Solutions Spotlight

Platform Strategy

Platform Strategy

Here's a guide to developing the playbook that's right for your business.

Platform Strategy

Like it or not, your business now plays in a platform world. Seven of the 10 most valuable companies worldwide are powered by platforms.

The list is obviously weighted toward the technology industry (see Figure 1), but platforms are spreading across sectors, fueled by current digital technologies, emerging boundary-shattering technologies (such as blockchain and the "metaverse"), and evolving consumer behavior. Indeed, today's technology platform is tomorrow’s competitor for whatever business you’re in; platforms are changing the basis of competition in arenas from transportation to travel, from finance to music. This phenomenon is forcing every executive to make a choice: create their own platform or figure out how to adapt without owning one in an industry that platforms are disrupting.

Figure 1

Seven of the 10 most valuable companies in the world are powered by platforms

Given the success of the companies on this list, it's tempting to believe that "if you build it, they will come," but in reality the field is littered with failures. Some platforms arrived too early or too late to capitalize on a trend. Others didn't have a compelling enough value proposition. Some spread themselves too thin across too many platform applications. Many have struggled to find the right business model. Others didn’t evolve, and they lost relevance.

Some of the early, successful tech-platform companies might say they didn't have a playbook when they were first building their platform, but based on our analysis of platform strategies and our work with clients worldwide, clear patterns and keys to winning have emerged.

We've seen this firsthand, having helped companies succeed by building their own platforms or defending against platform disintermediation. Over several years, we helped a leading Asia-based platform expand into new verticals and scale up its platform and ecosystem model, along the way more than doubling the company's valuation. We supported another leading Asian platform from its early stages of growth through multiple business model and market expansions; its valuation more than tripled during this period to about $40 billion. We've also helped companies mount robust defenses. For example, we helped a European logistics company that faced growing competition from e-commerce platforms invest in technology and new offerings to provide a bulwark against platforms. These investments have contributed to more than 20% growth in annual parcel revenue, a 300-basis-point EBIT (earnings before interest and taxes) margin boost, and an increase of 10 percentage points in the number of "highly satisfied" customers.

Here's our guide to developing and executing the platform strategy framework that's right for your business.

Platform options

Platform options

The term platform is often used broadly. Here, we use it specifically to indicate products, services, standards, or tools upon which an ecosystem of partners, customers, users, and the platform owner collectively create value. Whereas a traditional product follows a linear path from supplier to customer, a platform is multisided, with owners orchestrating interactions between two or more parties. The power of platforms lies in their network effects: As more producers and consumers join, marginal acquisition costs decline and the value for the platform and its participants increases exponentially (see Figure 2). This, in turn, attracts more participants. These network effects typically result in "winner takes most" market dynamics, raising the barrier to entry after a segment's platforms reach a certain level of scale and success.

Figure 2

Successful platforms deliver exponential value increases as they scale up

A critical step in formulating your platform strategy is to understand how and where you can play. Your first big decision is whether to create your own platform or, instead, find the right balance between partnering with an existing platform, competing without a platform, and simply taking protective measures against platforms. For those that choose to launch a new platform, we believe there are four distinct types:

  • Development platforms enable the creation or enhancement of third-party applications, services, or data ecosystems. Think software operating systems, app stores, and software development communities.
  • Exchange platforms facilitate transactions between parties, such as e-commerce marketplaces or ride-sharing apps.
  • Content platforms foster communication, content generation, and sharing via avenues including social media, online search, and streaming video and audio.
  • Standards are one of the oldest examples of platforms, dating back to road widths and railroads. Standards provide a common foundation upon which others can build by defining the rules for operating within a particular ecosystem and ensuring compatibility of products and services made by different organizations. Newer standards include 5G in telecommunications and Ethereum in blockchain technology.

A key takeaway is that platforms do a lot more than simply connect different parties. Development platforms make it easier and faster to build new applications. Exchange platforms remove counterfeits and provide useful consumer analytics. Content platforms make it easier not only to create content, but also deliver it to the target audience. Standards remove a sector's barriers to entry and help third parties work together.

Before launching a platform, companies have a lot of questions to consider. The first one is, "Should we even create a platform?" This can sometimes get lost amid the excitement and hype but, before diving in, successful platform owners conduct an honest assessment of whether they have the right resources, talent, and competitive position to succeed. A winning platform requires:

  • Good timing, so the company enters the game after market trends have sufficiently matured but before a competitor gets too far ahead to catch up with them.
  • A truly distinctive value proposition to capture the hearts and minds of users on all sides.
  • A new operating model that allows the organization to rapidly test ideas, adapt based on what it learns, and scale up the platform with minimal friction.
  • Large, sustained investment to build the platform and seed its various sides until it has gained sufficient momentum to achieve "escape velocity."

