Platforms vs pipes Show
The difference between pipe and platform business modelsThere are many books, websites and articles providing detailed explanation on platform business (Platform revolution, etc). So what is understood by the platform business? What is the difference between pipe and platform business models? Traditional business typically creates products and/or services that fill needs of the customers. These businesses are in comparison to platform businesses called pipes. For instance Apple’s phone business is a pipeline – but AppStore is a platform. As Apple demonstrates, firms needn’t be only a pipeline or a platform; they can be both. In the platform business model, the value creation is multidimensional or networked compared to the pipe business model with a linear value chain. This infographic by Harvard Business Review describes the players in a platform ecosystem: How to move from pipe to platform model then?
When a platform company enters a pipeline firm’s market, the platform almost always wins. This statement holds true both for technology platforms such as Microsoft’s Windows operating system, Intel’s microprocessors and chips and also Apple’s iPhone, but also for modern platform businesses such as AirBnB, Uber and others. Read moreIn my Blog you can find my curated series of Platform Business News that covers timely how platforms are having an impact in different industries and how the latest technologies are enabling business model innovation. Go to my Blog In the Insights section of Platformbusinessmodel.com, I will dig deep into various aspects of platform business. Go to Insights On FAQ-page you can find a listing of the most frequently asked questions on platform business model. Go to FAQ EXECUTIVE SUMMARY: Pipeline Business Model has been a dominant business model for a long time. The linear process of firms creating stuff, pushing them out, and selling them to customers in the process pipeline business follows. The traditional manufacturing business runs on a pipeline model. If the internet had not been established, the platform business model might never have emerged (Deloitte, 2018). A platform is a business that links users through technology to build and share values in an ecosystem. As compared to pipes, the platform does not build and move stuff forward. RISE OF PLATFORM BUSINESS MODEL: For years the platform has existed. Shopping malls connect consumers with the merchants. Similarly, newspapers link subscribers with advertisers. What has changed is Information Technology has reduced the need to own physical infrastructure and assets. Building platforms has been made much simpler and easier. (Tactics, 2017)What are the common features of Airbnb, Uber, Facebook, and Alibaba besides being some of the most successful companies in the recent (or coming) years? They are all platform businesses. The popularity of such exemplary businesses has made the platform business model the goal of business models. Over the last five years, this idea of platform revolution has gone outside Silicon Valley. It now applies to every industry and has shaken the way business is done. Competition is no longer only about who creates a great product, but also about who develops a stronger platform. (Harvard, 2016) PARTICIPANTS OF A PLATFORM: While platforms are present in several variations, they all share an environment of three types of participants with the same basic framework. They are: •Producers – a party that takes on the role of creating products and services for its customers. •Consumers – a group who decides to buy a company’s product and services •Platform – a forum where people from various parties (producers and consumers) connect to each other for social and economic activity. In this process, all the participants are benefited. WHAT LEAD TO THE EMERGENCE OF PLATFORM ECONOMY? The three shifts that lead to the rise of the platform economy are: •Connectivity- we realize that the biggest shift that is happening at this point is “Connectivity”. More and more connectivity is happening every single day. The first connectivity was desktop computers, then all of us got connected with smartphones, now the things around us are getting connected. •Intelligence- The second element that occurs in a parallel way is that every connected thing is becoming intelligent i.e. connectivity and intelligence are working together. •Economies of scale- The third move is that manufacturing processes are not for big firms anymore. The production means are gradually being shifted to smaller companies. Smaller businesses are scaling much faster. CONTINUOUS VALUE CREATION THROUGH PLATFORM BUSINESS MODEL: Unlike pipeline, platforms enable continuous value-creating interactions between different parties (consumers and producers) and the use of the digital economy allows us to create greater efficiency and lower operating costs. They help in expanding the market by bringing together knowledge flowing from different parties. Through such interactions, we stop managing the internal processes only and start with external interactions in our ecosystem (Alem, 2018). This shift from process to interactions requires a fundamentally different mindset for running the company. So, when the platform comes it is very important to digitize the core source of value. Along with digitization, a single view of supplier, producer, and hence a single view of the ecosystem is required to orchestrate the ecosystem. In conclusion, the platform economy concept concentrates on the core interaction between two participants in the ecosystem. CONCLUSION: Platform Business Model seems to be the most profound disruptive change in the global macroeconomic environment since the industrial revolution. The usage of innovative technology in the development of business model solutions provides the increasingly evolving digital economy with unprecedented growth opportunities. Although tech and digital-born companies with record large market caps control the digital economy, non-tech leaders in all divisions are now building platforms. REFERENCES: Alstyne, M.W.V., Parker, G.G., Choudary, S.P. (2016) ‘Pipelines, Platforms, and the New Rules of Strategy’, Harvard Business Review, (April 2016), 1 Apr, available: https://hbr.org/2016/04/pipelines-platforms-and-the-new-rules-of-strategy ‘deloitte-nl-hc-reshaping-work-conference.pdf’ (n.d.) available: https://www2.deloitte.com/content/dam/Deloitte/nl/Documents/humancapital/deloitte-nl-hc-reshaping-work-conference.pdf The Complete Guide to the Platform Business Model [online] (2017) Innovation Tactics, available: https://innovationtactics.com/platform-business-model-complete-guide/ What Is the Platform Economy (and Why You Should Care)? - RevelX | Blog [online] (2020) available: https://www.revelx.co/blog/what-is-platform-economy/ What is the difference between a pipeline business model and a platform business model?Pipeline firms organize their internal labor and resources to create value by optimizing an entire chain of product activities, from materials sourcing to sales and service. Platforms create value by facilitating interactions between external producers and consumers.
Is Netflix a pipeline or platform?Netflix, for example, is not a platform business despite being a technology company. It's essentially a linear TV channel with a modern interface. Like HBO, it licenses or creates all its content.
Is Facebook a platform or pipeline business?PLATFORM BUSINESS MODEL DEFINITION: a business model which brings value by running exchanges within two or more interdependent clubs, mainly producers and consumers. Such as Uber, Facebook, or Alibaba, don't directly build and manage inventory through a supply chain the way linear businesses work.
What is a platform business model?PLATFORM BUSINESS MODEL DEFINITION: a business model that creates value by facilitating exchanges between two or more interdependent groups, usually consumers and producers. Like Facebook, Uber, or Alibaba, these businesses don't directly create and control inventory via a supply chain the way linear businesses do.
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