UNIT 5
QUESTIONS BOOK REF ANSWER
PLATFORM BUSINESS MODEL CHP 12 pg
421
1. Explain the history of platforms 12.1 pg 422- Late 80’s – used in context of new product development & incremental innovation around reusable
425 components/technologies (internally or in partnership with suppliers)
Wheelwright describe how “product platforms” meets customers by modifying , adding or
subtracting different features.
Late 90’S define platforms as – a set of subsystems & interfaces that form a common structure,
- Collection of assets (components, processes, knowledge & relationships) that as set of
products share
- Platform thinking – understanding the common strands that tie the firm’s offerings,
markets & processes together.
2. Relate network effects to 12.1.6 pg Platform become relatively more attarctive to the market through managing two sided network effects such
platform business models 430-4 as using one person’s Netflix view to improve experience for another (e.g Netflix Top 10 videos weekly) thus
creating a spill-over benefit. Network effects can apply when ;
The number of products or users connected to the platform directly increases the ulitity of the
platform to all its partcipants.
Increase in availability of complementary products and service – drives on the number of
customers.
Economising on switch costs – participation on the platform reduces need to of customers to
switch and eliminates costs of switching between platforms
Platform technical standards in relation to digital technologies become “the norm”
3. Explain why platforms are said 13.4pg 473 Platforms are said to beat products because ;
to beat products -476 Value (factors of productions) shifts to outside the firm but on the platform
- Externalise Resources : Facilitate better resource utilisation, scale rapidly, need for
growth capital, reduce risk, improve RoA/ RoCE
- Scale more efficiently : internet is addressable market , core platform resource quick &
cheap to scale.
Create network effects
Reduce transaction costs
Eliminate supply chain inefficiency (margin stacking)
Unlock new sources of innovation, value creations & supply
Create community feedback loops
4. Describe transaction costs and 12.1.5. pg As transaction cost falls , markets become relatively more attractive than hierarchies . Platform sell
explain how platform business 428-430 reduction in transaction costs for both suppliers and users of the platforms through ;
models transform these
Increased trust ( ensures safety and quality without the user effort) – offer peer preview and
embedded user feedback which builds trust.
Embedded logic (offer searchable, sortable options and prices) – provides embedded logic and
algorithms to reduce navigation time (trying to figure out everything due to complex interface) for
users on the platform.
Sign up once (consummate match quickly) – platform builds a picture of users preferences and
common transactions . repeated use is nearly frictionless.
Feedback loop embedded - reduces cost associated with any risks after transactions.
5. Describe how you build a 12.3 pg 447 In order to compete on the playing field with the most successful companies of today, then one might need
platform business, paying -468 to consider a platform strategy for your business. The below states the following steps I would take to build
attention to a platform business
1. Start by exploring strategic options for platform business positioning; namely coring and tipping
Strategic options for
2. Coring will be chosen when creating a new platform where none existed before.It allows you to
platform business
create suplier and customer awareness about the platform possibilities and customer value
positioning proposition
Building communities Business Actions & Technology Actions
Launch strategies i. Dual technology-business approach in solving an essential problem for the system
Getting to Critical Mass or industry players
Engagement ii. Create a commercial incenctive and framework to attract complementors to want
Pricing to develop complementary innovations that serves as add-ons to the technology.
iii. Balance between intellectual property (closed on the innards of the tech) and the
Governance
sustainability of the platform’ own primary source of revenue and profit.
Technology aspects iv. Establish exit barriers to minimize multi-homing – ensure complementors &
customers lock-in to the platform.
3. Tipping will be chosen to achieve platform leadership where other competitor platforms already
exist thus building market momentum. It is concerned abot getting to critical mass faster than
competing platforms and building momentum to be the “winner”
Business Actions & Technology Actions
i. Use differentiation strategy in developing features for the platform that are hard
to imitate and cost leadership in attracting users to the platform. Provide more
incentives for your complementors.
ii. Drive standard adoption in the market
iii. Tip across markets – bundling customer valued features of adjacent markets to
differentiate the value proposition of your own platform.
For an e-commerce platform – makeup and skincare products use tipping
4. Pathways to build platform communities
Consider where to start building ecosystem scale , by concentrating one side more than the other .
For example for an e-commerce platform I would start by focusing on the critical mass of suppy –
to ensure variety in product offerings , create an incremental competitive supply network , look for
underserved networks then progressively add the other side to your existing single-sided business.
5. Constraints on Externalizing Assets
In considering the constraints on the extent to which platform businesses can externalize assets.