In short, platforms can present a massive opportunity, but the margin for error is small. Do you have what it takes?

Strategic choices: Create a platform

Strategic choices: Create a platform

Successful platforms typically follow a five-step path of constant iteration (see Figure 3).

1. Identify

1. Identify

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Winning platforms start with the customer. Good technology matters, of course, but a more important predictor of success is whether the company can recognize a customer need and imagine a new way for a platform to serve this need better than what currently exists. This gut check is especially important for companies that want to convert an existing product into a platform business. Leading companies invest in detailed research into target customers, look for their unmet needs and expectations, and quantitatively validate how well the proposed platform would stand out from competing offerings.

Next, developers define a handful of capabilities through which the platform can truly set itself apart. These can be physical (capital infrastructure, supplier network, talented staff) or digital (company brand, data analytics expertise, app development skills). The key is to focus on capabilities that overlap with both the organization's strengths and customers' areas of greatest need.

Leading platform developers zero in on the points along the ecosystem's value chain that their organization is well-positioned to control. These might be areas that foster close relationships with customers, serve as essential links in growing markets, or allow the platform to capitalize on shifting business boundaries and profit centers. An example of this in a physical product is the heating element in an electric kettle. While it makes up a small portion of the kettle's cost, the heating element is difficult to replicate and critical to the product’s appeal to consumers. That means most of the kettle's profit goes to the company with the engineering prowess to develop and own the heating component.

2. Build

2. Build

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At this stage, the platform owner has critical choices to make about the structure and boundaries of the platform. Should the network be completely open to anyone or have strict standards for who can contribute? How much participant data should be shared and with whom? The trick is to find the right balance between speed of innovation and growth (generally, a more open platform) and the level of quality control needed to maintain the platform’s reputation (a more closed platform).

In the rush to build and scale up a platform, the owner might overlook a key piece of the foundation: IT infrastructure. By their nature, successful platforms grow quickly, so the digital platform architecture needs to be ready from day one to handle "hyperscale" growth. This means having modular IT infrastructure and capabilities that can easily connect to one another in a digital, seamless way.

Successful companies design their platforms to continuously improve. They establish key metrics to track their core transaction, such as the number of rides taken in a ride-sharing app, then design feedback loops to test assumptions and quickly adjust. All of this is done with an eye toward creating a "flywheel" of network effects that will help the platform scale up.

3. Seed

3. Seed

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Starting a new platform can feel like a "chicken and egg" situation. Producers won't join if consumers aren’t on the platform, and consumers won’t join if there's no one providing goods or services. Leading platforms find creative ways to "seed" the initial participants on all sides of the platform. In some situations, the platform owner supplies the early apps or content to attract the first consumers, as Sony did when launching PlayStation with exclusive games, or Google by first building internal apps for its Android operating system and offering them for free. In other situations, the platform owner subsidizes users through discounts or rewards to persuade them to try the platform.

From there, it's about making sure the participants become active members of the community. Exchange platforms prioritize providing a simple, intuitive digital interface; capturing and acting on customer feedback; and communicating with their emerging community. Application platforms, meanwhile, focus on winning the hearts and minds of third-party developers. Leading platforms offer a range of financial incentives, training and support, and minimal bureaucratic barriers to participation.

An Agile mindset is critical at this stage. There’s no shame in starting with a narrowly focused platform with a small user base; in fact, this is preferable. Once the platform owner has a group of 'super users' who love the platform, the owner can pinpoint why they love it, invest in those attributes, and add more of what early users want, even if it wasn't what the platform owner expected.

Salesforce demonstrated how a customer relationship management (CRM) software company could become a platform. The cloud-native, web-based provider allowed third-party developers, and later customers, to build their own apps to integrate with Salesforce's CRM offerings. A freemium model, close ties to (and investments in) third-party developers, and other moves transformed what could have been a "me too" cloud model into a genuine platform.

And it's not just tech companies that are winning with platforms. John Deere, the nearly two-century-old tractor manufacturer, launched a digital agribusiness platform, MyJohnDeere, in 2012. This product integrates data from equipment sensors with third-party data on crop characteristics, soil conditions, weather, and more to help farmers better manage their fleets and fields and increase productivity. John Deere developed the platform’s initial applications and data in-house to establish a minimum standard of quality and give users more incentive to join. The company later opened up the platform to be a hub for third-party applications. These innovations have deepened John Deere's relationships with customers and strengthened its core equipment business, ultimately helping the company to nearly triple its market capitalization since 2011.

