In the Digital Age, customers and partners can connect with each other in new ways. This brings a fundamental shift in how business value is created.
To unlock exponential growth, learn how to generate network effects by enabling and empowering the flow of value between other parties.
This familiar way of thinking sees a company’s relationships with its customers as one-way channels—let's call them "pipes". The goal in a pipes model is efficiency, getting as much value as possible through the pipes to the consumers with the least friction. This model arose in a time when communication mostly flowed from companies to their customers. The pipes model connects one-to-many, like spokes in a wheel, with your company at the center.
Most companies use pipes thinking to promote their products and persuade customers to buy them. Some even try to listen to their customers and learn from their feedback.
Today, digital technology gives customers and other stakeholders new ways to connect and collaborate with each other, thus creating new kinds of value for themselves and others.
This opens an opportunity for companies to enable and empower those connections, so that customers and others in the ecosystem can co-create value with each other in a many-to-many system.
Platforms are the vehicles by which companies can enable and empower the co-creation of value with others.
Network effects occur when value increases for all members of a network as each new participant joins. For example, the first person with a telephone didn’t get much value from it. But as each new telephone was installed, the entire system became more and more valuable for everyone.
In a networked system, a single interaction can ripple out to generate multiple subsequent interactions, as shown in this video of a ping-pong ball contraption.
This kind of non-linear, many-to-many interaction creates the conditions for network effects—which drive exponential growth in value.
People use the word platform to mean different things. Let’s clarify how we’re using it here.
In the physical world, a platform is something you can stand or build on. In the digital world, a platform is a technology that forms a foundation for other technologies. Examples include the Windows operating systems and cloud-based applications like Google Drive.
A platform business model enables value for multiple parties. Also called multi-sided platforms, these include businesses based on marketplaces which connect third parties for value exchange. For example, Amazon connects buyers and sellers, Lyft connects drivers and riders and YouTube connects viewers and creators. These businesses use technology platforms to enable their platform business models.
Digital technology increases the ability to generate network effects. But just because something is digital doesn't mean it's exponential.
The term platform is used to describe any resource that can generate many-to-many connections for value creation and exchange. What makes a platform is its ability to unleash network effects.
Consider this diagram drawn by Walt Disney in 1957. It shows how all of the different activities and experiences of the Disney brand interconnect to strengthen the value of each component in the system.
Essentially, Disney saw his entire empire as a platform for storytelling. Imagine how different this vision would have looked if it had been created with a pipes mindset.
It would probably show Disney at the center, with spokes giving licensure and content to the other parts of the network. There would be no direct connections between them, and only revenue coming back to the core. The focus would be on optimizing and monetizing each of the pipes.
In Disney’s pre-digital platform vision, each channel is part of an interconnected system whose function is creating network effects across characters, stories and environments.
To unlock exponential growth, companies need to enable and empower the flow of value among other parties. Platforms are the vehicle for enabling these connections.
Pipe thinking can and does coexist with platform thinking. They're useful for different things. The trick is to be clear on which type of thinking you're using and why.
Are you talking about platforms while still using a pipes mindset? Look out for notions like “we’ll distribute our products via this platform.”
Platform thinking means focusing on enabling others to co-create value, not just delivering value for them to consume.
Deliver value to others
Enable others to create value
Platforms can increase their value and relevance by offering opportunities to co-create Shared Purpose, which is the larger intention that you and all your stakeholders are working toward together.
People don’t just want to be passive members of an audience, but active members of a community. They want to be a part of something: to belong, to influence, to engage.
It’s not enough to feel good about your purpose. They want it to be their purpose too. Shared Purpose is what your company does with other players, not just what it sells to or does for them.
Shared Purpose shifts the relationship between you and your customers from Producer/Consumer to Co-Creators.
Think about digital platforms you use today. How do they deliver more value, compared to the previous solution?
What are examples of pipes and platform thinking in your business today?