Do you have a solid core product?

Platforms may beat products, but every successful platform company starts with a successful product or products. Apple and the iPhone, Salesforce.com and its CRM, Intuit and its QuickBooks accounting solution—look at any thriving platform and you will be able to see the products that serve as the core of the platform.

2.) Will your platform solve a real problem for customers?

Here's a disaster scenario for a new platform: A company launches it, and no one—neither suppliers nor customers—comes. To minimize this risk, your platform needs to solve genuine customer problems. Turning once again to Apple and Salesforce.com, these companies use their platforms as a way to easily deliver new, innovative software to their customers without needing to shoulder the burden of in-house development. Before investing too much effort, make sure that you understand your customers' pain points and how a platform can solve them.

Platforms Are the Differentiator for Success

Earlier this week, we released AppDirect's first Digital Economy Report, a collection of survey findings that reveal the latest platform, ecosystem, and digital transformation trends. Of all of the data points, this might be the most compelling: Eighty-six percent of executives say that platforms are the key differentiator for digital transformation success. (You can click here to download the entire report and read all of the findings.)

The report is wide-ranging and covers many different areas, but if there's one key takeaway, it's that digital technology is accelerating the pace of change. Looking forward, the companies that will endure—and thrive—are platform companies. The time to make the transition is now.