In recent years, there has been a significant shift from traditional pipeline businesses to platform-based models. This shift has unleashed powerful forces that are transforming industries and reshaping the way value is created and transferred. Understanding the implications of this platform revolution is crucial for businesses navigating the changing landscape. In this blog post, we will explore the fundamental differences between pipeline and platform structures, and how platforms are disrupting traditional business models across various industries.
What is The Pipeline Model
Traditionally, businesses operated as linear value chains, commonly referred to as pipelines. In this model, value creation and transfer followed a step-by-step process, with producers at one end and consumers at the other. A product or service was designed, manufactured, and offered for sale, and customers would then purchase the product or service. The pipeline model was characterized by a simple, single-track flow of value from producers to consumers.
The Rise of Platforms
Platforms, on the other hand, have introduced a complex relationship between producers, consumers, and the platform itself. Platforms facilitate connections and interactions among different types of users, who exchange, consume, and sometimes co-create value using the platform’s resources. Rather than a linear value chain, value is created, changed, exchanged, and consumed in various ways and places, enabled by the platform’s connections.
Basic Elements of Platform Businesses
While each platform operates differently, there are common elements that can be recognized across all platform businesses. For example, in the mobile phone industry, platforms like Apple’s iOS and Google’s Android enable users to consume value provided by the platform itself, as well as value created by developers who produce content for the platform. This exchange of value is made possible by the platform’s ecosystem.
- Revolutionary Changes Triggered by Platforms:
- The shift from the traditional linear value chain to the complex value matrix of a platform has revolutionary implications for businesses. Platforms have several advantages over pipelines, contributing to their widespread success in various markets.
- Eliminating Gatekeepers:
- Platforms scale more efficiently by eliminating gatekeepers, who traditionally managed the flow of value from producers to consumers. For example, Amazon’s Kindle platform allows anyone to publish a book, relying on real time consumer feedback to determine which books will succeed. This replaces the time-consuming and labor-intensive selection process of traditional publishing.
- Unlocking New Sources of Value Creation and Supply:
- Platforms like Airbnb have disrupted industries by leveraging existing resources rather than investing in physical assets. By connecting individuals with spare capacity directly to consumers, platforms tap into previously unused resources. Airbnb’s platform allows homeowners to provide accommodations without owning hotels, resulting in rapid growth and market dominance.
- Using Data-Based Tools for Community Feedback Loops:
- Platforms leverage data and community feedback loops to improve efficiency. By gathering signals from users, platforms like Airbnb and YouTube can determine content quality or service provider reputation. This enables consumers to find products or services that suit their needs and removes low-quality options from the platform.
- Inverting the Firm:
- Platform businesses shift their focus from internal activities to external activities because the community of users creates the bulk of the platform’s value. Functions such as marketing, information technology, operations, and strategy revolve around external resources and people. Platforms harness the power of the community to enhance marketing, optimize operations, and drive innovation.
The platform revolution is transforming industries by redefining the way value is created and transferred. Platforms outperform traditional pipeline businesses by eliminating gatekeepers, unlocking new sources of value, utilizing data-based feedback loops, and inverting the focus from internal resources to external communities. Understanding and adapting to this shift is crucial for businesses aiming to thrive in the evolving business landscape. By embracing platform models, businesses can harness the power of networks, collaboration, and shared resources to unlock new opportunities for growth.
As a digital platforms provider, Mindset understands how the platform revolution is transforming industries. By working with us, you can ensure that your platform idea is based on real-world insights and has a greater chance of succeeding in the market.
To get started with validating your platform assumptions, we encourage you to reach out to us at Mindset. Our team of experts, Michael and Patrick can assist you in identifying the assumptions related to your problem, value proposition, business model and distribution channels, and validate them using customer interviews and search data.
Contact us today to learn more about how we can help you validate your platform idea and take it to the next level!