07 May 2019
New book reveals the principles that have helped make digital platforms, including Amazon, Google, and Apple, the world’s most valuable firms
The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and Power analyzes 20 years of data on the performance of platform companies
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David Yoffie

BOSTON—Digital platforms, which include the likes of Microsoft, Apple, Amazon, Alphabet (Google’s parent company), Facebook, Uber, and Airbnb, have recently become dominant forces in many marketplaces. These companies are not only enormously valuable—several temporarily surpassed the trillion-dollar mark in value—but also extraordinarily powerful. How did this happen in such a short amount of time? How have a small number of firms come to exert such influence over our lives and the economy? And how should government regulators, as well as competitors, respond?

These questions are the subject of a new book, The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and Power (Harper Collins), co-authored by David Yoffie, of Harvard Business School, Michael A. Cusumano, of MIT's Sloan School of Management, and Annabelle Gawer of the University of Surrey. The book offers a timely investigation into the emergence and ascendancy of these digital juggernauts.

The authors analyzed 20 years of data on the performance of publicly listed platforms compared to non-platform companies in the same markets. While both types of firms had the same level of sales, platforms had roughly half the workers, yet were more productive, more profitable, and more valuable compared with their non-platform counterparts. The authors also divided all platforms into two types: innovation platforms, which rely on third-parties to create complementary products and services that make the platform more valuable (such as smartphone apps or third-party Airbnb services); and transaction platforms, which bring together two sides of a market (such as buyers and sellers). Hybrid companies, such as Amazon, Apple, Google, Tencent (WeChat), and several others, combine the two types.

And yet, the number of successful platform businesses that survive and become public companies is relatively few. There are a lot of failures, and although some platform businesses can grow extremely fast, most lose exorbitant amounts of money. And “platformizing” a bad (i.e., low profit) business like taxis or groceries does not make it a good business.

The book also examines the best way to build an innovation or transaction platform or create a hybrid strategy and how traditional companies can still compete with digital platforms. In addition, they explain how platform thinking and ecosystems are emerging in new areas, such as self-driving cars, voice-controlled home-AI devices, gene editing, and even quantum computing. The book’s goal is to help managers and entrepreneurs build platform businesses that can stand the test of time and compete with both digital and conventional companies.

Another topic is the role governments should play in rethinking data privacy laws, antitrust, and other regulations that could rein in abuses from these businesses. The authors’ call for self-regulation has critical implications for the kinds of managers that platform companies will need in the future. Platform companies must expand their strategic visions and definitions of success.

Contacts

Mark Cautela
mcautela+hbs.edu
617-495-5143