Platforms as Business Models of the Future: Theory and Practical Application

Olga Annenko digital transformation

platform business models

Platforms are changing the world

It doesn’t matter if it involves the exchange of physical goods (e.g. eBay and Etsy), virtual goods (e.g. Youtube and Facebook) or standardized services (e.g. Uber and Airbnb). Never in the history has there been such a rapid growth of companies which core is a platform model. In his fantastic book Platform Scale, Sangeet Paul Choudary analyzes the platform business models.

His hypothesis is that the business model of Pipelines (linear flow of value, much like water flowing through a pipe: consumer goods find their way into our hands through pipes, e.g. sales channels, supply chain) will be replaced by the business model of platforms.

The focus of Platforms compared to that of Pipes is on the enablement of value creation instead of being a single producer of value through a Pipe. Participants on the Platform take on production as well as consumption roles. Platforms allow participants to co-create and exchange value with each other.

Pipes vs Platforms

In the traditional model of Pipes, the value was delivered to the consumer in a very straightforward matter. The roles of producers were clearly defined and separated. In the Platform business models, the consumers can go into the role as producers as well. The function of the Platform is the enablement of value creation.

This value creation model is a result of the disruptive technologies and the more and more interconnected, globalized world. Never in history was it easier for companies in e.g. China, India to sell in the US, UK, Canada and the other way around. A small business in China, for example, is able to sell through platforms like Alibaba goods in the US and reach a customer base they could have never been able to reach themselves. This is why we believe that in the future the platform business models will outperform the pipe model and replace it sooner or later. The scalability of those platforms is just unbeatable compared to the single flow of value down a pipe. The multiplier of the creation of value through platforms is way higher than a single pipe.

Platform business models in the API context

In the API space, the platform business models will be a dominant factor for business interactions as well. From November 2012 to March 2016 the number of public APIs has nearly tripled from 5,018 to 14,837 (source: ProgrammableWeb, 23.03.2016). It is only logical that there are endless integrations for those APIs, hosted in isolated environments without a unified framework, hardly reusable and a pain to manage.

Going back to the metaphor of Pipes and Platforms, system integrators and software vendors have been playing the role of Pipes for businesses and end consumers for a very long time. Historically, they have been handling a substantial part of all integration projects, adopting a linear, from top to bottom, build-and-deliver approach.

The only problem with it is, however, that in our era of Cloud, SaaS, IoT and Big Data, this approach is not going to be able to meet the rapidly changing business needs of many channels like B2B partners or business sales, to name just a few. A more flattened approach for integrations needs to be adopted, the one that would actively involve all players on the consumer side and enable them to be not only passive “takers”, but also active “creators”.

From a practical point of view, this means that instead of delivering on-demand, isolated integration solutions, system integrators and ISVs should put a real platform with a framework and a uniform infrastructure behind those integrations.

Making consumers to their own producers

When speaking of platform business models in general, Sangeet Paul Choudar sums it all up in one simple sentence:

“Platforms enable value creation exchange by matching the most relevant resources from producers in the ecosystem with the consumers on the platform that need those resources.”

We can illustrate this with our own example. Right now we connect our partners (e.g. system integrators, software vendors) with enterprises who need custom integrations every day. We create the so-called “Connector Templates”, which are simply source codes of our framework for various APIs (e.g. Salesforce, MS Dynamics CRM, MS Dynamics NAV). This approach allows our partners to code, push, connect and run custom integrations on the platform in only 4 simple steps, leading to a considerable increase in the speed of integration project implementation: We have seen cases when our freshly on-boarded partners build new components (as basic structure) for complex APIs in a couple of hours.

By doing this, we help them enable this same exchange of value of the producers and the consumers, and we’ve seen already some impressive implementation use cases: From startups who are building their microservices infrastructure via Webhooks and their own components to E-Commerce integrations connecting complex ERP systems like MS Dynamics NAV with various shop systems, to connecting CRM Tools with accounting applications. There is really no shortage of cloud integrations.

Yet at the same time, system integrators and software vendors can use such platforms as ours, the ones that provide easy-to-use integration building tools and frameworks, to build a whole integration ecosystem for consumers, enabling them to create their own scalable integrations whenever and however they need them. In other words, enabling the consumers become their own producers.

This approach will allow system integrators and software vendors to introduce a more agile, perfect for modern business requirements approach to integrations without worrying about the infrastructure (monitoring, hosting, framework, etc.) behind them.

The article on platform business models was written in joint collaboration with Daniel Haegele.

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About the Author
Avatar für Olga Annenko

Olga Annenko


Olga Annenko is a tech enthusiast and marketing professional. She loves to write about data and application integration, API economy, cloud technology, and how all that can be combined to drive companies' digital transformation.

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