- February 23, 2017
Market Pugilism: Product vs. PlatformShare this:
In the fast-paced digital environment, having a great product no longer cuts it.
In the old days, an enterprise could create a usable product and gain competitive advantage by optimizing its value chains. Firms consolidated advantage by negotiating with customers, partners, and suppliers to leverage marketplace power, gaining an ever-tighter grip on the resources they control.
But in today’s fast-paced digital environment, success is not about the resources you control. It’s about the assets you can access by expanding and deepening connections to networks of talent, technology, and information. It’s about platforms. The era of differentiation through products is gone.
The Platformization of Markets
Think of a platform as a structure upon which a diversity of product variations can be developed—an aggregation of services merged into an integrated whole. To meet the demands of a rapidly fragmenting customer base, enterprises can pivot off of flexible platforms, bringing customized or personalized products to market at reduced cost. Core platform products are typically designed to be modular and flexible. Third parties are invited to capture value by exploiting the platform, rapidly customizing and scaling variants.
Example: McCormick & Company, along with food technology company Vivanda, shrewdly transformed the packaged herb and spice business into a platform called FlavorPrint. FlavorPrint reviews users’ saved or viewed recipes and flavors and then creates a taste profile to deliver more of the same. FlavorPrint then connects them to users with similar flavor profile preferences, opening the data to other food manufacturers and third-party developers. These third parties then offer products and services to users based on their flavor profiles.
But it’s not just consumer companies that have leveraged the power of platforms. Rolls-Royce pioneered the “power by the hour” model of selling aircraft engine uptime decades ago. With its platform, Rolls-Royce can monitor the engine performance of its airline customers in flight. If anomalies arise, the company can dispatch crews to meet the aircraft when it lands to proactively perform the necessary maintenance.
Armed with the capabilities of the Industrial Internet, companies like Cummins, General Electric, and Caterpillar can apply the same platform concept emphasizing equipment uptime, efficiency, and safety. With an industrial platform, customers don’t buy a piece of equipment. They buy the capabilities the piece of equipment delivers.
Platforms beat products for another reason: revenue streams. Products generate just a single point of resource generation. But platforms have several streams, monetizing ongoing interactions between an enterprise and its customers, as well as among customers, between customers, and between third parties. The Apple App Store not only monetizes transactions between Apple and its platform users, it also leverages the connections between users and third-party app developers. In 2014, approximately 75 billion apps were downloaded from Apple’s platform.
Platforms not only create new efficiencies by digitizing key marketplace interactions, but they alter our behavior and assumptions about how the world works. The Facebook platform accessed through mobile devices has dramatically changed how we connect, socialize, and perceive products, services, and the world of news and politics. In the digital age, no other model can match platforms in agility and in the ability to scale and pivot at a rapid pace.