Platforms and Market Places

Somebody once told me “always aspire to build a car factory not a car dealership”. This has stayed with me when I am advising people on business strategies or thinking about prioritizing things that I work on as well. Platforms are difficult if you are starting from scratch and the choice also depends on the risk tolerance profile of an individual. If somebody is looking to have quick and incremental gains with lower risk then I’d recommend something different but if somebody has an appetite to take higher risk and ability to pull off a very challenging idea; a platform company would be a very interesting endeavor.

Many years ago I was fortunate enough to land a job at SSH Communications Security. My job was to help customers integrate our product which was a software toolkit to add encryption functionality to network routers. The product was sold as a “source code” and this was before such things were fashionably called “SDKs”. Our product was roughly 300,000 line source code that would be part of the Linux kernel to add security to all kinds of network routers. While the job was fun and I greatly enjoyed working with customers on their technical architecture and coding; I also enjoyed learning about their business models and discussing different alternatives they could take to capture different markets. Each company had a different approach to tackle the market and from a different perspective. Silicon Valley is the place for innovation and I was right in the middle getting exposed to so many interesting ideas. I always wondered why we sold a toolkit and not make a router ourselves and the answer lied in core competence and strengths. Our strength was Security and while we could have figured out building large network routers and take them to market – by using this approach we could enable a large part of the market and focus on what we really enjoyed doing which is Security.

As the world around us evolves; platforms are becoming more and more ubiquitous. Enabling somebody to build their business using their core competencies and strength is very exciting. Yes, it’s higher risk – what if your platform doesn’t get critical mass? It’s a high risk high reward proposition. What if it does get critical mass? Let’s compare a couple of the most interesting platforms of today – iOS and Android. Apple & Google would never be able to develop all the functionality for small niche audiences that the platform ecosystem has enabled. Humanity would never have Kim Kardashian’s Kimoji app without Apple building an open platform. Apple or Google do take a cut and pass the rest of the revenue to the manufacturer of the app. This way Apple or Google don’t have to staff up their companies or invest in every small niche ideas and an open ecosystem makes their products more sticky and powerful.

Of course Platforms have been around for many years. Shopping Malls are platforms which attract people and business owners can open stores to market interesting merchandise to potential customers. Radio & Television as medium offer an opportunity to reach large audiences to content publishers. The shop keeper down the street who maintains the store and customer relations to sell merchandise etc. These are all concepts where one doesn’t have to build an entire supply chain from conceptualization to fulfillment but rather take bits & pieces that are more suitable to them and get rewarded for the part they do.

These days there are market places sprouting up all around us. If you think of something; there is a market place for that. Even the neighborhood grocery market now uses market places like Instacart etc. There is a market place for lodging, ride sharing, dating, food, apparel – you name it. There are many things that have aligned for this current economic boom in market places to persist. With the gaining of critical mass for smart phones in almost all markets and a large % of population spending significant time on smart phones they are becoming a valuable vehicle to create experiences that people want. As technology evolves; it’s creating new opportunities for business owners to think differently and offer new experiences for customers to shop. Globalization and disappearing borders are also helping foster international market places where people can discover goods and services from different parts of the world.

Market Places as Platforms are changing the way people buy and sell stuff and this is a very exciting time to be part of this ecosystem as technological advances, user behavior and globalization change the way we discover and consume things. And if you are thinking about building a business and willing to take the high risk, high reward route – remember – “aspire to build a car factory, not a car dealership”.