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A Brief History of Platform Thinking

· PLATFORMS

Platform thinking is one of the most confused and confused areas of business writing. The reason is that early attempts to analyse platforms come from a different tradition than the one most prevalent today.

So you go to read about platforms and you wonder why is everybody writing about two-sided platforms?

Here's a primer that will help you understand what's going on.

The early history of platform thinking

The early attempts to analyse platforms were driven by anti-trust policy concerns, or put more bluntly, how do you regulate a company like Google? That literature predates what I think of as the modern business platform and focuses instead on companies like Microsoft. It is highly specialised (it won a Nobel Prize for Jean Tirole) and didn't really penetrate out to the wider business community.

Nonetheless it needs to be understood because today's platforms definitely stand in contrast to the platforms that many writers have been analysing. At least the primary concerns have changed.

That's one reason why people new to this area get confused. much of the literature is focused on a different phenomenon.

Analysis during the 1990s-2007 focused on two-sided and multi-sided platforms. That emphasis has carried over to today but as I said just now the primary concerns have changed and so much of what you will read is infused by old concerns.

In the 1990s and early 2000s, economists wanted to define policy actions to compensate for what they saw as poor market mechanisms that were allowing platforms like Microsoft's operating system and Wintel's computer chips to dominate global computing.

The lack of policy action was allowing platforms to become too powerful.

Platforms at this stage meant those like Microsoft and Intel, and IBM, which controlled the PC market globally along with Apple. It was only after about 2003 that it became clear that a modern platform, Google, could be even more powerful.

By then regulation had largely failed and it is still failing - to the point where it is largely irrelevant.

These academic concerns however raised issues that have surfaced in the commercial environment more recently - issues like privacy, trust and reputation, which companies like Airbnb have done a lot to advance.

(For a discussion on that literature the Joint Research Committee at the EU recently published a summary of the issues (a second paper can be found here)).

Alongside this anti-trust strand of platform thinking there was a kind of revelation in the 1990s that businesses were becoming more cooperative rather than competitive. The idea of cooperating to compete began to appear along with terms like co-epetition.

This strand of thinking affects how people see today's platforms. It means people often frame the platform as a co-epetition space.

The legacy of that line of analysis is that we tend to talk about platforms as being two-sided or multi-sided (this seriously limits our ability to understand ecosystems in my view), and as having network effects (they generally don't and thinking that they do leads us to underestimate the power of content).

The two major advances of that early period were James F. Moore's pioneering work on the business ecosystem (already emphasising the horizontal nature of the reach of companies like Apple and IBM) and Gawer and Cusumano's Platform Leadership (focused on Microsoft and Intel). Iansiti and Levien were ploughing the same furrow successfully too.

Moore's work on Business Ecosystems is very far-sighted. He sees the ecosystem as an emergent phenomenon in many areas of business in the 1990s and suggests that eventually it becomes part of a co-decided, cooperative strategy between participants.

Think for example of all those companies researching new products in computer storage. While they can all start out with crazy ideas, eventually one or two paradigms will emerge each containing a consensus about hard storage, random access or flash memory. From here on, it pays to work within those paradigms rather than assume there are other emergent paradigms that will get you faster to market.

However, the environment Moore was describing seems to me to be what we would now call an innovation ecosystem.:

A business ecosystem, like its biological counterpart, gradually moves from a random collection of elements to a more structured community.

Steven Klepper pointed out during that same period that most industries have a burst of innovation activity that usually ends in oligopoly as the new champions buy up competition and reset barriers to entry in an industry. It seems to me this is what Moore is describing.

Moore's work was indebted to the contemporary anti-trust concern about the impact of platforms and cooperation because it is also, essentially, about how companies come to form consensus and learn how to cooperate.

You might say by now that the monopoly horse has well and truly bolted. But these early works are essential reading for anybody who wants to understand business ecosystems.

The new business platform thinking

The view Nick Vitalari and I took in The Elastic Enterprise was that modern business platforms and ecosystems differ from those described by researchers from the classical tradition in that the new business platform was not part of a well-marshalled phalanx of cooperating companies such as those in the Wintel ecosystem.

Nor were they functioning within the norms of classical economics and nor were they forming new structures in the way that many innovation ecosystems do, typically through oligopoly and high barriers to entry.

