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In our previous blog on Digital Transformation, we discussed why a product mindset is essential. But Product thinking is not enough anymore. While software products have moved to the cloud, their makers turned to building platforms. Platforms are everywhere these days and each of them is unique. They extend software products to a longer vision, enable sustainable growth, and add new business value. They build ecosystems and bring about homogeneity in the Information Technology (IT) landscape.
Today many valuable tech companies own platforms. Some of them started as platforms and some others moved from products to platforms. Inspired by their success, some software product makers think that a platform can save a failing product, others venture into making platforms assuming that every software maker should.
However, not all of them succeed in establishing popular and revenue-generating platforms. This blog details why and how software makers transition to platforms from products. It also shows how any software product maker, a start-up or an established one, can launch a successful platform.
The Beautifully Diverse World of Platforms
With the new wave of Digitalization or Digital Transformation in Banking, Finance, Education, Travel, Insurance, Agriculture, Media, Communications, etc, almost all businesses started using more software products. coMakeIT envisages that every product will either become a platform or a part of a platform. Connecting products over a new or an existing popular platform offers convenience and new opportunities. Platforms extend the scope of a software product and/or create an integrated ecosystem of applications and users.
Some platforms, like Interactions networks, On-Demand Service Platforms, Content Crowdsourcing Platforms, only establish connections, they are aggregators and are not directly related to the industry they serve. For example, Airbnb doesn’t manage any hotels. It started as a platform that connects travellers and renters with homestay providers, inns, and motels. Similar platforms exist in other industries as well.
Platforming is common in non-software sectors undergoing digitalization, yet not all platforms start outside the core sector. Tech firms like Microsoft are increasingly standardising their software products and moving them to technology platforms. The platforms acquire broader capabilities like AI (Artificial Intelligence) as connected products collect and analyse more data. They are further standardised and extended by various ISVs, adding new products to the platforms, and customizing them to various domains.
Not all software product companies build new platforms, some build products for an existing computing or technology platform. Some transition their products to platforms. Many times, the transition happens accidentally. For example, Apple initially manufactured only products, iPhones and iPods. When they launched iPhone, no third-party apps could be installed in it. As hackers started to ‘jailbreak’ the phone and as users started preferring more open Android phones over closed Apple ones, the makers did eventually open their computing platform for other app-builders.
Without this move, I doubt if Apple phones would have sustained the tight market competition. Today many businesses are customising their websites to iOS and other Mobile Operating Systems and creating apps to interact with consumers easily.
The makers could benefit from a new revenue by charging a fee for accessing the platforms and for connecting users and third parties. Unlike the linear revenue model of products, a new type of revenue model with multiple revenue streams might emerge. Each platform is monetized differently and in more than one way. Uber predominantly earns from the service charge it receives from cab drivers and users while Google receives revenue from ads.
However, such platforms have multiple revenue channels that change with time and trends. As more people use a platform, it becomes a part of the wider platform economy that lets even non-owners monetize the platform without negatively impacting the owner’s revenue.
Why should we Build Platforms?
The first and obvious reason why companies transition to platforms is that platforms can be monetized in several ways. Who doesn’t want to earn more and that too from less or no additional effort? But let’s not decide too early that it is all about money. Platforming is more than just earning money through multiple channels. Usually, platforms offer new commerce opportunities not just to the makers but also to users and enthusiasts.
They play a key role in democratizing the digital innovation sector, by providing opportunities for smaller and medium-sized tech firms. They form connections between peoples and communities across geographies through technology and are capable of making our world more comfortable all the while reducing costs and increasing profits for both consumers and businesses or service providers.
Platforms knit various product users into communities and provide a channel for the groups of users to communicate. They open and also involve users and other independent developers in the evolution of the products they connect or the services they provide. Hence, they become important players in creating value.
Here are some basic differences between products and platforms
|Usually have only one revenue source||Revenue is also generated by selling access to the platform, by connecting users and third parties, and by sharing the data collected.|
|Meet specific consumer needs||Build standardised products that are customized for various domains by other parties in the platform.|
|Product differentiation is the competitive advantage||A large user base connected over the platform is the competitive advantage|
|Value is fixed||Opens up to the network to create any value that the community requires.|
|Users are for products.||Communities are for platforms|
|Come with a fixed set of tools/functionalities from one company.||Platforms are built by multiple companies or communities.|
|It can be challenging to add tools to a product or customize it.||Various customizations and add-ons make up a platform. Customizing products through platforms is easier.|
|Tools and add-ons need to be integrated to the product.||By design, platforms facilitate communications and collaborations between various tools. They share data and functionalities between various products in the platform.|
|When a product’s user is a business, as the business grows it mightn’t need an advanced one.||When a platform’s user is a business, it is most likely that the platform grows with its users.|
|Many businesses purchase several product licenses for their various product needs.||As the access to a platform gives access to all its products, businesses need fewer licenses.|
|Doesn’t provide insights about trends in the ecosystem and doesn’t help in making a business future-ready.||Businesses can easily collect, view, and analyse data, predict trends, and build resilience.|
A good Product behind Every Platform
You can transition a product to a platform or build a platform that connects users who need the service and those who provide it. In both cases, a strong software product is essential. While transitioning, some falsely assume that platforming can rescue a sinking product, but they’re absolutely wrong. A platform can succeed only if a good number of users use it. If the products that form the platform are not good enough, the platform is bound to fail.
Good products that are tested and are continuously upgraded to reduce any technical debt are essential to building a product. What brings consumers to platforms built by Apple or Microsoft is their popular, well-tested, and highly successful products.
The same is true for a platform that doesn’t involve software services. Both Netflix and Airbnb do not connect software products, yet they are aggregators that use software products to connect users and service providers. Their software products, websites or apps, are continuously upgraded to meet the advancing technologies and customer preferences. As much as the idea underlying these platforms, it is their commitment to continuous technical innovation that paved their huge success across the globe.
As more sectors get digitalized new methodologies in Software Development like Agile, DevOps, CD (Continuous Development), Continuous Innovation, etc find new applications through the latest platforms and products.
Despite all the information on the Internet, in many cases, it is still vague when to build a platform, and when to build a product. A product or a platform, both need good technical expertise to improve and customize continuously. It is impossible to build a platform without collaborations.
While building a platform for various digital societies spread across the world an expert perspective or a cross-border collaboration is highly valuable. coMakeIT has been providing such product engineering services to various product and platform makers for decades. For more information on our services, please visit our website.