Shift from Pipes to Platforms | Sangeet Paul Choudary

Summary

The video script discusses the shift from traditional 'pipe' business models to the modern 'platform' model, emphasizing the importance of connectivity and ecosystem building. It highlights how platforms like Apple, Airbnb, and Amazon enable external partners to create value, attracting consumers and requiring businesses to focus on infrastructure and governance. The script also contrasts the competitive advantages of resource-based pipes with the ecosystem-driven platforms, and underscores the role of data as a business driver rather than just an enabler.

Takeaways

• 🛠️ The traditional 'pipe' business model is being replaced by a 'platform' model where businesses act as intermediaries rather than direct producers.
• 🔄 Connectivity is a key driver in the shift from a linear 'pipe' design to a more interactive 'platform' design in business.
• 📱 The platform model is exemplified by companies like Apple, where external partners add value to a basic product, creating a customizable user experience.
• 🏠 Airbnb and YouTube are cited as examples of platforms facilitating interactions between hosts/travelers and content creators/consumers respectively.
• 🛒 Amazon operates as a platform by bringing writers and readers together, allowing direct interaction and value creation.
• 🏗️ The platform model involves creating an infrastructure that supports external ecosystems of participants who create and consume value.
• 🛡️ Businesses in the platform model focus on providing plug-and-play infrastructure and ensuring governance of interactions between producers and consumers.
• 💡 Competitive advantage in the platform model is based on the ecosystem of producers and consumers rather than on inimitable resources.
• 🔄 The goal of a platform business is to make external interactions between producers and consumers repeatable and efficient, rather than centralizing value creation.
• 📊 Data plays a crucial role in platform businesses, driving business decisions and interactions, unlike in the pipe model where it is more of an enabler.
• 🎯 Marketing in the platform model involves incentivizing both external producers and consumers to participate in and benefit from the platform ecosystem.

Q & A

What is the traditional business design referred to as 'the pipe or pipeline design'?

The traditional business design, known as 'the pipe or pipeline design,' involves sourcing inputs, adding value to those inputs, and then pushing the output to customers. The role of marketing in this model is to ensure customer demand for the products, rather than fulfilling their needs end-to-end.

What is the fundamental change happening to the design of business today?

The fundamental change in the design of business today is the shift from the traditional pipeline model to the platform business model, which is characterized by non-linear design and connectivity.

How does the platform business model differ from the traditional pipeline model in terms of value creation?

In the platform business model, value creation is not linear and is driven by external interactions between producers and consumers, rather than a central process within the business itself.

What role does Apple's ecosystem of partners play in the platform business model?

Apple's ecosystem of partners allows for the creation of value on top of its business, enabling a single template phone to be customized and extended in various directions by the user, making each phone individually unique.

How does Airbnb exemplify the platform business model?

Airbnb exemplifies the platform business model by bringing hosts and travelers together on a platform where they can interact with each other, creating value through these external interactions.

What are the two primary roles a business plays in the platform model?

In the platform model, a business primarily provides a plug-and-play infrastructure for external participants to create value and ensures governance of the interactions between these participants and consumers.

How does the shift from pipes to platforms affect the competitive advantage of a business?

In the shift from pipes to platforms, competitive advantage is no longer based on resources but on the ecosystem of producers and consumers that the business can attract and retain.

What changes in the goal of a business when moving from a pipe model to a platform model?

The goal changes from isolating a central process of value creation and making it efficient in a pipe model, to ensuring that external interactions between producers and consumers become repeatable and efficient in a platform model.

How does the role of data differ between the pipe and platform business models?

In the pipe model, data is an enabler, informing business decisions, while in the platform model, data is the driver of business, directly influencing the interactions between producers and consumers.

What is the impact of the platform model on marketing strategies?

In the platform model, marketing strategies need to focus on incentivizing both external producers and consumers, ensuring that the ecosystem remains engaged and that the platform continues to provide value.

Why is it important for a platform business to align incentives across the ecosystem?

Aligning incentives across the ecosystem is crucial because it ensures that both producers and consumers remain engaged with the platform, reinforcing each other's value and preventing the negative impacts of disincentives.