For companies in the early stages of building a platform, here are a few questions that might help to sharpen your strategy during the next executive committee or board meeting:
  • What are our platform’s distinctive value proposition and unique control points?
  • How open do we want the platform to be in terms of data sharing and participant access?
  • Are we primarily a "user first" or "producer first" network?
  • Which targeted investments should we make to seed each side of the platform until we reach "escape velocity"?

4. Scale and monetize

4. Scale and monetize

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Once a platform gains momentum and begins to rapidly add participants, it enters into a delicate dance: When and how should it start making money, and how can it do so without disrupting the platform's growth?

The race to win "critical mass"—the inflection point at which network effects kick in—can take many forms: campaigning for big customers, pushing for exclusive deals, bundling the platform with existing offerings, or acquiring competing platforms. Sony's Blu-ray video players won the standards battle against HD DVD in part by bundling Blu-ray playback capabilities in Sony's PlayStation 3 video game consoles.

As for how to monetize your platform, two factors hold the key: value and timing. A careful assessment of how much each participant values the platform will inform key decisions about which business model to apply and how much to charge. Some platforms attracted early participants with subsidies that they subsequently reduced. Others used a simple consumption-based model.

Timing is particularly delicate: Attempt to monetize too early and you may scare off potential users, hampering growth and opening the door for competitors. Wait too long and you miss out on the cash flow needed to scale the platform and risk accelerating your burn rate. It's a challenge for incumbents and start-ups alike, as the latter are racing against bankruptcy, and the former are often pressured by shareholders to deliver a return on the platform investment.

Facebook, which recently changed its corporate name to Meta, initially prioritized scale over monetization. It invested in features to engage users, such as status updates and the ability to tag people in photos, and it has continuously refined the product based on what attracts users and deepens engagement. The company made an early decision to generate revenue through advertising, rather than subscriptions, which it determined would have led to an exodus of users. It launched its advertising platform in 2007, following three years of exponential growth during which it surpassed 50 million monthly active users. By 2012, Facebook reached 1 billion monthly active users, $5 billion in revenue, and a profit of more than $1 billion.

Before attempting to scale and monetize the platform, you should make sure you have clear answers to the following key questions:
  • Should we generate revenue from users, producers, advertisers, or all three?
  • Considering our growth trajectory and burn rate, when should we monetize?
  • What is the appropriate pricing model that best aligns with the value we deliver to customers?

5. Expand

5. Expand

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Organizations with platforms that meet their initial goals often look to new frontiers. Expanding the platform’s scope risks the organization spreading itself too thin, but leading companies have found a repeatable approach to moving into additional arenas at a manageable clip.

Not surprisingly, it starts with understanding users' needs and scouting new ways to serve them. Leading platforms also analyze the strategies of soon-to-be competitors in related sectors and geographies. Once they are ready to launch new platform offerings, the owner can take advantage of its existing customer access and control points to get a fast start out of the gate. Leading platform owners recognize that they don't have to do everything themselves. They seek partnerships and acquisitions to add the capabilities needed to grow the platform. Partnerships can be a good choice when companies don't have the expertise to build the capability internally, lower-cost alternatives are required, or speed to market is paramount. Capabilities that are highly strategic or linked to platform control points, however, are good candidates for acquiring or building in-house. The expansion might also require an evolution in the platform's operating model to manage the additional complexity.

As platforms reach the expansion stage, regulation emerges as a key consideration. Platform-powered companies are drawing more regulatory scrutiny due to their size, blurring of traditional business boundaries, and business models that raise questions about data privacy and sovereignty, not to mention national security. Leading platforms are responding by supporting users, engaging more with regulators and governments, forming industry associations, and crafting strong governance for their business models.

Grab demonstrates how platforms can create a repeatable model for expansion. It began as an app for hailing taxis in Malaysia and later shifted to on-demand ride-hailing of private drivers. The company distinguished itself from global competitors and served the needs of local customers with features such as cash payments to better support the many riders and drivers who don't have bank accounts. Grab quickly established operations in seven additional countries in Southeast Asia, maintaining a hyperlocal strategy with local staff and offerings specific to local needs and dynamics. It has since moved into food delivery, travel planning, advertising, digital payments, and financial services. In some cases, Grab has turned to dealmaking to execute its vision more quickly, such as acquiring Uber's Southeast Asia operations and forming a joint venture with Singtel to offer digital banking services across the region.

