Why should product managers wear platform thinking hats?
Last couple of weeks have been extremely stimulating for me because I have been reading a very powerful book called The Platform Scale. The book deconstructs the prevailing business order that is transforming the world like never before. Internet has been there for a few decades now, but what has transpired in the last decade has unleashed new billion dollar businesses out of nowhere that have disrupted and displaced many traditional businesses like Facebook, Uber, Twitter, AirBnB etc. Chris Andreessen’s article “Software is eating the world” few years ago had heralded its beginning. Software has “eaten” media, telecom, professional services, and retail and is increasingly “eating” banking, healthcare, education, energy, transportation — practically everything imaginable. Platform Scale lays threadbare the inner workings of this new world order.
In my latest podcast, I had an opportunity to interact with the author of this phenomenal book, Sangeet Paul Chaudhry and what a fascinating interview it turned out to be!
About Sangeet Paul Choudary
Sangeet Choudary is the Founder and CEO of Platform Thinking Labs, best known for his work on platform business models and multi-sided network effects. He is also the co-chair of the MIT Platform Strategy Group at MIT Media Labs, Boston, an Entrepreneur-in-Residence at INSEAD Business School, a Global Fellow at the Centre for Global Enterprisein New York, a speaker atthe G20 Summit 2014 in Brisbane and an advisor at 500Startups in Silicon Valley. At the G20 World Summit 2014, Sangeet was hailed as a forefront researcher into how businesses can better use metadata and current technology. He has advised C-level executives globally on platform and network strategies, has been featured on leading media globally and has lectured at the world’s leading universities. Sangeet has been ranked among the top 50 business thinkers globally, of Indian origin, for the year 2015, by Thinkers50. Also he is the youngest person on a list that is largely composed of people who are 50+. Thinkers50 is widely considered the oscar awards of business thinking
Brief highlights of the interview with Sangeet:
- The crux of the book is about the shift of business models from pipes to platforms. What’s the difference between businesses that operate in pipes vis-a-vis new businesses that are now platforms?
Fundamentally business models fall into two families: pipes and platforms. The main difference is that pipes create value and push it out and someone external consumes that value. The value here is flowing in a single direction which is called a pipe model. In a platform however, someone external to your business comes and plugs into your business, creates value and someone else externally consumes that value. You as a platform are only involved in facilitating that interaction. The other important aspect of the platform to succed is to ensure that both the producer and consumer of value can easily and seamlessly plugin to your business and you need to facilitate that interaction. So the focus of the business moves away from creating value to facilitating interactions between producers and interactions. For example, media functioned in pipe models before but today most media houses express themselves in Youtube and other channels to reach users. Hotels were pipe models too but AirBnB built a platform. Taxi industry functioned in pipe model. Uber on the other hand operates in platform way.
- In the early chapters of your book you say “We are no longer in the business of building software.Technology by itself is commoditized. We are increasingly moving into the business of enabling efficient social and business interactions, mediated by software.” What does it mean?
If you look at all the big companies today, none of them build software anymore. If you have SAP, Oracle, Microsoft, all of them used to make software as an end product — you sold the software. Today, what’s happening is Facebook doesnt sell software. Google doesn’t sell software. Amazon doesn’t sell software. They use software as a means of conducting their business, which is enabling interactions between people. So Google is an interaction between people who are looking for something and people who are creating content about it. If I create a webpage, Google helps to expose it to everybody else. So there is an interaction happening overtime over Google search. Real-time interaction is happening in Facebook between people who are connecting with each other and talking. In Amazon, there is an interaction between merchants and writers and readers. So, this producer-consumer interaction is what software is fuelling. And increasingly we are seeing that the most valuable companies today are not just in the business of selling software. The only exception to these are companies that claim to be selling software and they are called as software as a service companies.
- In one of your chapters, you explain emergence. You say platforms can be designed based on a set of rules, but they emerge of theiro wn accord. And then you share the example of Twitter. What does emergence mean in the context of platforms?