Outlines

00:00

🛠️ The Shift from Pipeline to Platform Business Model

The script discusses a significant shift in the design of business from the traditional pipeline model to the emerging platform model. The pipeline model involves sourcing inputs, adding value, and pushing outputs to customers, with marketing ensuring demand. In contrast, the platform model emphasizes connectivity and interaction, where external partners create value on top of the business infrastructure, attracting consumers. Examples include Apple's ecosystem of apps, Airbnb's host-traveler interactions, and Amazon's marketplace. The platform model's success hinges on providing an infrastructure for value creation and ensuring governance between participants, rather than owning resources. This model changes competitive advantages from resource-based to ecosystem-based, with the business facilitating interactions and protecting consumer interests.

05:01

🔄 Transitioning to an Interaction-First Business Model

This paragraph delves into the transition from a process-first to an interaction-first model in the platform business. It highlights the non-intuitive nature of managing external interactions between producers and consumers for efficiency and repeatability. The role of data transforms from an enabler to a driver of business, making decisions about matching supply with demand, as seen in platforms like Uber and Amazon. Marketing strategies also evolve, targeting not just consumers but the entire ecosystem, including third-party producers. The importance of aligning incentives for both partners and consumers is emphasized to maintain engagement and prevent defection to competing platforms. The paragraph concludes by noting the dual-edged nature of technology in platform businesses, which can amplify growth or failure.

Keywords

💡Business Design

Business design refers to the strategic approach and structure that a company adopts to achieve its goals. In the video, it is highlighted as changing due to the shift from traditional models to platform models. The term is central to understanding the evolving nature of business strategies and how they adapt to technological advancements.

💡Pipeline Design

The pipeline design is a traditional business model where a company sources inputs, adds value, and then delivers the final product or service to the customer. It is depicted as linear and is being challenged by the rise of platform business models. The script uses this concept to contrast with the new model, emphasizing the shift in how businesses operate.

💡Platform Business Model

A platform business model is a structure where a company creates a central hub that allows external parties to interact and create value. Examples given in the script include Apple's App Store, Airbnb, and YouTube. This model is non-linear and facilitates user-driven customization and extension of services or products.

💡Connectivity

Connectivity in the context of the video refers to the technological interlinking that enables the platform business model. It is the foundation upon which external partners can create value on top of the business's infrastructure. The script mentions how this connectivity is changing the fundamental design of business.

💡Ecosystem

An ecosystem in business, as discussed in the video, is a community of producers and consumers interacting within a platform. It is a key component of the platform business model, where the value is created through these interactions rather than through a central process controlled by the company. The script uses Apple's ecosystem as an example to illustrate this concept.

💡Value Creation

Value creation is the process by which a company generates worth for its customers. In the video, it is differentiated between the pipeline and platform models. In the pipeline model, it is centralized and controlled by the company, whereas in the platform model, it is driven by external interactions between producers and consumers.

💡Incentives

Incentives are the motivations provided to participants in a platform business model to encourage their continued participation and contribution. The script discusses the importance of aligning incentives for both producers and consumers to maintain the platform's value and to keep participants engaged.

💡Governance

Governance in the context of the video refers to the rules and processes that a platform business puts in place to manage and oversee the interactions between producers and consumers. It is crucial for maintaining the platform's integrity and ensuring that both sides have a positive experience, as mentioned in the script.

💡Data

Data plays a pivotal role in the platform business model, as highlighted in the script. Unlike the pipeline model where data is an enabler, in the platform model, data becomes the driver of business decisions, influencing how value is matched and delivered to consumers.

💡Marketing

Marketing in the video is redefined in the context of platform businesses. It is not just about demand generation and fulfillment but also about marketing to an entire ecosystem, including external producers. The script explains how marketing activities must be directed towards incentivizing third-party partners to serve consumers through the platform.

💡Competitive Advantage

The concept of competitive advantage is reevaluated in the platform business model. In the script, it is explained that the advantage is no longer based on inimitable resources but on the ecosystem of producers and consumers that the platform can attract and retain, which is a shift from traditional pipeline business thinking.

Highlights

The design of business is fundamentally changing due to the shift from a traditional pipeline model to a platform business model.

Traditional businesses operate on a linear pipeline model where inputs are sourced, value is added, and outputs are pushed to customers.

