Platform Strategy Explained

Platform Strategy Explained

A platform is an avenue or environment that connects different groups. It serves as a common space or framework that allows each group to draw benefits from its participation. This is the central concept behind a business model called platform strategy.

Numerous companies have developed and implemented platforms that enable them to connect different groups of stakeholders relevant to their business interests. Examples include consumers or users and third-party businesses such as suppliers and distributors.

Platforms fundamentally connect two or more sides of the market. They are used as an avenue for facilitating collaborations, information sharing, or transactions while also serving as a vehicle for companies to build their network and promote their products.

Understanding Platform Strategy as an Element of a Business Strategy and a Specific Component of a Marketing Strategy

Definition and Principles

A platform strategy is a business approach intended to capture a market or retain a stronghold in a market and promote products through the creation and management of an environment or a platform wherein all relevant stakeholders of that particular market can participate or interact. This participation or interaction should benefit the involved stakeholders for the platform to become an effective environment for promoting products.

Examples of stakeholders or platform participants include the business organization itself, the consumers or users of the products of the business, third-party organizations such as business partners and suppliers, and investors. Remember that it is essential for a platform to rationalize and demonstrate the benefits that come with participation.

This strategy can be a key element in the overall business strategy of an organization because it defines its revenue model or how it can maximize income generation and profitability, influences the direction of research and development, and overlaps with specific activities within its marketing strategy. It can also be a source of competitive advantage when used to retain market share, establish a product ecosystem, and create barriers for new entrants.

It is important to underscore the fact that a platform strategy does not guarantee success. An organization cannot create a platform and expect that it would add value or solve its problems. There are specific principles that underpin a successful platform strategy and they collectively represent the need for a particular platform to be beneficial to all of its participants.

Below are the main principles of a platform strategy:

• User Needs: Successful platforms meet the needs of their users or participants. This involves understanding the realized and unrealized desires of the participants and building the platform to meet these desires.

• Network Effect: The platform should also become more valuable with the growth of its user base. This means that the value of the platform increases as the number of participants increases. This is called the network effect.

• Ecosystem: Another principle of a successful platform strategy is the emergence and continuous improvement of a strong ecosystem. This is characterized by the presence of diverse and engaged groups of platform participants.

• Continuous Innovation: It is also important to continuously improve the platform through innovation or the utilization of new and relevant technologies. This entails welcoming suggestions and listening to feedback.

The principles mentioned above also correspond to the elements of an effective and successful platform strategy or general tips for creating a platform applicable to the participants and the interest of the organization. Remember that the purpose of this strategy is to serve as a model for generating revenue and sustaining revenue generation and market or promote products through the creation of a network of relevant and engaged stakeholders.

Applications and Examples

Several problems or situations can be resolved through a platform strategy. For example, when it comes to entering a new market or launching new products, it is difficult for a business to start from the ground up because of the presence of competitors or the uncertainties that come with untested products. Common in these situations is the need for a business organization to push its brand or its products to its target market.

Below are the specific applications of a platform strategy:

• Entering A New Market Or Segment of the Market: The main problem with entering a new market is that it requires aggressive marketing efforts aimed at raising brand awareness and establishing a brand reputation. A platform can serve as an avenue for introducing the business or its brand to the target market and relevant stakeholders.

• Launching New Products Or Product Categories: It is also difficult to introduce a new product or expand to other product categories. Using a platform strategy can help a business understand what product it needs to develop and how this new product can complement its existing products and benefit its existing customer base.

• Competing Against Incumbents And New Entrants: Another application of a platform strategy rests on the establishment of competitive advantage. A platform can help a business differentiate itself from the competition by adding value to its stakeholders while creating an entry barrier against new competition.

• Building A Valuable Network Of Stakeholders: The interest of stakeholders can make or break a business. A platform strategy provides an avenue that can help an organization understand the needs and wants of its stakeholders and manage or synthesize and align the diverse interests of its different groups of stakeholders.

The existence of platforms and the application of a platform strategy are notable in several industries or businesses. Companies like Amazon and Apple have created platforms that help them expand their networks while also adding further value to their business models. Part of the success of Nvidia comes from its effective utilization of platforms that allow it to develop and market a range of products for specific market segments.

Below are examples of platform strategy applications:

• Electronic Commerce: Amazon entered the retail market through its electronic commerce platform which serves as a digital marketplace that connects sellers and buyers of consumer goods. The same platform strategy and business model are evident from other online-enabled companies like Uber and Airbnb.

• Knowledge Sharing: Other companies create and maintain platforms to cultivate a diverse group of participants needed for the democratization of information or transfer of relevant skills and knowledge. These are common in tech companies that host forums for other businesses, academics, and research institutions.

• Content Platform: The business models of social media companies like Meta and its Facebook website and video-sharing sites like YouTube are based on providing a digital platform for creating and sharing content. The produced content and the interaction of users with the content have revenue-generating potential.

• Product Ecosystems: Apple has a closed product ecosystem but it also considers other software developers as part of this ecosystem. Companies like OpenAI and Nvidia promote the adoption of their technologies through a semi-opened ecosystem that involves networking with other business organizations.

Advantages and Disadvantages

Platforms can be a revenue model or an actual revenue-generating vehicle. They can also serve as specific avenues for product development and for promoting further businesses and their respective brands or products. Amazon and Alibaba use their e-commerce platforms to generate income from fees charged to sellers while Meta uses its social media platforms like Facebook and Instagram to generate revenue from advertisers.

Apple and Nvidia use platforms to build and maintain relationships with stakeholders critical to their products and overall business interests. Apple specifically has strong a relationship with developers responsible for building apps for its operating systems and consumer electronics products while Nvidia maintains its network of business clients, third-party manufacturers, suppliers, and researchers to develop and promote its products.

The main advantage of a platform strategy is that it allows businesses to maximize their income potential and growth potential. Amazon would not be able to reach millions of customers and billions in revenues if it sells products on its own and Meta would not attract advertisers without the willing participation of its social media users. The same is true for Apple. It would not have apps that would make its products more useful without third-party developers.

However, despite its advantage, it is important to note that this strategy might not be suitable for certain businesses or organizations catering to a particular market or certain industries and sectors. The biggest disadvantage of a platform strategy revolves around the costs and expertise required to build and maintain an effective and successful platform. Remember that one of the principles of this strategy is that it needs continuous improvement.

Another challenge involves maintaining control over the platform or ensuring that it remains relevant. Some participants can become too dominant that the existence or value of the platform becomes dependent on their activities. Their absence could mean the end of the platform. The risk of disintermediation is also possible. This happens when participants move outside of a particular platform for interactions and transactions.

Nevertheless, in considering the advantages and disadvantages of a platform strategy, businesses or other organizations that are looking to build platforms should take into account the principles or elements of a successful platform strategy. It is important to reiterate the fact that an effective platform should benefit both the platform participants and the platform owner. Organizations need to determine what these benefits are and what they entail.