From footpath to Facebook: Building a platform

I’ve been interested in what constitutes a “platform” and how platforms spawn and nurture ecosystems for quite some time.  We’ve been exploring these ideas in this blog over the last few months.

In this post I’d like to start identifying some of the key factors that anyone thinking about innovating or building a platform must consider.  To do that, I’d like to start, as the title suggests, by reviewing the first platforms.

The first platforms were paths, rivers and other means of improving human interaction and communication.  As interactions were improved and information flowed more easily, civilization, which is just a form of an ecosystem on a platform, developed.  Roads, canals and other forms of improved transportation simply became a better platform, and allowed the Romans to create financial and trade mechanisms not equaled until the 19th century.

Canals and importantly railroads were the next major iteration, connecting distributed strands of civilization miles apart and enhancing interaction and communication, lowering costs.  Along side the railroads a new technology was introduced which opened the shift from physical platforms to virtual platforms:  the telegraph.

The telegraph gave way to telecommunications, which connected everyone with voice and some limited data connections, reducing transaction friction and enabling the growth of more significant ecosystems.  These initial platforms morphed when the internet and importantly HTML and “the web” emerged.  This was the era of the “dot com” boom, only fully realized when  Amazon paired the physical platforms (shipping relying on infrastructure) and the virtual platform (data and financial exchange) to create a unified platform for retail that is gobbling up slow moving brick and mortar stores.

This quick review of the history of platforms signals their importance, but more importantly illustrates how much power platforms and the ecosystems they create are aggregating.

Those who study history aren’t required to repeat it

If we look at what made all of these platform iterations successful, we can begin to see a consistent set of attributes and features:

  • Platforms can be physical (and were for the most part before widespread telecommunications) and even the highly touted virtual platforms still rely to some degree on physical platforms.
  • Increasingly, however, virtual platforms and interaction are the norm only growing in importance.  Platforms like Facebook, Pinterest, YouTube and others have no corresponding physical platform, nor is it clear they need any. This is because they rely on content development and distribution, and consumer interaction with the content.  One wonders if, like Amazon, they will eventually move back to some physical platforms as well to offer a more complete, holistic solution for customers
  • Platforms simplify interactions, reducing friction between suppliers and consumers, matching those with needs with those who have supply.  Paths and roads did this in the “real” world.  Telecommunications and the web do this in the virtual world. Good platforms enable connections.
  • Platforms are often built around or on very important but narrow needs or value propositions.  Facebook was originally built to encourage interactions between college students.  AirBnb was originally built to share surplus housing space.  These initial, narrow value propositions could scale and did scale.  Not all value propositions scale.
  • Platforms succeed as the network succeeds and grows, building on the network effect.  They can only grow as  communication about the platform escalates to those outside of the platform.
  • Platforms must be somewhat flexible and agile, responding to feedback of the initial users and incorporating the feedback as they grow and morph.
  • Platforms play an orchestration role, creating common rules, standards and governance.  In many cases these early platforms established the conventions or rules, or relied on old models (telecommunications and railroading) for the basics
  • As growth occurs, the cost of transactions increase or friction increases unless suppliers and consumers can exchange without too much unnecessary data exchange or search.  Thus, good platforms must have good filters that allow suppliers and consumers to find each other with minimal effort, and find exactly what they want very quickly and easily
  • Finally, good platforms require and trust is established through reviews.  This is a component of feedback and helps with filtering and establishing a rationale to use the platform.

Spawning an Ecosystem

If we return to the concept of the path or road as an initial platform, we can evaluate the platform attributes introduced above and think through the ecosystem that should be created.  For example, if the path or roadway is a platform, then it should be obvious that as more people use the road and more connections are made, some method to communicate how to use the road will be developed.  Thus, map makers emerged, leading to GPS.  And, since travelers didn’t always make it to their destination, roads spawned restaurants and inns, which in turn spawned information:  Michelin and Baedeker’s guides to lodging and food.

Every valuable, useful platform should spawn an accompanying ecosystem, which provides goods, services and information that the platform builder doesn’t want to provide or isn’t providing.  What draws the ecosystem to the platform?  The promise of access to a large number of customers who have specific needs.  Smart platform builders will build platforms that are easy to connect to and simplify information exchange, because even the smartest platform developers can’t provide all the goods and services required.  In most cases they can’t even imagine all of the opportunities or needs. Even Apple in its iOS platform leaves room for developers to build apps for their devices, although Apple’s platforms are far more closed than other platforms.  The relationship is somewhat symbiotic:  sure, ecosystem players receive customers and offer benefits to customers from the platform, but they in turn reinforce the value of the platform and often provide goods and services back to the platform.

Gatekeeper, tollbooth, billboard, data exchange

One of the most important questions any company must entertain is how to make money from the platform and ecosystem.  Some platforms will charge for connections – a gatekeeper model.  Some will charge a small fee for transactions – in effect a tollbooth model.  Others, like Google, will use a billboard model, selling ads.  All of these platforms will share one common feature – they will all create value for themselves and to an extent for their ecosystem – by gathering, analyzing and selling data.

Ultimately platforms and the ecosystems they support are data combines, creating and generating data that has value to the platform, to the ecosystems and to other vendors, producers and ecosystems.  Platforms themselves will benefit from data collection and analysis if they are able to use the insights to constantly rework and refresh their platform offerings.  Ecosystem vendors can benefit from the data through reworking their relationship to the platform and revising their offerings.  Third parties, not within the platform or ecosystem, can benefit from the insights gathered across the transactions.  This is what the older platforms missed – integration of the exchange, the platform and the data that was generated.  When the platform was a physical path, data was not recorded or widely distributed, today it leaves a digital footprint.  Now, the platform is just a data manager, capturing, collecting and analyzing all of the data across all the interconnections, exchanges and feedback loops.  A good platform should be constantly evolving based on its own analysis of the data and interactions.

The evolution of the platform

If we look at the history of the platform, from footpath to road to telecommunications and eventually to solutions like Facebook, we can see that there is a symbiosis:  as the platforms allow greater interaction, the platforms themselves find methods to accelerate and create greater interactions.  The platforms don’t have to begin with all of the technology or capability in mind, as long as they are scalable and encourage connections. The network effect will take over as consumers and suppliers are attracted to the platform, and these consumers and suppliers will attract the ecosystem.

This observation means that any platform can start small and can scale quickly, as long as it is purpose built to scale and to connect.  Look back to the old Roman roads.  In England the Roman roads were raised above the surrounding landscape, well built, with good drainage. There were many roads with many connections, speeding people and products around the island.  Today, many modern roads follow the same paths.  Think carefully about how you construct your platform – don’t worry about size at first, worry about connectivity and scalability and the rest may follow.

 

 

 

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