The Disruptive Power of Platforms
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.