SPOTLIGHT ON HOW PLATFORMS A RE RESHAPINGBUSINESS
Uber and Airbnb are just the latest in along line of platform businesses that have upended stable, profitableindustries. Platforms play by different rules. When they win, they win big— butconventional management thinking doesn’t always apply.
STRATEGY
Pipelines, Platforms, and the New Rules ofStrategy
Marshall W. Van Alstyne, Geoffrey G.Parker, and Sangeet Paul Choudary | page 056
For decades, the five-forces model ofcompetition has dominated the thinking about strategy. But it describescompetition among traditional “pipeline” businesses, which succeed byoptimizing the activities in their value chains—most of which they own orcontrol. “Platform” businesses that bring together consumers and producers, asUber, Alibaba, and Airbnb do, require a different approach to strategy. Thecritical asset of a platform is external—the community of members. The focusshifts from controlling resources to orchestrating them, and firms win byfacilitating more external interactions and creating “network effects” thatincrease the value provided to all participants.
In this new world, competition can emergefrom seemingly unrelated industries and even from within the platform itself.The authors, three platform strategists, walk executives through the choicesthey must make when building platforms, outlining the different metrics neededto manage them. Businesses that fail to learn the new rules will struggle, theyargue. When a platform enters the marketplace of a pure pipeline business, theplatform nearly always wins. That’s exactly what happened when the iPhone cameon the scene in 2007.
By 2015, it accounted for 92% of globalprofits in mobile phones, while most of the giants that once ruled the industrymade no profit at all.
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ENTREPRENEURSHIP
Network Effects Aren’t Enough
Andrei Hagiu and Simon Rothman |page 064
n many ways, online marketplaces are theperfect business model. Since they facilitate transactions between independentsuppliers and customers rather than take possession of and responsibility forthe products or services in question, they have inherently low cost structuresand fat gross margins. They are highly defensible once established, owing tonetwork effects.
Yet online marketplaces remain extremelydifficult to build, say Andrei Hagiu of Harvard Business School and venturecapitalist Simon Rothman of Greylock Partners. Most entrepreneurs and investorsattribute this to the challenge of quickly attracting a critical mass of buyersand suppliers. But it is wrong to assume that once a marketplace has overcomethis hurdle, the sailing will be smooth.
Several other important pitfalls canthreaten marketplaces: growing too fast too early; failing to foster sufficienttrust and safety; resorting to sticks, rather than carrots, to deter userdisintermediation; and ignoring the risks of regulation. This article draws oncompany examples such as eBay, Lending Club, and Airbnb to offer practicaladvice for avoiding those hazards.
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BUSINESS MODEL INNOVATION
Products to Platforms: Making the Leap
Feng Zhu and Nathan Furr|page 072
Following the path of companies such asApple and Amazon, more and more firms are trying to become not just productpurveyors but also platform providers, facilitating direct connections betweencustomers and other groups. Although launching a platform can generate newrevenue, success is not automatic. After studying more than 20 companies thathave tried to move from products to platforms, the authors point to fourpractices that can separate winners from losers:
1. Start with a defensible product and acritical mass of users. A strong product and a loyal customer base will attractthird parties to your platform.
2. Apply a hybrid business model. Insteadof operating with a “product mindset” or a “platform mindset” alone, combinethe two in order to discover new opportunities for creating value.
3. Drive rapid conversion to the platform.Existing customers are likely to flock to a platform if it provides enough newvalue, if the additional products and services offered are consistent with yourbrand, and if users have opportunities to improve both the products and theplatform.
4. Deter competitive imitation. Make ittough for rivals to copy your product-to-platform strategy: Consider creatingproprietary standards, using exclusivity contracts, and erecting other barriersto competition.
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REGULATION
Spontaneous Deregulation
Benjamin Edelman and Damien Geradin | page080
Platform businesses such as Airbnb and Uberhave risen to success partly by sidestepping laws and regulations that encumbertheir traditional competitors. Such rule fl outing is what the authors call“spontaneous private deregulation,” and it’s happening in a growing number ofindustries.
The authors explain that businesses aremost vulnerable to spontaneous deregulation when certain conditions hold. One,for example, is when regulations are excessive or outdated, protectingconsumers against unlikely risks— and when platform providers offer other meansof shielding consumers from harm.