The role of marketing in the pipeline model was to ensure customer demand for the business's output rather than fulfilling customer needs end-to-end.

The platform business model is characterized by non-linear design, allowing external partners to create value on top of the business infrastructure.

Platforms like Apple and Android have created ecosystems where external partners can customize and extend the basic product offering.

Airbnb and YouTube exemplify the platform model by facilitating interactions between hosts and travelers, and creators and consumers, respectively.

Amazon operates as a platform by bringing writers and readers together, allowing direct interaction and value creation.

The platform model involves creating an infrastructure that supports external ecosystems of participants who create value for consumers.

Businesses in the platform model play a role in providing plug-and-play infrastructure and ensuring governance of interactions between producers and consumers.

The competitive advantage in the platform model is based on the ecosystem of producers and consumers rather than on inimitable resources.

Platform businesses aim to make external interactions between producers and consumers repeatable and efficient, unlike the central process focus of pipeline businesses.

Data is the driver of business in the platform model, determining interactions and value creation, unlike its role as an enabler in the pipeline model.

Marketing in the platform model involves incentivizing both external producers and consumers to participate and stay engaged on the platform.

The platform model requires managing open and closed aspects of the business to ensure the right incentives and participation from all stakeholders.

Consumer expectations are liquid and easily distracted in the platform model, necessitating constant alignment of incentives to maintain engagement.

The platform model can lead to a multiplier effect in growth but also in failure if incentives are not properly aligned across the ecosystem.

The shift from pipes to platforms involves moving from a process-first to an interaction-first model, with data playing a central role in driving business decisions.

