Based on articles from April 2016 issue of Harvard Business Review magazine

Technology Platforms: Top 6 Pitfalls

Presentation by Thane Ritchie

Transforming a product or service into a platform can dramatically

increase its value…

…But the path can be treacherous, and many attempts have failed.

Studying the successes and failures of platform businesses, three authors include their latest research findings and provide expert tips and advice about what works and what doesn’t work when transforming a product or service into a platform.

Their work is featured in the April 2016 issue of Harvard Business Review magazine.

Based on these findings, Here are 6 key errors to avoid:

Failure to optimize “openness”It’s critical to carefully manage the platform’s “openness” – the degree of access that consumers, producers, and others have to a platform, and what they’re allowed to do there.

1. Failure to optimize “openness”

Example Case Study:Most successful platforms manage openness to maximize positive network effects. For example, Airbnb and Uber rate and insure hosts and drivers, Twitter and Facebook provide users with tools to prevent stalking, and Apple’s App Store and the Google Play store both filter out low-quality applications.

1. Failure to optimize “openness”

Key Takeaway:

Platforms consist of rules and architecture. Their owners need to decide how open both should be. An open architecture allows players to access platform resources, such as app developer tools, and create new sources of value.

Failure to engage developers It’s not enough to open the door and set the table. Successful platforms engage in platform evangelism, providing developers with resources to innovate, feedback on design and performance, and rewards for participation.

2. Failure to engage developers

Example Case Study:Some platforms encourage producers to create high-value offerings on them by establishing a policy of “permission-less innovation.” Rovio, for example, didn’t need permission to

create the Angry Birds game on the Apple operating system and could be confident that Apple wouldn’t steal its IP. The result was a hit that generated enormous value for all participants on the platform.

2. Failure to engage developers

Key Takeaway:

A simple rule for platform managers is to take less value than you make, and share value fairly with all participants.

Failure to share the surplusHaving valuable interactions is the reason to participate on a platform. The consumer, the producer, and the platform all win if the division of value works for everyone. But if one party gets insufficient value, then they have no reason to participate.

3. Failure to share the surplus

Example Case Study:If a traveler opens the Lyft app and sees “no cars available,” the platform has failed to match an intent to consume with supply. Passengers who see this message too open will eventually stop using Lyft, leading to higher driver downtimes, which can cause drivers to quit Lyft, resulting in even lower ride availability.

3. Failure to share the surplus

Key Takeaway:

Healthy platforms track the participation of ecosystem members that enhances network effects - activities such as content sharing and repeat visits. Facebook, for example, watches the ratio of daily to monthly users to gauge the effectiveness of its efforts to increase engagement.

Failure to launch the right sideSometimes at launch it’s important to focus on attracting consumers over producers, sometimes it’s the reverse, and sometime both sides need equal attention from the outset.

4. Failure to launch the right side

Example Case Study:Google Health, for example, focused first on the consumer side of the market when they needed to focus on providers first - the other side of the market. Securing their participation was critical for this health-information platform to succeed. As a result, the Google Health platform failed.

4. Failure to launch the right side

Key Takeaway:

Platform managers have to carefully determine which side of the platform market to emphasize, and when.

Failure to put critical mass ahead of moneyWith a new platform, the critical asset is the community and the resources of its members. A strategic aim for platforms should be strong up-front design that will attract the desired participants, enable the right interactions, and encourage ever-more-powerful network effects.

5. Failure to put critical mass ahead of money

Example Case Study:Hewlett Packard (HP) made the mistake of emphasizing products over platforms. Before the iPhone launched in 2007, HP dominated the handheld calculator space for science and finance. Yet today, consumers can purchase near perfect calculator apps on iTunes or on Google Play and at a fraction of the cost of a physical calculator.

5. Failure to put critical mass ahead of money

Key Takeaway:

Even after the subsidies end, platform monetization that comes at the expense of building network effects is rarely sustainable in the long run as it works against the core mechanism by which platforms create value at scale.

Failure of imaginationBecause platforms require new approaches to strategy, they also demand new leadership styles.

6. Failure of imagination

Example Case Study:Media mogul Rupert Murdoch bought the social network Myspace and managed it the way he might have run a newspaper - from the top down, bureaucratically, and with a focus more on controlling the internal operation than on fostering the ecosystem and creating value for participants. In time the Myspace community dissipated and the platform withered.

6. Failure of imagination

Key Takeaway:

Traditional pipeline firms must develop new core competencies - and a new mindset - to design, govern, and nimbly expand platforms on top of their existing businesses.

Best Practices

Here are four best practices to help ensure success:

1.Start with a defensible product and a critical mass of users.

2. Apply a hybrid business model focused on creating and sharing new value.

3. Drive rapid conversion to the new platform.

4. Identify and act on opportunities to deter competitive imitation.

Harvard Business Review (HBR) Magazine, April 2016 issue

Sources:

Articles:

“6 Reasons Platforms Fail”

“Pipelines, Platforms, and the New Rules of Strategy”

Authors:

Marshall W. Van Alstyne

Geoffrey G. Parker

Sangeet Paul Choudary