A brief guide to leveraging networks for business

We all use digital platforms like Google, Apple, Microsoft, Amazon, Facebook and more, but how much do we understand about what they are, how they’re constructed, and why these platforms are the largest businesses in the USA?

Naspers owns 31% of the Chinese platform Tencent. The company paid $33 million for its share in 2001, and in a recent valuation, these shares were worth $209 billion. In anyone’s language, that is rapid growth, and that’s the point: platforms enable exponential growth more than any other business model.

Let’s look at why. The first question we need to ask is: “What is a platform?” When you do the research, a “platform” can be anything from a collection of technologies to a business model, and much else in-between. Interestingly, before the 1500s, a platform was “a plan of action or design” and only came to mean a flat surface or a foundation later. A political platform or a platform business model are both older than the modern software or digital platform definition. There are really two main types of platforms – one is a thing, and the other is an idea.

Platforms have existed in both forms since the agricultural revolution: a town marketplace is a physical platform as well as being a business platform. A digital platform is a thing – a connected set of components, assembled and arranged to create and deliver value. A digital marketplace, however, is first a business platform, then a physical platform. One can’t have a business platform without it running on a physical platform. But a business model or design often doesn’t own the physical infrastructure on which it runs. What a business platform does own are the rules of participation, conduct, value transfer, and control. In fact, they decide all these things.

An overview of platforms

There are underlying digital platforms like AWS, MS Azure, Google Platforms, and so on. Another form of underlying platform is, of course, the operating system (OS). OS platforms differ from other underlying platforms because the end-user chooses a device, which chooses the OS platform, which defines what apps will be used by whom. This is important because OS platforms grow through network effects – the more users, the more valuable the platform. I call these “underlying” platforms because the end-user never actually deals directly with them – the platforms allow developers and service providers to build apps and services that end-users employ. Underlying platforms deliver to service providers, not users.

Then there are marketplace platforms like Amazon or Takealot. They don’t necessarily own, stock, or deliver any of the products they sell – they connect buyers to sellers. There are other connecting platforms like Airbnb, which owns no hotels but is the largest hotel chain in the world. There is Uber, which owns no vehicles, but is the largest taxi service available. Then there is Google Search, Bing, and DuckDuckGo, which connect users with the content they are looking for. There are social networking platforms that connect users with users and create the “influencer” phenomenon. The list goes on.

Most of these platforms are business model platforms, and the important thing here is that network and learning effects drive their growth. A learning effect is where growth and improvement happen on the platform because of what it learns about its users. Therefore, who owns the data is critical because that’s where the value (and privacy issues) lies.

The quintessential physical platform, which is seldom a business model platform, is the enterprise platform. This is the infrastructure, systems, networks, applications, security, cloud services that are architected, assembled, deployed, and run and often owned by enterprises. It must be clear, though, that these are not business model platforms – they are essential physical and digital platforms that allow businesses to operate.

Physical platforms are linear, while business model platforms are complex. A world of difference lies in that distinction. Linear platforms allow a business to source components, manufacture products, and sell them to their customers. They are the traditional way business has been done since the industrial revolution. All well and good. But business model platforms are complex – they tap into an ecosystem, may not own any physical components, and often grow exponentially – like Tencent. The rules of engagement and marketing are different, there are multiple routes to customers, and the supply chain becomes almost automated. Here’s the question: “Should CIOs help their companies go exponential?” More than any other executive, CIOs understand the platform concept, and more than anything, CIOs can see where their company can benefit from platform thinking.