How Platform Strategies Continue to Create Value

Platforms were once considered small and even quirky additions to business strategy. This is no longer the case: In 2018, companies deploying platform business models continue to surprise and challenge conventional approaches to creating value.

Platform companies have also been among the first to recognize and harness data-centric strategies, and many have moved to the forefront of a wide range of disruptive technologies, from cloud computing to IoT. In the process, platform companies have become powerful engines of innovation that play an increasingly integral part in economies throughout the world. A number of companies shared their journeys at our 2018 MIT Platform Strategy Summit. Their stories illustrate a number of broad principles that represent the locus and control of platform value today.

1. Technology, scale, and smart risk management. Executives building and operating platforms pointed to the interplay between technology, scale, and smart risk management. The CEO of Topcoder, Michael Morris, observed that to reduce transaction costs and grow network effects, companies must manage risk. Intelligently absorbing risk helps pull new transactions onto the platform and grows the enterprise.

For MuleSoft, a provider of API services, the transition from manual to self-service options reduced friction and accelerated employee onboarding times from weeks to minutes. MuleSoft’s CTO Uri Sarid said that “there has to be value in the platform, and self-service reduces friction in setup. Service in seconds is digital; service in days is not.”

The implications for emerging technologies were also discussed. Eamonn Maguire, global lead in financial services at KPMG, led a discussion with Gerhard Lohmann of CFO Reinsurance, Jalak Jobanputra of FuturePerfect Ventures, and Kiran Nagaraj of KPMG about blockchain technologies and where they might also contribute to reducing friction across platforms. Naturally, the answer was “it depends.” Some argued that blockchain still cannot match current transactional means of processing international payments. Others pointed to the significant gains that could be made in deploying blockchain to improve the efficiency, security, and transparency of areas like insurance, which are notorious for complex, siloed, paper-based processes.

2. The power of specialization and advanced decision engines. As platforms mature, they often become more complex and more specialized. This creates new management challenges and the need for more sophisticated decision engines to harness value.

Uber provides a case in point. Irfan Ganchi and Ahmad Anvari, Uber’s top product management executives, pointed out in their presentation that Uber now does 5 million forecasts every minute to balance supply and demand. But forecasts are not enough: The company also has had to develop sophisticated incentives to act on these estimates.

The company deploys dynamic pricing as one lever for minute-by-minute matching of riders and drivers. Over longer intervals by week, month, and quarter, it uses incentives such as guaranteed surge and marketing and various customer relationship management strategies. As the company has moved into food delivery with its Uber Eats service, forecasting and incentives should advance cross-platform network effects — among drivers, couriers, restaurants, riders, and eaters. While Uber has particular challenges associated with being hyper-local, the company’s experience illustrates the heavy investments that platforms are making into advanced decision engines.

3. Data-driven, AI-savvy platform talent. Many companies have built data analytics teams. However, Airbnb’s leadership team is taking things a step further. As head economist Peter Coles explained, the company believes data is so strategically important to its success that it is building an internal data university for its employees, now numbering over 3,000. The vision is to empower every employee at Airbnb to make data-informed decisions by providing data education that scales by roles and teams across the entire organization.

Realizing this vision requires investment in training as well as in tools and company-wide data infrastructure. This points to the fact that platforms may be data-rich, but the value of this bounty cannot be harnessed without dedicated investment in skills development across the organization and supporting infrastructure and tools.

Rapid innovation around AI will further challenge companies to embrace data-driven business innovation and new skills development. This was the central theme of the panel chaired by Mona Vernon, chief technology officer at Thomson Reuters Labs. As Michael Palumbo, the technical product manager of Rolls-Royce’s R2 Data Labs, said, the “people who can cleanly identify problems and next steps” will be in high demand as jobs evolve in an era of AI. In a cautionary note, Ian Myers, CEO of NewsPicks, pointed out that platforms themselves can introduce bias, as content recommendation engines are designed to give users more of what they have already consumed — demonstrating some limits of technology that companies should consider.

The power of the platform to create value can also be seen by helping companies discover new revenue streams. The most common secondary data use today centers around advertising, but we expect many more uses as data rights are worked out and markets in data develop. The potential for both health care delivery and development was discussed by Alice Raia, vice president of Digital Presence Technologies for Kaiser Permanente, and Valérie Abrell Duong, vice president of Information Technology & Solutions for Sanofi. Thomas Friese, vice president for Digital Ecosystem Platform of Siemens Healthineers, described how external parties seek access to their image database in order to develop new services.

4. Building value through diversity. Productivity is one measure of value — but not the only one. Diversity has also shown to be a driver of value for organizations, and there is growing evidence that diverse teams are sharper and more creative than homogeneous teams. Yet, the tech sector is an area that often lags significantly. For example, tech employs half as many African-American and Hispanic workers compared with the rest of the private sector. Can a platform help?

Rodney Sampson, the cofounder of Opportunity Hub, believes so. He and his team are drawing on platform principles to connect demographic groups that are underutilized and underrepresented in the tech community with companies that are looking for talent. As part of its strategy to expand supply, Opportunity Hub has inked a partnership with the Flatiron School, a coding bootcamp recently acquired by WeWork. In addition to programming and data analytic skills development, the “inclusive ecosystem,” Sampson explains, also provides unique networking opportunities (such as a scholarship to attend the South by Southwest conference), startup resources, workspaces, and access to funding programs.

5. Tackling ever more fragmented markets. Fragmented markets have been longstanding hunting grounds for platform business models. This continues to be the case in ever more complicated and splintered markets, such as music.

In a panel examining the intersection of music and platforms, Nathan Hanks pointed out that major brands spend more than $20 billion annually, but music currently captures only $2 billion because of the splintered nature of the market. Music Audience Exchange, which Hanks founded, helps to flip the model where the brand makes a promotional piece for the artist, which is then matched, leveraging music metadata collected by the platform to audiences across multiple media channels from TV to streaming services. This is possible in part because platforms separate access from ownership, as Joe Belliotti, founder of Noisegate, noted.

Platform innovation strategies can also serve investors. Nick Terzo highlighted how Royalty Exchange is building music rights in ways to make them more accessible to a range of institutional investors. Fabrice Sergent noted that, despite the extreme fragmentation of the live music market, Bandsintown now has 38 million registered fans and 430,000 artists since it was founded in 2007.

In short, the 2018 Summit highlighted that the adoption of platforms continues to transform industries and create new value where it did not exist before.

The authors cochaired the 2018 MIT Platform Strategy Summit. See platforms.mit.edu for the agenda, speaker slides, and biographies. A full Summit report will be available there in early fall.