For the e-commerce platform for the skincare and make-up products , the assets are phyical and
abundant (products) will be exploited on a multi-sided market platform.
6. Launch strategies (pg 455 for more) - Follow the Rabbit launch strategy will be used to convert
the retail businesses to a platform business. The platform will be openned to external suppliers
(various skincare and makeup brands) and a portion of revenue will be taken on every transaction.
7. Track the right metrics
8. Getting to Critical Mass (getting to tipping point)
Extend existing Assets
Accelerate early supply with subsidies – the
ecommerce platform will offer SA
skincare/makeup suppliers very low
commissions to get them to sign up quickly and
use the platform to sell their products.
Tap or piggyback on an existing network –
majority of these product suppliers use social
media to serve their customer networks
(facebook or instagram) there the ecommerce
marketplace will gain access to their customer base from those networks.
Attract high value users or celebrities – the platform will rank the suppliers based on their
followers (raising their profile and desirability) and endorse products from celebrities and
influencers.
9. Engagement
Engagement will be deliberatley and actively fostered. This will be done through determining the
engagement drivers and their thresholds that are cruicial for users to stay active on the platform .
The platform will categorise product suppliers according to their product offering and
geographical positioning .
e.g Allow users to use location analytics to find a make up artist nearby and order makeup products that
are available from suppliers in close proximity (this will ensure fast delivery of pproducts and reduce
shipping costs) .
In addition platform will also adopt engagment rules like;
- “buy 10 products in 10 days” or “buy for over R1000” and get discounts
- “invite 3 friends on the platform and get R300 discount on your next order” to esure
that the participants on the platform reach that aha moment.
9. Pricing
The platform will adopt the following revenue models:
Transaction fees : take a share of each transaction concluded on the platform or through the
platform
Charge for access to the platform – a once off payment (sign up cost) for suppliers to get their
products /brand onto the platform.
Charge the product supplier (seller) a commision.
10. Governance
The platform will set rules (laws, norms & architecture) concerning participation, value divide,
resolving conflicts and level of openess. The platform will encourage self-governance for all its
participants to ensure effective platform management.
10. Summarise the three different
types of platforms.
11. What's new about platforms
The new aspect about platform is the multi-sided marketplace element where consumers and providers that
and how can platform thinking
do not own the platform can connect and interact in order to transact in these marketplace platforms.
be applied to "traditional"
industries? One key focus for traditional industries is for organisations to look at creating products that can be easily
complimented by other services outside of the organisation or identify solid complimentary services for
their existing core products.
An example is taking a core banking product like a homeloans facility and enabling a marketplace platform
where individuals looking to buy property are connected to other service providers such as conveyancers,
land surveyors and real estate agents to ensure a seamless property sale transaction. This enables the
entire property sale process to be facilitated in the bank’s platform ecosystem, ideally by marketplace
participants that bank with said banking institution.
12. How do platforms relate to
Platform business models have gained traction and have been a dominant topic in most businesses globally
traditional views of strategy?
and locally. If you focus specifically on the multi-sided platforms you notice that they have some unique and
common traits related to their strategy capabilities in respect to the traditional business models.
Purpose & Values - Platform business models still need to define their purpose and values just as articulated
in the traditional strategic process.
Vision Strategic Goals -Platform business models still need to define their strategic goals even though the
nature of strategic goals would bee more focused on the balance of network effects and the relationship
between users of the platform.
Strategy Formulation - On a multisided platform there is still a requirement to formulate a strategy albeit
with a focus on how to keep the balance of the network effects. Any changes to the pricing of the users of
the platform has the effect of causing an imbalance to the network effects which are the lifeblood of a
business platform model.
Goals, Objectives and Execution of the strategy still remain valid principles that still need to be observed
even on a platform like Tinder, Facebook etc. Goals and objectives could be related to the profits, users etc.
The principle that might deviate from the traditional strategy norm is the fact that the internal and external
context are a major input into the initial formulation of the purpose, values, vision strategic goals, and
strategy formulation and rather than an input at the end of the strategy lifecycle. All business models
including MSMP platforms still require that there is continuous appraisal to ensure that the formulated
strategy remains relevant.
By evaluating all the different process steps included it can be concluded that the process largely stays valid
but requires some little bit of customisation so that it can completely conform to the platform business
model. This includes making use of the internal and external context inputs in the initial formulation of the
strategy. The other key aspect to note with platform businesses is the fact that with platform business
model the strategy process has a shorter lifespan.
