Platform Disruption of Global Trade

Platform Disruption is part of the geopolitical shift that is diminishing the power of the US economy in favor of China. I’m sure Americans will look back at the Obama years and puzzle over whether more could have been done to maintain US prestige as China’s economy changed phases.

I envisage a time, say three to five years from now, when platform businesses like Alibaba will control substantial segments of global trade. Global trade itself is the subject of platform disruption.

platform for disruption

Platform disruption in China

Platform disruption  will substantially alter the multilateral trade governed and counted by global institutions like the IMF and World Trade Organisation. It will be direct business to consumer trade. The Alibaba platform will mediate that trade.

Alibaba expects B2C cross border trade to equal $1 trillion by 2020. That’s about 6-7% of global trade in goods.

I think within five years of that the figure will be nearer $3 trillion and much of it will be controlled by China platforms. A few months back Zennon Kapron and I wrote about it in The Chinese Road to Platform Disruption. You can download a copy here. The report also looks at how platform disruption is structured.

We’re about to publish a partner report on how Chinese Millennials are adding to the strength and power of the Chinese platform. But The China Road to Platform Disruption is a good place to being understanding the platform as a geopolitical tool.

Ecosystem, innovation ecosystem, and Platform: Finding the right combination

In the world of business platforms, the ecosystem features large – but how many of us understand what ecosystems are, in business at least, or how ecosystems function?

The idea of a business ecosystem has two origins in business writing. In one strand, you can see the idea of a very distinct, contractually committed community at work. This is the innovation ecosystem. It is the ecosystem as a partnership network. Big companies often allied to big with some investment in startups and more in new initiatives.

The other way to look at the ecosystem is its power really stems from the power of advocacy.

If you have a thousand organisations or individuals in your ecosystem, you have a thousand advocates. That means you build up a significant foothold in the information market around your product, service, platform. The information market is critical – it is what, in the past, companies bought through marketing and PR. In the modern age the ecosystem can give you multiples of what PR spending can.

This latter view of the ecosystem though is not an innovation ecosystem. While companies in Apple’s apps ecosystem build new products and services, they don’t innovate with Apple on the fundamentals of the iPhone or the platform. In that sense they are not partners.

As Nick Vitalari and I pointed out in The Elastic Enterprise this new type of ecosystem is spontaneous and often fractious, a meeting of peers built on common terms and conditions rather than on bilateral contracts. It calls on a very high order of community management skills.

Why does the difference matter? Well here’s why. Many companies are confused by the difference. They set out with an innovation ecosystem strategy hoping to gain the benefits of the advocacy ecosystem. By understanding neither very well they end up achieving few of the benefits of either.

In my view GE has fallen victim to this problem. I am a GE fan as SHIFT should make clear. CEO Jeff Immelt has done immense work. A recent HBR article though pointed out some issues arising with its ecomaginati0n program. Ecomagination, GE claims, has earned it over $160 billion. But what is it?

Launched in 2005, ecomagination has always been a bit amorphous. Is it a marketing campaign? A corporate strategy? A guide for product and service development? In truth, ecomagination is all of these and more.

Now, a sensible riposte to this is who cares. It made $160 billion. But the way it made revenues was by selling GE sustainability R&D. Ecomagination isn’t any particular product or service; it is a strategy to pursue green objectives in energy products. In that sense it is a business line, as much as anything, so it is bound to make money.

GE has tried turning ecomagination into a platform. Its strategy now “includes a new open innovation program that encourages ideas to reduce greenhouse gases from Canadian oil sands production.” Prior to that it hosted two open innovation challenges around green tech in partnership with VCs.

GE has tried similar platform plays in cancer diagnostics (healthymagination) and industrial data.

You can see very much the “innovation ecosystem” approach at work in these examples, In healthymagination GE tried to build up its diagnostics business with a $6 billion investment around crowdsourcing diagnosis of cancer, particularly breast cancer. However, the crowd was actually quite a small number of companies, allied to GE’s relationship with VCs, just as in ecomagination. Five years in, in 2014, GE made just seven investments. It is likely that GE’s attempts to remake its business around platforms would be better served by acquisitions – by buying into companies at the leading edge of data and diagnostics like Illumina.

In industrial data, GE has repackaged its turbine maintenance data and made it available to the wider world, using that experience to pivot to a big data strategy in healthcare as well.


Initially the Predix program looked like being an apps-type play with the data made available to the developer community to build new business. Right now GE boasts of a much smaller innovation ecosystem (there is another partner ecosystem here). There is still some momentum in the apps store for industrial data concept. However, it is complex to sign up for the Predix community and nor is it universally available. Many of the contributors have GE email addresses, so are presumably GE staff. Nonetheless there is a substantial set of GitHub projects, though it is unclear how much engagement these have created.