The idea of emergence comes from a lot of people’s work — most recently and notably from Steven Johnson’s exploration of this subject. As per emergence, you have large outcomes coming out of really small actions. These are small actions that follow a certain micro-pattern without knowing about the macro-outcomes that are supposed to come out of it. Essentially you cannot design for the big outcomes all the time. Twitter is one of the best examples of how real big outcomes emerge. Twitter at the heart of it is just a software for creating 140 characters. There is nothing profound about the software itself. But if you look at the outcomes that emerge out of these simple actions they are huge like the Arab spring, big global movements, people career’s taking off, reputation goes down in a flash on Twitter. These outcomes were never expected by the designers of Twitter when they build it at the outset.
- One of your chapters covers a common conundrum of building a platform: whether to build producers first or the consumers. The section is aptly named chicken and egg problem. Can you explain briefly on how to resolve this conundrum?
It really depends upon the markets that you are going after. For some markets , its easier to get producers and some markets its easier to get consumers. So you need to figure out which side needs the other side more. The other aspect is that some platforms by definition are producer focus rather than consumer focus. For example, if you are building Kickstarter, you cannot get people funding the project unless you have people creating the project. You need to know who your primary customer is. In some cases, you can know who is the primary user and needs to come first. In cases when you dont know, then you focus on who is easier to get that then get them first. That’s how you typically solve the chicken and egg problem.
- What does it take for an enterprise piped organisation to transform itself into a platform company? How fast/slow is the transformation?
That has been the focus of my work lately — to transform large piped organizations into platforms. It’s one thing to build a platform from scratch and totally different kind of challenge to convert a large organization into a platform. Different companies are doing it in different ways. If you look at a company like Wallgreens, which is a large retailer in the US and are converting into a platform they sell medicines, and as a customer you use their digital services, The know data of what kind of medicines you are taking and what kind of problems you mught have. And they are also creating a tele medicine platform connecting buyers to experts who can help them with their problems and helping in behavior designs to take medicines on time. They also connect buyers to other people in their area. Hence, they are moving from a very traditional model of selling something and be done to creating a platform where people can come and keep interacting on ongoing basis.
This whole idea of pipes becoming platforms is only 3–5 years old. It wasn’t happening before that. The only company before which moved from pipe to model was Apple that transformed in a successful way. Earlier it only sold hardware and not software. From there, it moved completely to a platform driven model. Amazon too started as a pipe and moved to platform. There are very few companies that have moved a legacy of piped business into platforms. Only in the last three-four years we have seen companies like Nike, Wallgreens, McCormick foods that are in the direction of transformation into platforms. What that means is that we havent seen big results in full transformation of big corporations yet. How long will these companies take to transform is not entirely known. Will it take faster than they are going to be disrupted by other players is a prospect to be seen.
- The last section of the book on reverse network effects, begins with a statement that says that the era of big corporations may be drawing to a close, but opens of an era of big ecosystems, built around network platforms. What does the future look like.
I cover this subject in detail in my next book, Platform Revolution. It was recently reviewed in the New York Times. The article says that you should be mindful of the frightful five companies — Apple, Amazon, Facebook, Google, and Microsoft who could own most of the future profits. In the past large corporations were large because they owned the backend supply like the oil and railroad corporations. In the future, the large corporations will be large because vast sections of the economy will be built on top of them. So, if you think of Uber, they are trying to have everything related to transport and logistics built on top of them. If you think of Amazon, anybody who uses software in some form traces it back to Amazon’s Web Services. So the companies that will be able to harness these large ecosystems building on top of them will be the ones that will be the biggest in the future — not the ones that sells most number of units as such. That is what I meant by “future will belong to companies with large ecosystems”.
Other questions posed to Sangeet:
- You have established yourself as an expert in this domain where you consult organisations and C-level executives globally on platform strategy. I am curious to know what led you into this field and how did you rise to become a thought leader in platform strategy.
- Of the many successes of platform companies, the most fascinating for me is Instagram. Could you explain us the reasons for Instagram’s astronomical success?
- You have a book following this called Platform Revolution. Since this book by itself was so comprehensive in its content, what else do you cover in Platform Revolution?
Listen to the entire interview here:
Books by Sangeet
“You know you are building a platform if your users are using it in ways you have never imagined”
“Data is the new dollar.”
“We are no longer in the business of building software. We are increasingly moving into the business of enabling efficient social and business interac- tions, mediated by software.”
The goal of the platform is to enable interactions between producers and consumers — repeatedly and efficiently.