The Platform Economy

The platform economy is finally attracting much wider attention than when we began this site five years ago. Companies like Airbnb were startups when we first started to write about them as platform companies! Over the past few weeks the big global consultancies have begun staking a claim to the platform space. And we are now collecting more of our work here. Platform economics is about to go large.

I covered two interesting platform economy developments on my personal blog a couple of days back, particularly Accenture’s offer and the new work of the Center for the Global Enterprise.

In mid-2015 Deloitte’s admirable John Hagel began laying out their view of the  rise of platforms and ecosystems. Here’s a quote from the Deloitte report on ecosystems:

Long-standing boundaries and constraints that have traditionally determined the evolution of business are dissolving, allowing new ecosystem possibilities…

It echoes what Nick and I have been saying about radical adjacency now for five years.  This is a true business revolution, which is why we used the term in our sub-title. The race is on now to find the right way to  create platform enterprises – or rather to convert old enterprises to elastic ones.

 

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The need for new platform thinking

 

There is a gap though in a lot of the writing around platforms. When we wrote the Elastic Enterprise we focused on the narrower elements of what capabilities go into a creating a platform and ecosystem model.

Over on Strategy and Leadership we have looked at the types of ecosystems out there and in a further article looked at the integration of crowdsourcing and ecosystem development. Sadly these are behind a subscription wall.

You can find a summary of the IT approach to platforms on Cognizant’s website (we co-authored with Cognizant CTO William Strain). There is a detailed account of new management thinking required for the platform age here in a separate paper authored with Cognizant.

The missing ingredient however is the relationship of the platform to the overall restructuring of the global economy.

The global economy is changing in a range of ways that are pivotal to how platforms function. Platforms reduce cost, hence contribute to secular deflation; the biggest uptake of platforms and the most scaled examples are to be found in China, and China is rapidly headed towards global trade dominance; and platforms are becoming critical to transaction flows.   Zennon Kapron and I wrote about the impact of the Chinese platform on the financial industry (in The Platform for Disruption, October 2015) and are currently looking at the digital native and the transformation of finance.

Followers of the Elastic Enterprise will remember that one of the main definitions of a platform is its power as a transaction engine. More recent work, elsewhere, has emphasized the network effects or two-sided market, as the defining characteristic of the platform. This is wrong (I argue that here).

Network effects are a special case of companies that can seize unbreakable monopolies and therefore need regulation (think of the telephone industry). Alex Taborrak on Marginal revolution has an interesting post on that and Nobel-laureate Jean Tirole’s work, though I think his definition of a two-sided market is far too wide.

Nick and I have always emphasized the transaction engine. Organisations that grow the capability to process millions of transactions per day – Alibaba, Uber, Airbnb, Apple all have this in common. Tyler Cowen has posted an interesting take on Chinese digital books sales, pay-to-read, here. It revolves around a transaction engine not a two-sided market.

Having said all that, what we have to do going forward is document the impact of the platform in disrupting the global economy. My next book does that to some degree but the more eyes on the cause, the better.

One thought on “The Platform Economy

  1. Pingback: The Economic Baloney of The Sharing Economy | The Elastic Enterprise

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