The Dis­rup­tive Power of Plat­forms

Rotman Management Magazine - - NEWS -

We used to live in a world where busi­nesses op­er­ated ‘pipe­lines’, cre­at­ing prod­ucts and ser­vices that flowed through a lin­ear value chain from sup­plier to con­sumer. But in­creas­ingly, mar­ket up­starts are lever­ag­ing con­nec­tiv­ity, de­moc­ra­tized tools of pro­duc­tion and re­cent de­vel­op­ments in ar­ti­fi­cial in­tel­li­gence to chal­lenge this lin­ear flow of value — build­ing ‘plat­form ecosys­tems’ that en­able value ex­change across a net­work of par­tic­i­pants.

Th­ese plat­forms do not need to cre­ate value them­selves: in­stead, they aid in the cre­ation of value by pro­duc­ers and con­sumers in their net­work. Plat­forms cre­ate in­cen­tives for par­tic­i­pa­tion, pro­vide a plug-and-play in­fra­struc­ture for peo­ple to con­nect, and rules that fos­ter in­ter­ac­tions. doesn’t cre­ate its con­tent,

its web pages, its apps, or its store fronts. Th­ese suc­cess­ful plat­form com­pa­nies have led the way, fol­lowed by en­trants like and Each has grown rapidly by ag­gre­gated ecosys­tems of value in a very small pe­riod of time. We have ob­served that two nar­ra­tives char­ac­ter­ize this dis­rup­tion: News­pa­pers were the first to feel the heat as ‘ef­fi­cient pipes’ beat in­ef­fi­cient ones. The In­ter­net of the 1990s cre­ated a vast global in­fra­struc­ture for the dis­tri­bu­tion of con­tent and ac­cess to mar­kets at near-zero mar­ginal costs of dis­tri­bu­tion. News­pa­pers were rapidly dis­rupted be­cause of the In­ter­net’s abil­ity to de­liver news glob­ally for free. The fur­ther un­bundling of clas­si­fieds and ad­ver­tis­ing from news into mul­ti­ple pipe­lines fur­ther chal­lenged the tra­di­tional news busi­ness model. While the en­tire in­dus­try suf­fered, two types of com­pa­nies played by new rules: on the one hand, cre­ated a mas­sive em­pire by ag­gre­gat­ing un­bun­dled ad­ver­tis­ing and grow­ing that mar­ket fur­ther; on the other hand, tra­di­tional me­dia houses like

shifted their fo­cus from ad­ver­tis­ing to on­line clas­si­fieds to in­stead own the mon­e­ti­z­able por­tions of the news busi­ness.

In a sim­i­lar man­ner, rise as an e-com­merce store trig­gered the fall of re­tail­ers like while also putting many tra­di­tional mom-and-pop stores out of busi­ness be­cause they could not com­pete with Ama­zon’s su­pe­rior dis­tri­bu­tion eco­nom­ics.

like­wise, beat by lever­ag­ing a data-rich pipe­line to first dis­rupt rentals and then sub­se­quently change the game to stream­ing. In short, Ama­zon and Net­flix built ef­fi­cient on­line pipe­line busi­nesses with bet­ter scale eco­nom­ics, suc­cess­fully dis­rupt­ing their off­line coun­ter­parts. Over the last decade, we have seen a sec­ond wave of dis­rup­tion sweep across in­dus­tries: plat­forms are now beat­ing pipe­lines. The most suc­cess­ful busi­nesses on the In­ter­net to­day are plat­forms, and their rapid scal­ing is en­abled by a com­bi­na­tion of four fac­tors:

Plat­forms are as­set­light and serve pri­mar­ily as the in­fra­struc­ture that en­ables pro­duc­ers and con­sumers to in­ter­act. Plat­form in­fra­struc­ture often has large fixed but low mar­ginal costs, so the cost of scal­ing sup­ply is min­i­mal. At the same time, de­mand con­tin­ues to ben­e­fit from the su­pe­rior eco­nom­ics of the In­ter­net. When Ama­zon moved to a plat­form model, it scaled its sup­ply with­out bear­ing the mar­ginal costs of op­er­a­tions. Plat­forms ben­e­fit from su­pe­rior mar­ginal eco­nom­ics on both sup­ply and de­mand.

In an ecosys­tem, more pro­duc­tion leads to more con­sump­tion, and vice versa. This en­ables plat­forms to build large busi­nesses with­out in­vest­ing heav­ily in ecosys­tem cre­ation once they achieve crit­i­cal mass.

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