Survival of the fittest: Platforms beat products

If you chose your PC in the 1990s because you wanted specific software applications (and not based on how much you liked the operating system), or if you made the jump to an iPhone from a Blackberry a few years back, chances are a successful platform strategy won you over.

Platform strategists call the cycle in which an ecosystem of developers attracts more end users – which in turn attracts more developers (and so on) – a “network effect.” Network effects often generate hockey-stick shaped growth curves, like those of Windows and iOS, respectively.

I’ve carried a business card that (accurately) described me as a “platform strategist.”  I’ve worked on a whole team dedicated to platform strategy. The role isn’t uncommon in software companies: the notion that the basis of competition is a platform and that platform’s ecosystem rather than a stand-alone product has been familiar terrain for a long time. 

Digital is enabling the move from product to platform in many industries. The Jawbone fitness tracker is a platform. Philips Hue light bulbs are a platform. 

On the one hand, this ought to be an exciting opportunity for CIOs in product-centric companies. By attracting contributions from outside the business, innovation on a platform occurs faster than it does at a company trying to “do it all itself” in a traditional product approach. As Marshall Van Alstyne, one of the top academic experts on platforms likes to say, “platforms beat products every time.”

On the other hand, competing as a platform presents a challenge. There is no one-size-fits-all strategy. A company mastering platform dynamics in one context might fail in another. Microsoft’s Mobile OS ecosystem, for example, never took off like desktop Windows, and it lost its lead in the smartphone market to Apple.

The crux of the matter is this: a successful platform strategy requires upending product strategy assumptions. Products win on features. Platforms win with communities. Value creation must shift from internal optimization to external servicing. Behavior must shift from command-and-control to openness by default.

I’ve yet to hear a better explanation of how platform strategy and the digital trends are intersecting – and what to do about it – than that provided by Cloud Foundry CEO Sam Ramji. In true openness-by-default fashion, Sam has shared a presentation that addresses three interlocking concepts every CIO should embrace to become a platform strategy leader.

1. Mindset

First, there’s a shift in mindset. This is best epitomized by Jeff Bezos’ 2002 mandate (also known as the “Yegge Rant”) that all “interfaces … without exception, must be designed from the ground up to be externalizable … [T]he team must plan and design to be able to expose the interface to developers in the outside world.” 

This was brilliant anticipation of how the market context was changing. 

To use an extreme example, in the 1960s, when few organizations had mainframe computers in glass rooms and exchanging data required hauling tape, the ROI of open interfaces by default was surely negative. Partners (internal or external) with whom to federate data and services into new digital experiences were rare.  And the market for digital experiences was infinitely small. 

There were vastly more potential partners with whom to federate data and services and a vastly bigger upside for new digital experiences in 2002 than in the 1960s. Accordingly, most big companies recognized the need for some sort of integration center of excellence.

What Bezos’ edict anticipated was that as every company became a software company and every person became surrounded by smart, connected devices, a funnel into a center of excellence staffed with specialists couldn’t scale. Everyone would need to be able to seize opportunities.  Open interfaces by default would become an advantage.

2. Strategy

Second, there has to be a shift in strategy.  Product strategy assumes the pole position for value creation is control over inputs that the firm assembles into products and sells to customers.  A digital platform strategy offers third parties more control over all but one thing. 

A firm as platform sponsor provides building blocks for digital products and experiences – some of which it produces, some of which are produced by third parties (think of Android apps: a few are produced by Google, hundreds of thousands by third-party developers).

But the firm holds the data that flows from platform services through products to end-users.  To be sure, it shares data to help its ecosystem succeed.  But the benefits are inherent to the platform.  Think about Amazon’s affiliate program for ads on blogs. Amazon’s smart targeting helps a blogger earn more revenue, but there is neither an option to use it without consummating the sale on Amazon’s platform nor to participate without sending back interaction data that makes Amazon’s targeting even smarter.

3. Technology

Finally, these converge on a shift in technology.  When the ability to federate services and data into new experiences is distributed (open interfaces by default) and those experiences deliver a stream of data (the digital platforms strategy), scale at speed becomes a decisive advantage. The ability to detect and “fast fail” innovations that don’t show promise is as valuable as quickly scaling up those that do.   

Sam describes this as “cycle time optimization” – smaller teams using faster tools to continuously adapt.  I call it “mindset and strategy meeting at cloud.”

This is a key reason I see a leadership role for CIOs on a product to platform journey.

In many cases, CIOs and their teams have more experience than anyone else in the enterprise as consumers of infrastructure as a Service (IaaS) and platforms as a service (PaaS).  

In a significant way, where the rubber hits the road for digital platform strategy is using IaaS and PaaS to offer IaaS and PaaS services to your ecosystem. 

 Build on that, embrace the change in mindset, explore the shift in strategy, and seize the platform opportunity.

[Disclosures: Philips is a customer of my employer, Apigee. Apigee and Van Alstyne collaborate on research. I’ve worked with Ramji at Microsoft and Apigee in the past. I’ve invited him to present a variation of this presentation at my employer’s upcoming annual conference. There is no compensation to either party.]