Products to Platforms: Making the Leap

Feng  Zhu; Nathan  Furr

Article | Harvard Business Review

Products to Platforms: Making the Leap

by Feng Zhu and Nathan Furr

Abstract

Following the path of companies such as Apple and Amazon, more and more firms are trying to become not just product purveyors but also platform providers, facilitating direct connections between customers and other groups. Although launching a platform can generate new revenue, success is not automatic. After studying more than 20 companies that have tried to move from products to platforms, the authors point to four practices that can separate winners from losers: 1. Start with a defensible product and a critical mass of users. A strong product and a loyal customer base will attract third parties to your platform. 2. Apply a hybrid business model. Instead of operating with a "product mindset" or a "platform mindset" alone, combine the two in order to discover new opportunities for creating value. 3. Drive rapid conversion to the platform. Existing customers are likely to flock to a platform if it provides enough new value, if the additional products and services offered are consistent with your brand, and if users have opportunities to improve both the products and the platform. 4. Deter competitive imitation. Make it tough for rivals to copy your product-to-platform strategy: consider creating proprietary standards, using exclusivity contracts and erecting other barriers to competition.

Keywords: Product; Market Platforms; Expansion;

Format: Print

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Citation:

Zhu, Feng, and Nathan Furr. "Products to Platforms: Making the Leap." Harvard Business Review 94, no. 4 (April 2016): 72–78.

We examine how app developers on the Android mobile platform adjust their innovation efforts (rate and direction) and value-capture strategies in response to Google’s entry threat and actual entry into their markets. We find that, after Google’s entry threat increases, affected developers reduce innovation and raise the prices for the affected apps. Once Google enters, the developers reduce innovation and increase prices further. However, app developers’ incentives to innovate are not completely suppressed; rather, they shift innovation to unaffected and new apps. Given many apps already offering similar features, Google’s entry may reduce such social inefficiency.

One common complaint from third parties about platform businesses is that they see what succeeds on their platforms and then enter the most profitable areas themselves, often decimating third parties in the process. Studies have identified several motivations for platform-owner entry beyond just value capture. Multiple studies have suggested that platforms opt to enter directly in order to improve quality, for example. And the effect of platform entry on complementors is mixed. Some studies found that platform entry can create positive spillover effects on third parties and increase their demand. However, a few other studies find that the impact of entry on complementors can be negative. Google’s introduction of flights into its search engine decreased clicks on other organic results, for example. Careful empirical analysis is needed before policy intervention.

ZBJ.com (ZBJ), an online platform that connects knowledge workers to small- and medium-sized enterprises, is China’s largest outsourcing platform. Founded by Mingyue Zhu in 2006, ZBJ had grown into a unicorn with 4,000 employees and a daily transaction volume of RMB15 million by 2017. During the company’s 11-year history, ZBJ had launched ten transformation campaigns to overcome various challenges by changing its products, operations, and business model. For example, it encountered a winner-takes-all competition, disintermediation (when service providers and clients took transactions off the platform to avoid the platform’s 20% commission fees), the rise of fake transactions, member management issues, and difficulties in delivering satisfactory services to large enterprises. Zhu must decide how to use the next campaign to address challenges that had emerged since the last campaign as well as how ZBJ should expand globally.

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Products to Platforms: Making the Leap

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