Ask yourselves the following questions to make sure you’re ready to expand your company’s platform:
  • What are our differentiated assets?
  • How will expanding into new growth areas reinforce our unique control points?
  • How can we harness the value of our existing customer access, data, and insights to give us an advantage when we expand the platform into new areas?
  • How can we adapt our operating model to enable expansion while avoiding complexity?
  • How can we simultaneously expand our platform’s footprint and deepen engagement? As we expand into new use cases, how can we ensure we don’t disrupt the growth trajectory in others?
  • How can we support regulators to find solutions that best serve the evolving stakeholder mix?

Strategic choices: Play, partner, and protect

Strategic choices: Play, partner, and protect

Platforms are redrawing industry boundaries. Not every company will own a platform, but platforms will likely affect every business in some way. Therefore, companies that decide not to own a platform will have to develop a strategy to compete with platforms, partner with them, or defend against them—in many cases, all at the same time (see Figure 4).

Play. Going head-to-head with platforms is all about serving your customers more effectively than a platform can. Leading companies double down on product or service niches where they're uniquely positioned and invest in the customer experience, branding, and marketing of those offerings. These companies also try to establish new control points that will be difficult for platforms to replicate. Leading firms measure their customer and supplier loyalty and advocacy, looking for ways to fortify those relationships. Lastly, they look for strategic partners who are also trying to compete with platforms; these team-ups could help the platform's rivals quickly achieve scale through shared purchasing and negotiating power, for example.

Partner. Nonplatform owners can still use platforms to their advantage. Leading companies tap into a platform's complementary capabilities, such as a distribution network or technology infrastructure, when it’s meaningfully cheaper or more effective than developing their own. The nonplatform owner might have assets that could benefit the platform as well.

Protect. Even if a company chooses to partner with a platform, it behooves them to protect the business by mitigating strategic risks. The company might want to avoid ceding customer data to the platform, for example. In some cases, defending against platforms might call for exploring legal and regulatory options.

As platforms disrupted the traditional retail model, Nike invested in deeper, more direct relationships with customers, often built on distinctive experiences. For example, the company launched the SNKRS app to give users exclusive access to trendy products and content, such as articles and livestreams from influencers. Nike has also struck partnerships with platforms such as Apple, with whom it launched the Nike+ iPod sports kit in 2006 and, 10 years later, a special Nike-branded version of the Apple Watch. Over the past decade, Nike more than doubled its global sales, and its direct-to-consumer sales grew from 16% to 39% of total sales, a figure it expects to rise to 60% by 2025.

Companies that are trying to figure out how to best defend against platforms can consider the following questions across all three dimensions:
  • What’s our offer for the customer segment we serve and how differentiated is it vs. platforms?
  • How do we know a platform will not replicate our offering?
  • When considering a partnership, what value do we bring to the table for the platform? How is this differentiated and sustainable?
  • How are we mitigating risks of the platform changing the partnership terms or directly competing with us in the future?
  • What implicit trade-offs and investments are we making in threat mitigation actions?
  • How effective will those actions be if the risks materialize?

How we can help you define a platform strategy

In a world increasingly dominated by platforms, we've helped clients in all industries create winning strategies and innovative solutions across the platform life cycle.

For those that are establishing a platform, we can help you discover your customers' raw need as a critical first step in finding new ways to satisfy it. We can help you identify your unique control points, grow your ecosystem, evolve your value proposition and business model, and actively manage growth by understanding the early adopters and effectively seeding and monetizing each side of the platform.

For existing platforms that are ready to scale and expand into new areas, we can help you adapt your value proposition, select the right business model, identify the highest potential use cases and industries to target, manage regulatory complexity, and adopt a repeatable blueprint for growth. We can help you accelerate your journey through a proven test-and-learn approach built on high-gain experiments that apply Agile methods and human-centered design principles.

We've also helped companies make the right moves when facing disruption by platforms. We start by assessing your strategic position, then prioritizing the best combination of "play, partner, and protect" responses. The design and deployment of new strategic initiatives, informed by test-and-learn methods and dynamically allocated resources, follows.

We offer clients holistic support that applies a mix of our comprehensive expertise, tailored to the company's needs. We can address every phase of your platform strategy, from a big-picture analysis of your current position and future ambition to a fast, tactical way to execute on specific initiatives. We help you develop the right go-to-market plan, acquire or partner when it makes sense, and build out the technology infrastructure that is critical to your platform success. Our deep expertise in advanced analytics ensures a data-driven approach to every key decision, and we'll help you avoid organizational pitfalls that so often derail transformation efforts through programmatic guidance that keeps every aspect of your platform strategy on track.

