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.

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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.

 

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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.

A Short Definition of “Elastic Enterprise”

In the book we explain in detail how the Elastic Enterprise functions. I thought it would be useful to have a short definition as well so here goes:

An elastic enterprise is one where growth and profitability rely on a range of external factors and automated business relationships that help scale business at low cost relative to the returns that elasticity uniquely makes possible.  The external factors are critical resources  such as developers, suppliers and customer ingenuity that do not figure on a balance sheet but are instead self-directed entities or partnerships that exist in a recognizable business ecosystem, usually supported by a business platform.

The core competency of the company becomes the orchestration of these independent entities.

The elastic enterprise resource strategy typically sees resource allocation become resource attraction and assembly orchestrated by a lead company.

Elastic enterprise strategies are typically multi-sector because the capacity to orchestrate business through a combination of platform and ecosystem becomes a new core competency. That core competency in turn enables companies to make radical adjacency moves into new markets as competency grows in attracting and orchestrating independent resources. Radical adjacency is one of the toughest of all business moves but it seems to come easily to truly elastic enterprises, signalling a new era of strategy in business.

Radical Adjacency Strategy Revs Up

I wrote this over on Forbes a couple of months back. It’s really relevant to the Elastic Enterprise so, forgive some of the duplication, I wanted to air the issues again. This was written when I was trying to introduce the term and the idea. Another reason for raising it is we are very interested to hear of examples of radical adjacency – those that are working and those not.  Seen any? Would you like to comment? Continue reading