Nick and I were describing a situation where economic activity took on an entirely new vitality - for example the apps economy that grew off the back of iOS and Android is thought to have created well in excess of 2 million jobs in the US and nearly 5 million in Europe in the space of about 5 years.

The new platforms were able to scale like no company had ever scaled before and they were able to marshall ecosystems substantially bigger than anything we might have imagined was possible. There was no need to buy up the ecosystem or to raise barriers to entry - in fact a rule of platforms is that barriers to entry have to be low.

The new business ecosystem signalled a break with old economics.

In that mix are tens of thousands of new companies that have come and gone, as well as many hundreds of thousands of freelance workers. We have also seen the economy become more polarised as platforms have grown in scale and as small companies have become more globalised.

Rather than becoming a more structured community the companies that survived this process have done so through the development of powerful content ecosystems that create and distribute literature that supports progress, learning, tools' dissemination and innovation. Content, I believe, replaces structure.

The new descriptive writing about today's business platforms goes back to this period 2011/2012. There has been Alex Moazed and his team at Applico, probably still the leading company when it comes to some form of app-based platform strategy and implementation. Phil Simon had written The Age of The Platform in 2012. Vitalari and Shaughnessy published The Elastic Enterprise in the same year.

Much of Vitalari's earlier work on platforms was published internally at the Think Tank nGnera, a contributor to the Wikinomics community and I was lucky enough to get a chance to work with him on these issues.

Over the next couple of years John Hagel produced some interesting overviews of the impact of platforms and that in turn led to the idea of platforms gaining wider currency and seeming more mainstream even though 2010/2011 was probably peak platform if judged by the number of companies that rushed into some kind of API program and tried to develop business ecosystems among the developer community.

The period 2013 to 2016 was pretty quiet on the platform analysis front, at least in terms of work that was aimed at a wide audience. Academic writing on platforms was backfilling the analytical paradigm on issues like price and growth.

In 2016 the Harvard Business Review ran a series of articles on platform business models with articles by experts such as Evans and Schmalansee (see below), and Alstyne and Parker. A weakness of the HBRs series is the sense that we know more than we really do but at least there was some mapping of the problem domains. A second issue was the US-centricity of much of the material. Platforms, I believe, cede the future of growth to China and we should be looking to how Chinese platforms perform.

I can think of a third issue. In my experience platform strategies are very organic and there is no formula for how to create them. When I do consulting projects I emphasise small steps to big changes, organic moves that draw people into new ways of thinking and working.

But in the business world, after a few years of the apps economy, "platforms" suddenly became synonymous with Airbnb and Uber.

Ironic then that as Airbnb and Uber were enjoying growth success, the world of platforms was being turned on its head by BitCoin and following in its wake companies like Ripple and Litecoin.

Platforms are essentially disruptive so it should be no surprise that the platform environment was

being disrupted just as it seemed that that these two companies seemed to offer a simple model of what platforms are all about.

Around 2015/2016 there was the beginnings of a global perspective. The Centre for Global Enterprise produced a global survey in 2016; Zennon Kapron and Shaughnessy wrote about Chinese platforms and global disruption; and more recently the topic has beed taken up from an African perspective at Fibr and I have been attempting to keep some of that work updated since. I'll be discussing it again at the Austin Forum in Texas on January 10th.

In 2017 there's been a rush of new work on platforms. In general it is fair to say that much of it is a reflection on the longer experience of platforms in the pre-BitCoin world, beginning with Platform Revolution; and taking in works such as McAffee and Brynjolfson's Machine Platform Crowd; Evans and Schamalensee's Matchmakers; and Reillier and Reillier's Platform Strategy.

Paul Hobcraft and Jeffrey Philips have also switched their work to platforms and ecosystems and Simone Cicero produced his platform design toolkit. Many of the major consultancies have now moved into the field with McKinsey and Accenture helping platform thinking to become part of the consensus.

With all this brain power focused on the platform it is perhaps surprising that we are still in the consensus forming period. But it is true to say that right now there is no real agreement on what a platform means or what an ecosystem is. In its place we revert back to that early period and talk about two-sided and multi-sided platforms or marketplaces and therefore miss some important strategic tools.

It seems to me it is time that we put some basic definitions in place so that we can debate the important concepts and move the debate on. I'll come back with a new post on what I think platforms are and what is next for platforms. But for now I think it is worth saying that the early and the new are too mixed up. Old anti-trust concerns continue to impose an agenda on new business platform writing but times have moved on.

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