As an innovation ecosystem, GE’s strategy is a mixture of old fashioned PR, intelligent packaging and sound investments. But it doesn’t spill over into an advocacy ecosystem.

An advocacy ecosystem would be the tens of thousands of SEO experts who quickly advocated for Google Page Rank as a breakthrough in search relevance. That was back in the early 2000s. Or the hundreds of thousands of developers who worked on iPhone apps. Or the millions of businesses that transact with customers through Alibaba.

In each of these cases the activities of the ecosystem pitched the platform to the world and closed the sale!

Healthymagination by way of contrast has not created a powerful advocacy network of analysts, developers, writers, users who want to rewrite the narrative on cancer.

What it has done has provided a strong banner under which GE has made significant investments in reducing cost for health care providers, for example. Here’s a list of achievements.

That’s no mean feat but it is not what the ecosystem is really about. It dresses itself in the language of ecosystems without really engineering them with a platform strategy.

If that sounds negative it is not meant to be. GE is a great company. In Shift I spelled out how I think platforms become disruptive and summarised some of these points here and again here. One key element is how you win the information market or information layer.

GE has not captured the information market through an ecosystem. It has bought it in industrial data through its power, financing and muscle, whereas in health it can barely be said to own it at all. That means it loses out on many of the benefits of true platform ecosystem.

I’m doing a deeper dive on the issues in my new book. But to summarise this issue there are of course different types of ecosystems. The innovation ecosystem is distinct from the advocacy ecosystem. Tomorrow I will spell out how those differences arose

A Platform’s Role is to Reduce Friction, so Say Hello to Stripe Atlas

The platform is the single biggest agent in the economy for reducing business friction. It’s also a strategy for market domination because of the advantages a platform can offer to customers. We said this in Edition 1 of the Elastic Enterprise, and now Nick and I are busy figuring out an update to the book, we think this is the single most interesting persistent feature of platforms, and one to focus on. That thought struck me when I started to hear about the new Stripe Atlas service.


I hadn’t quite clocked what Atlas was about until I read DC Cahalane’s post on LinkedIn Pulse. Here’s the full skinny for Irish companies – in fact for any company – and this is the pitch for winner-takes-all, friction free, business startup and expansion:

Through its new product, Atlas, Stripe, already the payment platform of choice for the majority of new Irish startup companies has now enabled a new Irish company to cut through the red tape and set itself up as a US based, Delaware corporation from day one….Your Atlas account comes with a fully functioning US bank account from Silicon Valley Bank, thrown in. It’s an incredibly well thought out product offering.

You can see the implications. Right now I am finishing off a study on millennials and the disruption of Chinese banking. Thousands of miles away and yet a similar theme. China tech platforms are offering services highly integrated services. That includes, taxi booking, ride booking, travel booking, payments, ecommerce, logistics, wealth management and so on. As we said in Elastic Enterprises stretch horizontally across industries. They refuse to recognize old industry barriers. Their main thrust is to reduce business friction.

Here’s Stripe’s version of what it is offering:

With Stripe Atlas, entrepreneurs can easily incorporate a U.S. company, set up a U.S. bank account, and start accepting payments with Stripe. Starting today, it’s available to developers and entrepreneurs globally.

Today’s business world knows no boundaries, neither geographic nor vertical because the platform raises the capability of a company beyond old ideas about core competency. That’s the meaning of platform elasticity. Does it have other implications? Platforms tend to be a  winner takes all strategy.  Atlas will put Stripe in prime position for winning the business of any born global (and that means high growth and multi-currency) enterprise for the next decade.

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.



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.

The Case Of Fidelity And Platform Services

Most of us think that banks lack true innovative power. I guess that’s true in a structural sense – they have huge legacy systems and to release any kind of integrated applications have to do a lot of work on Cloud or other intermediary platforms.

But yesterday I had a long chat with Sean Belka who runs Fidelity Labs, the innovation arm of Fidelity, the fund managers.

Fidelity Labs is experimenting with a number of user interface and user experience technologies like Google Glass.  Sean made the point that Fidelity is interested in working out how it can differentiate itself in all the major social platforms. Social is a must-have but it can also provide some competitive advantage.

It’s interesting to see such a powerful player with a strong interest in social as a channel but more interesting still is the story Sean tells about Fidelity as a platform company (I’m going to write elsewhere about how we define platform. In short I think we call many things “platform” but the term covers a lot of different activities).

In the case of Fidelity their funds platform has all the characteristics of an extensible platform of the type we saw emerge in different sectors like mobile from about 2008 onwards.

