Take a look at the companies that recently have received billion-dollar-plus exits, IPOs or valuations. High on that list would be Uber, Airbnb, Amazon, Square, Apple, Google,YouTube, Twitch,LinkedIn, Twitter, Facebook and WhatsApp.
What do these companies have in common? They are all platform businesses, and platforms are taking over our economy. Rather than owning production and inventory like most traditional businesses, platforms simply facilitate the exchange of value between consumers and producers. This approach allows platforms to scale without increasing costs, which is what’s driving the stratospheric valuations you see for platform businesses today.
Judging by the recent mega-trend of startups trying to be the “Uber for X,” the “Airbnb for Y,” or even the “Tinder for Z,” many entrepreneurs have taken notice. There’s now a would-be platform for just about everything. But while platforms are increasing in number, they’re still by and large poorly understood. They all enable exchanges between consumers and producer, but what really differentiates one platform from another?
As a Platform Innovation™ Company, Applico has spent a lot of time grappling with all of these questions, and through a mix of hands-on experience with clients and in-depth analysis and research, we’ve managed to break down platforms into a couple distinct types.
What Kind of Platform Are You?: Uber vs. Android
The most fundamental split in platform types is based on a platform’s core value proposition. In general, platforms create value by reducing search and transaction costs and by enabling innovation in complementary products or services.
Take Uber, for example. The transportation-network company has unified a fragmented industry and made it easy for potential customers to connect with drivers. Before Uber, getting a ride on demand usually required calling the number of a specific business, which had limited availability and often highly variable quality, and coordinating with them to get picked up. Anyone who has spent hours of their life waiting for a late or lost car while dealing with an ineffective or unhelpful dispatcher can attest that this arrangement is less than ideal.
By building a platform, Uber has cut out the middleman and blown up the traditional limitations on richness and reach for transportation providers. As a result, Uber enables much greater scale while also creating a much more pleasant experience for consumers.
This means that the core value that Uber delivers is a reduction of search and transaction costs for both drivers and customers (the unpleasantness of dealing with traditional transportation companies being a form of transaction cost). Effectively delivering on this promise has allowed Uber to unlock latent inventory on the producer side and latent demand on the consumer side. As a result, Uber facilitates lots of transactions that wouldn’t have taken place before.
Both drivers and consumers have been voting with their smartphones. Uber reportedly reached over $1bn in gross bookings and $213mm in revenue for 2013 while continuing to grow at a rapid rate. Similar transportation-network companies like Lyft have also been enjoying enormous success.
Now, take Uber’s value proposition and compare it to Google’s Android. Both are platforms that connect consumers and producers (in Android’s case, smartphone users with software producers), but each provides its core value in a very different way.
Android’s fundamental value is that it provides the basic infrastructure that software developers can build and innovate on top of. Put simply, Android makes it easier for developers to create software. While reducing transaction costs and providing developers with easy distribution is still part of platforms like Android (just witness the proliferation of App Store clones), Android’s core value lies in how it enables other producers to create innovative products and services.
This means that for Android and other similar businesses, the platform’s attractiveness to producers isn’t primarily based on how effectively it connects different user groups. (Apple’s App Store is a notorious mess.) Instead, Android’s value is mainly based on how well it enables producers to create on top of it. This isn’t to say that the size of the ecosystem doesn’t matter. Ecosystem scale is a crucial factor for all platforms. But for platforms like Uber versus platforms like Android, their core value proposition is very different, no matter the scale.
Exchange vs. Maker: The Basic Split and How It Affects Platform Strategy
This same dichotomy in value proposition can be seen when you compare many other platforms, like Airbnb vs. iOS, Amazon.com vs. Facebook or eBay vs. YouTube. The key difference is between platforms that provide value primarily by enabling exchanges and those that provide value primarily by enabling producers to create. We call this first type Exchange Platforms. And we call the second type Maker Platforms.
An Exchange Platform creates value primarily by enabling direct exchanges between its consumers and producers. In contrast, a Maker Platform creates value by enabling its producers to make content and broadcast it out to an audience. As a result, there are very basic differences in strategy between Exchange and Maker Platforms, especially when dealing with cultivating their producer ecosystems.
The set-up processes for producers on Uber and Android are a great a window into how these differences directly affect growth strategy.
On Uber, once drivers are approved as producers, Uber gives them an iPhone with the Uber app on it. The goal is to make it easy for new producers to connect with potential customers. All the driver has to do is boot up the app while in their car and they’re ready to go.
Android also provides support for its producers, but it does so in a very different way. Instead of a phone and app, Google offers developers a free software development kit (SDK) and integrated development environment (IDE). This type of support has proved very effective in attracting software developers, and Apple has a similar program for iOS.
Android’s support for producers isn’t directly aimed at enabling exchanges, like Uber’s free smartphone is. Instead, this initial help is meant to encourage developers to create software for Android by making it easy and cheap for them to get started.
Android, like Uber, knows what its core value proposition is and works hard to support producers who help them deliver on it. But for Exchange Platforms and Maker Platforms, this core value is very different.So while both Uber and Android provide initial support to their producers, in both cases the basic platform type determines what behavior each platform wants to enable.