Chapter 3 - Why Platform Businesses Are Unlike Product or Service Businesses

Abstract

This chapter explains how, unlike product and service businesses, platform businesses can target microsegments of their markets, create durable revenue streams, and offer opportunities to sustain higher margins. It explains how managers’ mindsets, assumptions, and mental models must evolve to be cognizant of fundamental structural differences in platform ecosystems. Therefore, platform businesses must be managed differently from product and service businesses, with architecture rather than authority and contracts providing coordination, orchestration foreshadowing conventional notions of management, and platform owners walking the tightrope between granting sufficient autonomy to app developers and ensuring integration of the outputs of diverse ecosystem participants. These differences require a shift in the managerial mindset, which an appreciation of the inseparability of the success of the platform owners from the success of app developers, an emphasis on designing for evolvability to survive Darwinian marketplace competition, and understanding how the two gears of a platform’s evolutionary motor—architecture and governance—must interlock for it to move forward. We conclude the chapter with a four-lens framework to help managers in product and service businesses spot opportunities to transform those entities into platform businesses.