It is similar to a two-sided marketplace in some respects but it is also a rich information market, a facet you don’t see in two-sided markets; and it brings in intermediary as well as primary players in the market. Thousands of funds and brokerages and other third parties do business through it. It is often called a “supermarket” but supermarkets do not have rich information markets.

This type of platform is, however, now working its way into retail as competitors grapple with how to compete with Amazon.

Sean was making the point that the platform has been around for nearly 20 years and provides a continuous source of durable advantage.

That advantage is “utility-like”. It is both a source of low-cost competition and a differentiator – the significant convenience of a single shop for investments.  And Fidelity can now make more of the differentiation as it increasingly turns to social channels like Facebook and LinkedIn, increasing the usability of services and improving UX.

These improvements defy traditional low-cost competitor rules – they don’t lead to lower qualities of service. Better UX leads to better service and fewer hurdles for making trades or taking other actions.

This platform-platform strategy is also picking up. While Facebook is currently about social communications it must surely edge its way towards taking full advantage of its audience reach.

The fact that fund managers have developed incredible platforms – Fidelity’s serves over 5,000 partners – is an oversight in most accounts of platform business. We tend to think of the tech-first examples like Apple and Android and Amazon.

But like eBay, Fidelity predates both. And next steps: Cloud, deeper personal service and service integration, allied to AI, all on the platform. Financial services could, in fact, be a pace setter.

Does A Platform Imply A Two-Sided Market?

Digging deeper into how platforms are conceived, used and then managed, it is worth asking do they always imply a two-sided market? You might also ask does it matter? The answer is yes. We need to understand what defines a platform. Nick and I have emphasised the transaction engine. But is the emphasis misplaced.

The idea of the platform as a two-sided market with network effects  stems from work by Parker & Van Alstyne (2000;20002005)  and Rochet & Tirole (2003).

Those markets are generally understood as a refinement of network effects. A network effect happens, for example, when a company like Facebook grows its  member base. Each member will benefit if the platform has more members, i.e. more friends. The increased utility of a social network lies in knowing more people in it – to a point.

In the case of many software markets, recruiting new users is delegated to existing users (e.g. DropBox used double incentive marketing to reward its users for bringing in new users – however it had to reward both the existing user and the new user, which is why the technique is called double incentive).

This needs less incentivizing when the addition of users makes everyone’s experience better (e.g. as it does on Skype). Participation needs to be incentivized when the network effect is low (as in DropBox).

Clearly not all platforms offer network effects. Yet the network effect can have a profound effect on how business models are designed – it is cheaper to market them.

Some platforms benefit from an indirect network effect:

AirBnB users benefit when there are more apartments; Uber users benefit when there are more taxis. These types of services have grown as match-pairing technology improved and it might be the ability to match needs rather than a network effect that makes them successful.

This is substantially different, however, from Skype where each user needs another user, not another Skype or service provider.

 GrabCad members do need other members but not in a truly imperative sense. Having access to other members lies in the category of “very nice to have” rather than “must-have”. The counter parties truly add value without causing dependency.

Here are Parker & Van Alstyne’s examples of two-sided markets:

” credit cards, composed of cardholders and merchants; HMOs (patients and doctors); operating systems (end-users and developers), travel reservation services (travelers and airlines); yellow pages (advertisers and consumers); video game consoles (gamers and game developers); and communication networks, such as the Internet.”

The network effect on AirBnB and Uber looks weak in comparison. Indeed even these examples are indirect rather than direct, with the exception of credit cards. There is a point where any market can claim a network effect if the definition is diluted. Cars are platforms for parents and children? The catwalk is a platform for attraction and repulsion?

In many instances, though, the new platform is enabling productive activity. In the case of GrabCad, the objective is to share design drawings in order to reduce the development time of new products. In open source platforms a similar productive activity is taking place.

In these cases too the platform has a network effect but is not bound by a two-sided market. It is bound instead by a moral framework. The only way to achieve the moral objectives of the community is to recruit ore members and evangelize it use.

In cases like App Stores, which are the epitome of the modern business platform, the network effect is actually negligible. There is no compulsion for anybody to buy an iPhone because of the apps on it. On the other hand the availability of thousands of apps makes it possible to achieve two ends:

The first is an advocacy community for the iPhone and Apps Stores

The second is extreme personalisation for every user.

Platforms have many characteristics that make it difficult to nail down one definition.  In unusual cases they have network effects. In some cases they are advocacy communities that propel a platform symbiotically with its advocates. In other cases they are bound by a shared moral objective. Each of these gives a clue to how to engineer participation.

Here are some other examples.

The last column in the table below refers to the degree to which an actual exchange is a focal point of the platform. Exchange can be a high or low focus or it can be direct or indirect.

