Examples of platform-based companies include Uber in transportation, YouTube in media, Airbnb in hospitality and Amazon in retail.
You can see the exponential power of these companies’ business models in the growth rates of key metrics like number of users, volume of content, number of rooms, number of payments.
These curves aren’t driven by acquisition of assets or investment in infrastructure. What’s driving growth for these companies is the powerful network effects generated as members join and use their platforms.
Different types of interlocking network effects cause exponential growth.
Each of these platforms relies on a cloud-based digital marketplace to connect participants. But while digital technology increases the ability to create network effects, it’s not a requirement.
Consider platforms that are currently disrupting your industry. Remember modern platforms are often digital, but might be analog like a physical space, community or event.
Answer the following:
In 2016, a team at Wharton Business School analyzed companies in the S&P 500 to learn which factors determine how investors value companies.
They studied not only products and revenue models, but also things like how the company talked about itself in analyst calls and annual reports—because how people talk reflects mindsets about business value.
As shown in the graph on the next page, they found that highly valued companies occur across industries. What matters is not the industry but the business model—and the mental model for value creation behind it.
Across industries, there are four basic models for value creation.
Notice the exponential curve as you move from left to right. On the following pages, you’ll see comparisons between businesses from the same industry who have different value models.
Sort your company’s resources and activities into these four categories. Identify where your value model is currently focused. All companies include things, people, ideas and connections in their value ecosystems. But most derive their core value from just one of these categories.