Here are examples of different platform strategies we've helped clients execute:

  • O2O Platform

    O2O Platform

    Over the course of several years, we've helped a leading online-to-offline (O2O) platform in Asia expand into three new sectors and scale its platform and ecosystem model to support those new verticals. The client, valued in the billions of dollars, has had a lot of success with its core platform, and we helped it identify promising expansion areas and provided crucial support throughout the building, seeding, and scaling and monetization phases for the new verticals. During the period in which we supported the company on various elements of broadening its platform, its valuation has more than doubled.

  • E-Commerce Platform

    E-Commerce Platform

    We've also supported a leading Asian e-commerce marketplace from its early stages of growth through business model extensions and expansions into multiple new categories and markets. We helped the company enhance its marketplace by defining core customer segments and targeted value propositions for priority product categories, informed by deep ethnographic research. To help the platform scale up and strengthen its value proposition in key sectors, we've conducted detailed evaluations of potential merger and acquisition assets and pinpointed opportunities to hone the platform's go-to-market capabilities. During our work with the company, its valuation more than tripled to about $40 billion.

  • Internet Platform

    Internet Platform

    We also helped an Americas-based Internet platform expand into a new sector and grow its market share over multiple years. The work focused on monetization and ecosystem strategy for a new customer segment, including helping to define the value proposition, identify ways to attract third-party software developers, craft a plan for global distribution and sales and channel growth, and pinpoint the right pricing and monetization structure. Supported by this work, the client increased share in the sector by about 30 percentage points over this period.

  • Logistics Firm

    Logistics Firm

    We also supported a European post-and-parcel services company that was facing growing competition from e-commerce and logistics platforms. With our help, the company revamped its operations with investments in technology and new offerings based on data-driven insights into what would improve customers' experience. For example, the company established physical pick-up and drop-off locations for packages, which not only provided more convenience and better service to customers but also established new control points that give it an advantage over platform competitors. Over the last few years, these investments contributed to more than 20% growth in annual parcel revenue and a 300-basis-point expansion of EBIT margins, all while boosting by 10 percentage points the number of customers who say they’re "highly satisfied."

O2O Platform

Over the course of several years, we've helped a leading online-to-offline (O2O) platform in Asia expand into three new sectors and scale its platform and ecosystem model to support those new verticals. The client, valued in the billions of dollars, has had a lot of success with its core platform, and we helped it identify promising expansion areas and provided crucial support throughout the building, seeding, and scaling and monetization phases for the new verticals. During the period in which we supported the company on various elements of broadening its platform, its valuation has more than doubled.

E-Commerce Platform

We've also supported a leading Asian e-commerce marketplace from its early stages of growth through business model extensions and expansions into multiple new categories and markets. We helped the company enhance its marketplace by defining core customer segments and targeted value propositions for priority product categories, informed by deep ethnographic research. To help the platform scale up and strengthen its value proposition in key sectors, we've conducted detailed evaluations of potential merger and acquisition assets and pinpointed opportunities to hone the platform's go-to-market capabilities. During our work with the company, its valuation more than tripled to about $40 billion.

Internet Platform

We also helped an Americas-based Internet platform expand into a new sector and grow its market share over multiple years. The work focused on monetization and ecosystem strategy for a new customer segment, including helping to define the value proposition, identify ways to attract third-party software developers, craft a plan for global distribution and sales and channel growth, and pinpoint the right pricing and monetization structure. Supported by this work, the client increased share in the sector by about 30 percentage points over this period.

Logistics Firm

We also supported a European post-and-parcel services company that was facing growing competition from e-commerce and logistics platforms. With our help, the company revamped its operations with investments in technology and new offerings based on data-driven insights into what would improve customers' experience. For example, the company established physical pick-up and drop-off locations for packages, which not only provided more convenience and better service to customers but also established new control points that give it an advantage over platform competitors. Over the last few years, these investments contributed to more than 20% growth in annual parcel revenue and a 300-basis-point expansion of EBIT margins, all while boosting by 10 percentage points the number of customers who say they’re "highly satisfied."

As these examples make clear, senior leaders can't afford to ignore the rise of platforms, no matter their industry or business model. The good news is that they have a range of options for how to respond to this profound shift in market dynamics and customer behavior. The not-so-good news is that time is of the essence: Those who hesitate may find their options are quickly reduced along with their prospects. Leading companies are moving fast to identify the platform strategy that's right for them and taking bold steps to turn that vision into reality.

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