The Value Proposition of Platforms
Each participant in a platform ecosystem gains access to a unique value proposition. Platform owners, application developers, and end users all benefit from the power of the platform.
Platform Ecosystems: Aligning Architecture, Governance, and Strategy by Amrit Tiwana
This book covers all aspects of software platforms and is written in clear and succinct style. It’s hard to find books on this topic that describe the many facets of this business model. Tiwana succeeds in exploring platform ecosystems from technical, business, and operational perspectives. Where other books trace a single aspect of platforms, Tiwana summarizes each attribute in a concise package with plenty of references.
Software platform participants
There are three types of participants in platform ecosystems: the owners of the the platform, the application developers who build on it, and end-users who use the applications. Each participant derives unique value from the platform. Platform owners enjoy large scale distribution and a transfer of risk related to development costs to other parties. Because development costs and innovation are owned by application developers, platform owners do not to incur the risk of those investments. Application developers can often enter a ready-made and more streamlined environment for creating value and experiences. On popular platforms, the audiences have already been attracted and the developer has a lower barrier to accessing customers. Consumers accessing a platform reap the benefits of focused competition, standardized plug-and-play offerings, and rapid innovation. App stores and platform marketplaces reduce search and transaction costs by providing a central distribution location.
Although they reduce certain risks, platform owners bear the burden of attracting both users and developers. Platform owners take advantage of large scale innovation from the creativity and financial incentive structure of application developers. Platforms also provide scalability for marketing and advertising.
Application developers are closer than platform owners to market needs and user desires and can more effectively drive development of new capabilities. By bringing many different perspectives and skill sets to the platform, the platform owner benefits from a broader range of new ideas and approaches. Kindling healthy competition among its developers is a key strategic imperative for platform operators.
As developers bring their applications to market, they bear the risk (and reward) of success or failure. If there are sufficient success stories, the platform owner can insulate themselves from this particular type of risk. Unlike traditional software development, the platform owner effectively outsources the complexity of creating new products and services.
A unique advantage of platforms which benefits their owners is the ability to capture the long tail of the market. Whereas software companies can only effectively address large markets, platforms can meet the needs of niche markets because they provide an avenue for focused development companies to provide solutions to very small audiences. The platform owner does not need to spread their resources over many segments of a market–they let the application developers meet the needs of any target group.
Because they are amenable to network effects, platforms can offer a sustainable competitive advantage that is not easily accessible by individual products or suites. If they are designed correctly, platforms provide a set of components and services that decrease technical barriers to entry and accelerate time to market.
A platform provides the common elements that many applications share and on top of which application developers build their unique offerings. These shared assets are a huge value because the application developer can concentrate on their individual offering without re-inventing and re-building the wheel. This decreases the costs of application development and allows specialization among the development community.
Developers gain access to large markets through participation in platform development. Although popular platforms are characterized by intense competition, the path to customers is within closer reach than for an application developer working alone. Platforms typically have certification and membership costs, but those are known quantities and clear paths, as opposed to venturing on your own into a market and taking on the entire burden of marketing and advertising.
Platforms can also provide a pre-qualified set of buyers for an application developer. Given the commonality of interests among platform users, application developers lower their risk of finding their target buyers.
In addition to benefitting from faster innovation and increased selection from competition among application development rivals, end-users enjoy high levels of customization and lower search and transaction costs on platforms. A complement to the developer’s access to the long tail of customer interests, the customer can mix and match niche solutions which all work on the platform. Platform customers are less likely to have to settle for a mass market solution. Rather, they can acquire a blend of various niche offerings. Finally, platforms can serve as central marketplaces and decrease the amount of time required to find and acquire applications. Standardization of purchase and installation methods can significantly cut the time required to acquire a platform-based product.