Building a Product vs a Platform

17th Jul 2012
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One of the reliable ways that a company can build a long-lasting, sustainable competitive advantage in the tech business is to transition from building just a product into building a whole platform. Building a "platform" usually means allowing third-parties a way to plug in to your product and offer platform-level services so that they can leverage your core product and build on top of it. In effect, you build an eco-system around your product, extending the benefits of your product to your partners and to your users. If done right, it results in a win-win-win: Your users get the benefit of a broader set of features, your partners are able to leverage your platform to reach more users, and you also benefit by "renting out" your core assets.

But before a platform can work, it has to have one key ingredient - A monetizable, core asset. This is the core asset that your product is really good at building, and this is the asset that you allow external partners access to. This is far more tricky than it sounds, and often times it is very hard to even recognize what the "core asset" is.


platform

Lets take Facebook as an example. Facebook has differentiated itself from all the social networks that came before it by building a platform. But what is at the core of this platform? What is Facebook's most valuable, core asset that they have managed to monetize so well?It is tempting to say that Facebook's core assets are its users but I don't think that is it. Facebook freely allows access to your friends list, and any app can easily request permission to view your friends and friends-of-friends, and could potentially duplicate the whole friends graph. In fact, through the open-graph API, facebook easily (and freely) gives out access to this information. What Facebook has really built up at its core is not just users but user's profile and interest information.

Facebook has painstakingly collected very detailed information about each one of its users - what their interests are, what activities they usually engage in, what kinds of games they play, what kinds of things they consume and spend their money on, and a hundred other small pieces of information about every user. Facebook can use this information to then deliver targeted ads, which is what they monetize. And the platform allows external parties - Game and App developers, external websites etc... to plug into the platform and get access to Facebook's social and interest graphs, and in return, Facebook collects even more information about how its users are accessing partner's apps and games and websites. The spreading of the "Like" button across the web, for example, allows Facebook to now track what is users are doing across the web rather than just inside Facebook.com.

Another great example of a platform is Amazon.com's marketplace. Amazon allows trusted third-parties to list their stuff on the amazon.com website, and makes all that searchable. Users can then browse through that selection and order stuff off of Amazon.com, and the third parties fulfill the orders. In the past few years, Amazon has extended this program to sell not just physical goods, but also digital goods like e-Books, Apps, Songs, Movies and a whole lot more. It's an e-commerce site that has successfully become a platform of choice for both consumers and sellers. So what makes Amazon's platform tick? Is it the users that come in to the site every day? Is it amazon's powerful recommendations system?

I don't think it is any of that. All of that can be replicated, and e-Commerce sites have usually very little "differentiation". So what is that asset that Amazon has that no-one else can replicate? I think it is the ~150 million credit card details that it has in its database. Amazon has collected all these credit card details and built a "one-click" shopping experience (which it infamously patented). It is the most friction-less check out process there is. You can literally buy stuff with just one-click, which is such a huge asset for capturing impulse shoppers. And Amazon allows third parties access to plug into the platform and take advantage of the friction-less shopping experience, which they will not be able to duplicate on their own sites. And for some sellers, it is actually more profitable for the sellers to list on Amazon rather than doing their own e-Commerce site. That's the holy grail of a platform!

Amazon has very cleverly used their core asset - the millions of credit card details - to successfully enter related areas like Mobile Apps and Movie Downloads. Apparently, developers are making more money from the Amazon android app store than Google's own android app store!

At the end of the day, building a whole platform can be a very good strategy. If done right, it creates large, sustainable competitive advantages, and can be very lucrative. But to execute on a platform strategy, you need to be very clear what the core, monetizable asset of the product is, and the product has to be very good at building up the core asset. Often, it is not obvious what the core asset is, and discovering it can be a hard task. But if your product has such an asset, you must consider opening it up via a platform strategy and developing an eco-system around it.

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