Transcripts

so across all of these things one common

thread that we repeatedly observe is

that fundamentally the design of

business is changing and I want to

clarify what exactly I mean by that when

we think of the design of business

tradition traditionally we've always had

businesses following the dominant design

that I like to call the pipe or pipeline

design which is that you would Source

inputs into the business you would add

value on top of those inputs and then

you would push that all of that out at

the end of the pipe to somebody called

the customer sitting over there who

would just keep getting more and more

output from you and so your the the role

of marketing over here was simply to

ensure that the customer wanted more

than more of what you wanted to push

through the pipe it was never about

ensuring that the customers's needs were

fulfilled in an end to-end fashion

what's happening increasingly today is

that this fundamental design of business

is changing because of connectivity to a

new design of business which which is

the platform business model what's

special about the platform business

model is that the design is no longer

linear the design

today looks a lot like this when we

think of the platform very often when we

use the word platform we think of uh the

smartphone and so if you look at the the

design of the of the smartphone as a

business if you think of what app Apple

and Android do apart from the fact that

they sell the handset in the case of

Apple it sells the handset what really

drives value for the smart phone is the

idea that anybody externally any partner

can come in and create value on top of

the business and a consumer can then

come in and consume that value and in

doing that simple thing what Apple has

done has it's just created one template

phone that can be customized and

extended in any direction by the user

whereas in the past Nokia and blackberry

would have this whole portfolio of

phones that were created in a pipe

fashion by putting in a set of

applications that would make a phone

unique today every phone is individually

unique just because of this ecosystem of

partners that Apple has created on top

of its

phone the second example Airbnb is

something that we talked about where

again hosts and travelers are brought

together on top of this platform and

they interact with each other YouTube

again is an example that works in a very

similar Manner and I'm using some of the

examples that we are extremely well

aware of but as we abstract what what

works in this model we gradually realize

that a a lot of this can be applied all

of this can be applied in many ways to

traditional pipe businesses as well as

they move towards becoming

platforms again Amazon Works in a very

similar model where it brings in writers

and readers and allows them to directly

interact with each other so if you think

of this whole model what's the the

template that we see repeatedly in this

model is that the business no longer

takes care of

production the business creates an

infrastructure on which which an

external ecosystem of participants come

on board they create value which then

attracts consumers and then the business

essentially plays just two roles it

provides this plug- andplay

infrastructure on which value can be

increasingly created and it ensures the

governance of the interactions between

these two sides because at the end of

the day the business has a brand of its

own and so it needs to ensure that it

provides consumers with the minimum

protection that is required to interact

with third party producers and it needs

to ensure that the third party producers

are appropriately incentivized to not

work on other channels but to work on

top of this business so this is the

fundamental structure of this new

emerging business model that's becoming

increasingly important across Industries

as we'll see very

shortly a few things that that are

interesting in the shift from pipes to

platforms when you think of pipes we

always think of competitive advantage on

pipes on the basis of resources the more

resources you have the better resources

resources you have the better you can

compete so it was always the inimitable

resource that determined who won in the

case of pipe competition in the case of

platforms very often platforms do not

have any resources but the point is not

whether platforms have resources or not

Uber may not own taxis but some other

company May own resources and still be a

platform what's important is that

whether you own resources or not your

competitive advantage on a platform

model is not on the basis of resources

it's on the basis of the ecosystem of

producers and consumers you pull

together that stay on over there and so

the fundamental way in which firms

compete and the fundamental factors that

enable firms to compete

changes the second thing that changes is

that in the case of the pipe model the

goal of the pipe business is always to

isolate a central process of value

creation and keep making it more and

more repeatable and efficient we

understand that intuitively we do that

day in and day out but what a platform

business does is in the platform

business value creation is not

determined by the central process it's

determined by an external interaction

between producers and consumers and so

the goal now is to ensure that this

external interaction becomes repeatable

and efficient and the factors that lead

to repeatability and efficiency of an

external interaction are very

non-intuitive because fundamentally as a

firm as a business we've always

understood how to manage things that we

control when you are a platform business

you have to manage things that you do

not directly control you have to ensure

that you are open in the right ways and

closed on the assets that are most

important you have to ensure that you

provide the right incentives for

everyone to participate on top of your

platform and so when we move from pipes

to platforms one of the first things is

that we move from a process first model

to an interaction first model this has a

few different bearings the first thing

is that in the case of a pipe business

the role of data is just that of an

enabler what I mean by that is that data

is purely informing business decisions

in the case of a pipe so you might be

focused on the customer but what really

happens is you're trying to understand

more than more about the customer and

just serving more than more of your

products and services better to the

customer data is merely an enabler at

that point what happens with platforms

is that data is not just an enabler it's

actually the driver of business if you

think of what happens on a uh on a

platform like uber data is what decides

which traveler should get get which

driver so data is what drives the two

things together if you think of what

happens on an Amazon today data is what

decides what kind of product should be

served to you based on what you're

looking for and now that you brought the

bought that particular product what else

would you be most likely to buy based on

what others have been buying in the past

so data drives business in the case of

platforms which is not to the same

extent in the case of pipes where data

has always been more of an enabler it's

always been a source of analytics rather

than a business decision maker of itself

self another thing that happens when we

move from pipes to platforms is that you

don't just Market to the consumer you

Market to an entire ecosystem that might

involve external producers as well so a

lot of your marketing activities may be

directed to third party Partners who who

you would want to come on board so that

they can serve your consumers and

provide an end to-end solution through

your

platform and as a result of that

marketing fundamentally has always been

about demand generation and fulfillment

you have this pipe you need to generate

pull at the end of this pipe so that you

can push more and more things through

that pipe so as long as you can generate

that pull and as as long as you can

fulfill that pull your go of marketing

is

done that

doesn't cut it in the case of platforms

what happens with platforms is that you

need to do two things in particular you

need to ensure that there are incentives

rightly structured for all participants

because if you want to get third party

Partners on board they need to be

appropriately incentivized to come on

board and if you want consumers to stick

onto your platform you need to ensure

that they have a creative incentives

that as they use your platform more and

more they find it more and more useful

and want to stick on because

fundamentally today the consumer has

liquid expectations and the consumer is

highly distracted so it doesn't take the

consumer much time to move from your

band to another brand and that's why

it's very important that you have

incentives aligned across the ecosystem

because what happens in the case of

platforms is once Partners start getting

dis incentivized the value for consumers

decreases once consumers start feeling

disincentivized the value for partners

decreases and so the two sides reinforce

each other both positively and Ne

negatively and so because of that very

often technology helps you grow with a

multiplier effect but it also helps you

fail with a multiplier effect as you

would have seen in the case of Myspace

losing out to Facebook for example