Platform Business Model

Just before Thanksgiving, I had the great opportunity to engage with strategy consultants and professors at University of Chicago on business strategy.  One of the key topics was Platform Business Models. 

What’s that you might wonder?   A platform business model brings together two or more distinct groups of customers, where each group represents a ‘side’ of the platform.   The value of the platform for one consumer group creates value for the other.  Sometimes this is referred to as a value chain.   

See Michael Porter from Harvard for more details.  Platforms create a network effect.  The more content on the platform, the higher the value created.   Here are a few examples:

-           Google:  users and advertisers

-          iTunes:  musicians and fans

-          PlayStation:  game companies and gamers

Platforms aren’t just technology-based.  A shopping mall is a platform.  The stakeholders are merchants and shoppers.  A hospital is a platform – healthcare professionals and patients.  The better the medical staff, the more patients.    

There is an interesting dynamic that transpires between the platform provider and content providers.  Content providers (e.g. games, software applications, music, movies, stores, medical procedures) are continuously demanding more features from the platform providers.  To maximize revenues and neutralize the power of the platform, content providers port their content across multiple platforms.  In some markets, like music and movies, content providers (until recently) didn’t have much choice beyond iTunes and NetFlix respectively. 

Platform providers on the other hand have several levers to pull.  First, they build proprietary features that create lock-in for the content providers and second they begin to develop their own content/applications to compete with their partners.  To convince content companies to build on their platform, they must create the first killer app.  This demonstrates the power of the platform and the breadth of scenarios that the platform is vital for success.  

Case in point is the new iPhone.  Initially when the platform (iOS) was getting  started, Apple needed Google for maps.  Apple owned the platform and began to better understand the requirements, patterns and usage of mapping and decided to write their own application.  Why?  Two reasons – one Google was encroaching on their territory and two – margin expansion.  As iPhone reaches maturity, they need to improve margin.  Paying Google for maps.

In my career, I have worked extensively in platform-based markets. Our content providers  are systems integration and consulting companies.  These partners provide excellent feedback into our product development process and they create customer solutions to fill gaps in our current release.  Partners are an incredible source of innovation and too often their input and feedback is missed.  My mantra – listening to one partner is like listening to the voice of 100 customers. 

Hope this gives you something to think about.  Platforms have two sides and you have to understand both dimensions to succeed in business. 

Business Strategy Brief

 Like you, I have been in class all week.  As part of a leadership development program, Oracle has sent me to University of Chicago Booth School of Business to study strategy. Learning is a lifetime journey and my hope is that you will forever be curious to learn new things - even on topics which you think you have mastered.    My focus this week is to expand my understanding of how strategy works in business and I thought it might be good idea to share some of these concepts with you. 

There are hundreds of books on the topics of strategy.  One seminal piece of work for me was Disciplines of Market Leaders by Michael
Treacy and Fred Wiersema.  They describe companies strategies falling into one of three primary buckets – customer intimacy, product excellence or operational efficiency.  Customer intimate companies know their customers forward and backwards.  They may not offer the best product but they lead with service.  Product excellent strategies focus on innovation and developing a premium brand with superior quality. Operational excellent companies are typically low cost competitors. 

In addition to strategy, we have been studying  technology adoption lifecycles.  In 1995, I had the distinct opportunity to work with The Chasm Group.  This was a group of marketing strategy executives led by Geoffrey Moore who led a massive body of research on the adoption cycles of technology across a broad range of industries.  Not just software but going back to automobiles, telephones, TV and the Internet.  His signature book is called:  Crossing the Chasm.  This is a must read for marketing majors. 

This week we spent time with Professor Mark Knez.  He is an outstanding strategy leader and runs the program at Chicago Booth.  Here are a few cliff notes from 24 hours of case studies and lectures – phew. 

1.     Business should shift from selling products to selling customer outcomes.  Very difficult if you don’t know the work of your customer. 

2.       Large companies can be disrupted by business model innovation at the low-end.  Think about what Netflix did to Blockbuster.  Clayton Christiansen of Harvard wrote the key book on this topic – The Innovators Dilemma.

3.       New Business Ventures must focus on customer segments who are either over-served by existing suppliers or neglected entirely.

4.       Incumbents can be overtaken by organizational rigidity caused by internal politics, complacency or fear of product cannibalization – it’s always best to keep the cannibal in the family.

5.      You must understand that value chains are dynamic and constantly changing.  A value chain is explained by Harvard professor Michael Porter in several publications and books.

Until next time. Hope classes are going great and you're meeting many exciting new friends.

Email Etiquette

Email communication is not texting, its old school.  As you begin to interact with potential employers, business leaders, customers and professionals, it’s important that your email interaction is appropriate.  Just this week, I have been interacting with a Sophomore at Drake University and his style, professionalism and approach was outstanding.  He made a great first impression and I called him back.  

Few suggestions.

1.       Punctuate, but be brief.   I work with a lots of executives and some have a 3 sentence rule.  This site offers some helpful tips on how to manage email.  Being short isn’t being rude.  It’s being respectful of the audience.  Notice Mitch’s email to me was 4 sentences.

2.       Have a professional signature.  At a minimum, your signature should include your name, university, department, email address and phone number. If you want to get fancy, you could include your school logo.  Later we will discuss the process of creating a linkedin profile.    

3.       Be specific in scheduling – use time zones.  Don’t assume the recipient is in California.  For example:  Would you be able to meet on Thursday, October 25^th @ 10:30am PST? 

4.       Relevant Closing. Develop your communication style.  Is it Sincerely, Warm Regards, Regards?  All personal preference but don’t just sign your name. 

For further reading, click here.  We’ll cover handling conflict in email another day.  Also, I’ll do a separate note on legal considerations with email, instant messaging and texting.  That’s it for today. 

Have a great weekend all.  Take Care.

Read What They Read

The best way to relate to senior executives is to read what they read.  I’m not talking about Wired, Glamour or Sports Illustrated, but business publications.  As you meet alumni on campus or interview for internships, you need to be up to speed on the top business topics and trends.  Even if you don’t interview or meet senior executives directly over the next few years, having context of their issues will help you be more prepared as you meet first line managers.  

By far the best overall resource for business and  management is the Harvard Business Review. I began reading their material 20 years ago and have found great ideas and articles.  I’m sure there is a nice student discount but there is plenty of free content to read once you register. 

Few action items: 
1.  Create an account on hbr.org and signup for at least 1 of their email newsletters

2.  Read a business blog 2x per week (see some ideas below). 

3.  Read 1 business book per semester. I know you have a lot of reading but this is light reading.

Some good business blogs to check out.  Most have RSS so you can have the latest posts delivered to your inbox.  Email inbox that is.  Old school, I know.

Marketing - Seth Godin or Digital Buzz
Management - Tom Peters
Entrepreneurship - Steve Blank (past colleague of mine)
Finance – Financial Executives Institute (FEI)

 I will publish a top 10 list on my next post.  Good luck with studies this week.