Incumbents facing threats from privatederegulation can respond by taking legal action to press for enforcement ofexisting laws. Alternatively, they can embrace aspects of a new entrant’sapproach—taxi operators, for example, have developed Uber-style apps forordering rides. Incumbents can also leverage their own strengths to setthemselves apart from upstart competitors— that’s the tactic that CitizenM, thePod Hotel, and Yotel are using to woo guests who might otherwise book withAirbnb. If all else fails, incumbents may have to cease operation. But theystand a good chance of avoiding that fate if they address their vulnerabilitiesearly.
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The Big Idea
GROWTH
Blitzscaling
Reid Hoffman, interviewed by Tim Sullivan |page 046
Reid Hoffman, interviewed by Tim Sullivan|page
Reid Hoffman is one of Silicon Valley’sgrownups. After helping to found PayPal, he moved on to launch LinkedIn in2002—an endeavor that turned him into a billionaire. He was an early investorin Facebook and now serves as a partner at the venture capital firm Greylock.In this edited interview with Tim Sullivan, of HBR Press, Hoffman explores hisidea of “blitzscaling”—the discipline of getting very big very fast. In today’snetworked landscape, the path to high-growth, high-impact entrepreneurship canbe chaotic and grueling. It involves rapidly building out a company to serve alarge and usually global market, with the goal of becoming the first mover atscale.
And there’s no playbook to guide you,Hoffman notes. “You throw yourself off a cliff and assemble your airplane onthe way down.”
Hoffman emphasizes that blitzscaling is notjust about growing revenues and the customer base but also about scaling theorganization. People naturally focus on the first two, and “if you don’t getthose right, then nothing else matters.” But very few businesses can succeed onthose fronts without also building an organization that has the capability andthe capacity to execute at a high level in the face of extremely rapid growth.
The challenges, risks, and headaches ofblitzscaling go beyond the operational; they can take a toll on organizationalhappiness. “But the thing that keeps these companies together—whether it’sPayPal, Google, eBay, Facebook, LinkedIn, or Twitter,” Hoffman says, “is thesense of excitement about what’s happening and the vision of a great future.”
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How I Did It
LEADERSHIP
Priceline’s CEO on Creating an In-HouseMultilingual Customer Service Operation
Darren Huston | page 042
Today, the author writes, business can beconducted in English almost anywhere in the developed world, possibly exceptingJapan. But when you build or grow a global consumer-facing business, you mustspeak the language of your customers, wherever they are.
Booking.com, the Priceline Group’s largestglobal business, strives to meet that goal by employing people who can answercalls in 42 languages. Although Booking.com is a digital company thatfacilitates online reservations, about 20% of its customers wind up calling forsome other reason. Even though many of them are multilingual, when it comes totheir personal travel, they want to speak in their native language.
When Huston took the reins, in 2011, thecompany was relatively small, with a hard-to-find customer service number. Nowit has 6,000 full-time customer service employees, all of whom speak fluentEnglish plus at least one other language; many speak three or four. When planninghow to staff call centers, the company must consider cultural factors (forinstance, people in emerging markets such as Brazil and China tend to call morefrequently) and nuances (Americans tend to not like speaking with a rep who hasa British accent, and vice versa). For future centers, it has prioritized majorcities for either their depth in major languages (Tokyo, Shanghai) or theirbreadth of languages (London, Amsterdam, Berlin, Barcelona). Booking.com isnow, the author writes, “the largest online accommodations platform in theworld, by almost any measure,” and has been rated “one of the mostinternational websites on the planet.”
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Managing Yourself
An Antidote to Incivility
Christine Porath | page 141
“It is almost impossible to progress through a career untouched byincivility,” the author writes. Over the past 20 years she has polled thousandsof workers: 98% have experienced uncivil behavior, and 99% have witnessed it.In 2011 half said they were treated rudely at least once a week—up from aquarter in 1998. Rude behavior ranged from outright nastiness and underminingto ignoring people’s opinions to checking e-mail during meetings. Observing orexperiencing rude behavior impairs short-term memory and thus cognitive ability,and has been shown to damage the immune system, put a strain on families, andproduce other deleterious effects.
Porath has identified some tactics tominimize the effects of rudeness on performance and health. The most effectiveremedy, she says, is to work holistically on your well-being, rather thantrying to change the perpetrator or the relationship. She suggests atwo-pronged approach: Take steps to thrive cognitively, which includes growth,momentum, and continual learning; and take steps to thrive affectively, whichmeans experiencing passion, excitement, and vitality at work.
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