“Multiparty” is a new development in platform environments, beyond two-sided markets. For example Apple’s struggle with Health Kit is going to be making it work for multiple-sided markets including hospitals, family doctors, labs, devices, monitoring services, analytics and users. In that sense the market itself becomes ecosystem-like and poses new degrees of complexity on marketing and coordination.

PLATFORM Network effect Two-sided market Multi-sided market Exchange
Quirky Low No No Medium
AirBnB Medium Yes No High
GrabCad High No No Indirect
App Store Low Yes No High
Health Kit Medium No Yes MultiParty
Credit cards High Yes No High
Billing Medium No Yes Multiparty

I’ll come back with some more thoughts in the next few days. Here is a definition provided by Gawer, taken from Parker & Van Alstyne:

“Industry platforms are products, services or technologies that are developed by one or several firms, and which serve as foundations upon which other firms can build complementary products, services or technologies.”

I don’t find this enlightening but I do think it illustrates the difficulty of finding a good definition.


How we define a business platform goes a long way to shaping how we see the new economy. In my view there is no satisfactory definition out there yet.

Alex Moazed, CEO of Applico Inc, had a go at defining it recently:

A platform is a business model that creates value by facilitating exchange between two or more interdependent groups, usually consumers and producers.

The definition has the advantage of brevity but it doesn’t encapsulate what platforms are really about and how they function.

Along with David Card, SVP at GigaOm research I have been searching for a more encompassing decision for a new paper on IT-Business integration, due to be published end June.

We’re clear that many things are described as platforms even though they have quite different characteristics.

Netflix’s description of its internal processes suggests these are now largely “platform” based. Their cumulative effect is to enable an exchange. But organizing a whole enterprise around platforms suggests the concept has to mean much more than exchange.

It’s clear from this that “platform” can be a powerful term for internal reorganization.

Another feature of a platform is that it enables other people to create or produce. In that context it usually also facilitates exchange, as Alex Moazed says.

These platforms also tend to be tightly coupled to ecosystems, or loose groups of people who use a shared production resource such as an SDK and a “platform”.

Then there are platforms that are very much about exchange  marketplaces like eBay and Etsy.

And GE stakes a claim for its industrial data initiative also to be called a platform. In this case GE generates data from its global installed base of energy turbines and offers that out to a developer community via data APIs.

platform graphic

What about Expedia’s transaction platform, which 5,000 businesses now use as the back office to small scale travel businesses?

Or AirBnB’s, which is a resource sharing platform, as is Uber’s. And yet, then again Quirky has developed a platform that is almost wholly production orientated, and so too has GrabCad, a platform for engineers who want to share designs. Isn’t Kickstarter a platform? And the Respect Network, a platform for storing personal data.

There are huge differences between these projects and yet there is also commonality.

The commonality is the enabling factor. They are not selling a product to a consumer. They are enabling financing, production and transaction. These factors mean the platform is the economy. It is facilitating the factors of production and exchange.

More formally it facilitates the sharing of core services, the development of co-productive resources, and the development of marketplaces.

Skydivers, Mountaineers and Bicyclists – An Update on Google’s Project Glass

Realtime feed of skydiver wearing Google Glass prototype in descent to Moscone Center in San Francisco, June 27, 2012. Source: Google

Google had fun at its latest I/O developer conference with a theatrical level performance including skydivers wearing Google’s electronic glasses streaming live realtime video as they descended from high above San Francisco. As they landed on top of Moscone Center they relayed their payload to awaiting mountaineers who repelled down the side of the building. The payload was quickly transferred to bicyclists who road through the auditorium to cheering fans and up onto the stage to an awaiting Sergey Brin (see video).

Latest Details on Project Glass

Nonetheless, the theatrics provided some new information including the announcement that the glasses will become a product next year, and prototypes (i.e. beta version) are now available for $1500 to well-heeled developers flourishing in the Google ecosystem.

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Everyone Beware: Microsoft is Alive Again and May Become an Elastic Enterprise

A giant has awakened.  Microsoft’s alliance with Barnes and Noble is a major market signal. It should be a wake up call for everyone.  Yes, it’s a great deal for Barnes and Noble and just what the doctor ordered (see my previous blog on B&N). But, it also builds up Microsoft’s business platforms and adds an established e-commerce engine to Microsoft’s repertoire that could add to the appeal of Windows 8.

Yes there are detractors. On Yahoo Finance’s Daily Ticker, Dan Gross quipped, “The desperate got married to the hopeless,” and Henry Blodget added “My guess is that this is rearranging deck chairs.”  I am a fan of both commentators. But, in this case, there is more to the story. The bigger story is about the overlooked overhaul and transformation of Microsoft, the company. Continue reading