Platform Business Model

I have just received the book from Amazon with title "The Business of The Platform - Strategy on The Age of Digital Competition, Innovation, and Power" written by Michael A. Cusumano, Annabelle Gawer, and David B. Yoffie.

I have not finished yet to read that book, but I think this book is very useful for digital business leader. For this article, I will share "Platform Business Model"which is the part of that book.

Platform in the digital economy can do many things, and we might construct a complex topology based on the huge variety of applications. However, to make things simple, we divided digital platforms that emerged with the personal computer, internet, and smartphones into two basic types, depending on their primary function.

The first type we call innovation platform. These platforms usually consist of common technological building blocks that the owner and ecosystem partners can share in order to create new complementary products and services, such as smartphone apps or digital content such as from Apple iTunes or Netflix. By "complementary", we mean that these innovations add functionality or access to assets that make the platform increasingly useful.

The network effects come from the increasing number or utility of the complements: The more there are ao the higher quality they are, the more attractive the platform become to users and complementors, as well as other potential market actors such as advertisers (and investors).

Microsoft Windows, Google Android, Apple iOS, and Amazon Web Services are commonly used operating systems and cloud computing services that serve as innovation platforms for computer and smartphone ecosystems.

The second type we call transaction platforms. This platforms are largely intermediaries or online marketplaces that make it possible for people and organizations to share information or to buy, sell, or access a variety of goods and services.

The more participants, function, and digital content or services available through a transaction platform, the more useful it becomes. Again, it is mostly the digital technology and scale that make these platforms unique and powerful in today's world.

Google Search, Amazon Marketplace, The Facebook Social Network, Twitter, and Tencent's WeChat are examples of transaction platforms used by billions of people every day. Credit cards such as Mastercard, Visa, and American Express, as well as catalogues such as the Yellow Pages (think of this directory as bundled with the telephones), are transaction platforms taht originated before the digital era.

There are important strategic differences between the two platform types. Innovation platform usually create value by facilitating the development of new complementary products and services, some time built by the platform owner but mostly third-party firms, usually without supplier contracts. Firms often capture and deliver value (monetize the platform) by directly selling or renting a product. In few cases where the platform is free (e.g., Google Android), firms monetize platform by selling advertising or other services.

By contrast, transaction platform usually create and deliver value by facilitating the buying and selling of goods and services of facilitating other interactions, such as enabling users to create and share content. The firms that own this type of platform primarily capture value by collecting transaction fees, charging for advertising, or booth.

Some firms start with one type of platform and add the second type, or mix and link the two. We refer to companies that support both of types of platforms as hybrids.