Platforms as scaling instruments

Information technologies bring a lot to scaling processes. They facilitate large-scale dissemination of ideas, provide new marketplaces and contribute to reducing the marginal costs of services and products as clearly explained by Jeremy Rifkin. Using online platforms, the growth of start-ups can be extremely rapid (see our post on exponential organisations): it has for instance taken only a couple of years for companies such as Airbnb or Uber to reach the status of unicorn (i.e. a 1 billion valorisation). When looking at most rapidly scaling organisations, what is striking is that they typically:

• outsource many of their activities and attract resources far beyond their initial customer base: they crowdsource their knowledge and make use of assets that do not belong to them;
• have an “indirect” business model: they help other organisations or people develop their value propositions and build their own business models on very large number of users generating indirect payment mechanisms based on advertisements or “connexion fees”. In this model, “controlling” resources or assets is no longer a competitive advantage.

This process of rapid scaling is generally facilitated by an online platform that becomes the playground of a large group of actors. Platforms are much more than IT tools, they are the aggregators of communities, the instruments where value is generated, the catalysers of reduced marginal costs and as such, they are playing a key role in the scaling of new solutions, including for humanity on a safer planet.

So what are important features of these platforms and what role can they play in scaling?

For their operators, platforms help building value from the crowd and think outside the box. For any company development, a key question is: what resources should I mobilise and keep internally and what resources should I outsource? Platforms have been a game changer in that respect. Outsourcing has been made much easier through plug and play approaches e.g. through standardized Application Programming Interfaces (APIs), and the boundaries between internal and external have clearly moved, provided companies are able to valorise and integrate external values into internal ones.

Linked to the above is a major evolution of the business models. In his book “Platform scale” (link) Paul Choudary distinguishes “pipe scaling”, i.e. the traditional scaling “powered by the ability to coordinate internal labour and resources toward efficient value creation from “platform scaling” i.e. a “business scale powered by the ability to leverage and orchestrate a global connected ecosystem of producers and consumers toward efficient value creation and exchange.”   

The notion of ecosystem is essential here: actors aggregated are not passive actors, they have specific roles and functions. In essence platform scaling is not linear and disrupts the classical supply chain approach by facilitating the upstream involvement of value producers and the development of an ecosystem where value is generated by exchanges and not merely by production: as stated by Paul Choudary, “the ecosystem is the new supply chain”.

For-profit versus non-for-profit

Another important feature of platforms is a blurred boundary between for-profit and not-for-profit models. To be successful, a platform needs to attract a large community (the crowd) and to provide sufficient value to that community.  In most cases, this means that it needs to be as open as possible. It will therefore be free for its community members, benefiting from the ”zero marginal cost” effect, and generate its revenues through other offers often enabled by the information collected by powerful algorithms. 

For instance, big platforms such as those provided by Apple or Google attract professionals ready to pay for adverts or to have their apps available through the platform. Dropbox (as well as many other online services) provides another example where most of the “small scale customers” are provided a service for free while a small percentage of “professional users” agree to pay and to support the development of the whole.

While the examples above relate to large classical companies, the approach can also be used to facilitate scaling of local successes. Platforms can be used to collect good ideas, create communities of practice and also anonymize data collected in a business (and competitive) context.