Written by Brad Cho of Vision Arena
- Beginning the Platform Discussion
The word platform is singular, but it can be defined and interpreted differently in various contexts. It is therefore difficult to define what a platform is with a single definition.
It is said that during the Gold Rush in the American West, the people who actually made large fortunes were not the miners but those who sold them jeans or water. When we think of a platform, it is easy to imagine something that runs automatically and earns enormous profits by controlling a strategic gateway. But a true platform must create value beyond that. A platform is not a business that buys and sells large quantities of goods; it creates a system larger than oneself in which participating customers and partners all gain value. To think seriously about platforms, we must first abandon the old resource-centered way of thinking and shift to relationship-centered thinking.
What is the difference? Resource-centered thinking considers only the use and expansion of what one already has. The key questions are what (What) one has and where (Where) to sell it. Relationship-centered thinking focuses on whom one will build relationships with and how value will be created through us. It therefore begins by asking with whom (Who) and why (Why) we should jointly create value.
*How should a platform be defined?
The more one understands platforms, the more the concept seems aligned with Eastern thought, because it deals with relationships and emptiness. The contrast between the Eastern game of Go and Western chess illustrates this perfectly. In chess, players move pieces and the first to capture the opponent’s king wins. Pieces clash directly, and when one moves onto a square occupied by an opponent’s piece, that piece is captured. In Go, by contrast, there is no king, and the number of an opponent’s stones one has captured is unrelated to victory or defeat.
Victory is determined by how much territory—empty space—one has created. An opponent’s stones are captured by surrounding them with one’s own. Empty space and the relational structure encompassing the objects are the fundamental system of Go. Platforms are the same. If everything is packed full, leaving no room for others to enter, and no effort is made to build and expand relationships, it is not a platform. This is the same reason we do not call a room packed with furniture and appliances a pleasant space.
In that sense, a platform can be called a strategic tool for gaining substance through emptiness. In summary, a platform is an “Unoccupied System” that gains competitiveness by remaining deliberately incomplete. It is like a vessel, whose empty space gives it purpose. A platform is also a “Link System” connecting inside and outside, and one external party with another. It is like a bridge built over water. The previously empty space must be filled through communication with others. A platform is an aspiration for a model of continuous growth by leaving this incomplete state open, communicating, and filling it together.
Put this way, the already difficult concept of a platform may begin to sound like an exercise in spiritual cultivation. But it is neither so difficult nor so remote. Simply remember that a powerful platform requires a structure in which emptiness and substance coexist.
- How to Introduce a Platform
Even a traditional industry can transform its existing business—or operating system—into a platform. This becomes possible by combining products and services and applying an unoccupied system and a link system to the existing business. Particularly noteworthy is the open-platform perspective: using external capabilities by connecting internal and external resources to enhance the distinctive potential built in the past.
Platform management is also relationship-based management. It begins in an incomplete state but must deliver complete value from the customer’s perspective. Success depends on relationships with customers and complementors who fill the empty space. A complementor is the opposite of a competitor: an entity whose association with us increases our shared value. A competitor does the opposite.
A good way to identify complementors is to view the system to which we belong from a higher level. Travel agencies, for example, sell not only airline tickets but also accommodation, rental cars, insurance, and local guide services. If travel is interpreted at the broader level of selling experiences and memories, rather than merely the function of flying to a destination, it becomes easy to identify other valuable offerings to provide customers together.
Traditional product strategy was largely transaction-oriented. It began by deciding what products customers might like, what could be sold, and whether a market existed. The difference between a transaction and a relationship depends on how far the time horizon of the connection extends. A transaction focuses on completing the sale successfully, so the amount sold matters. It pays little attention to who the other party is or whether they will return.
Restaurants near transport terminals are often unfriendly because they serve many passing travelers and have little incentive to invest the added effort required to build relationship assets, making transaction-oriented behavior more likely. A relationship-oriented approach is more effective when the value gained by both sides grows as a constructive customer relationship continues. Such considerations once applied mainly to service industries such as retail, restaurants, and telecommunications. Today, every organization seeking sustainable medium- and long-term growth must view and engage customers and partners through a relationship-oriented lens.
Business strategy—especially Michael Porter’s theory of competitive advantage—is fundamentally derived from theories of warfare. It determines where battle will occur and whom to fight, how to secure favorable ground first, and how to obtain and use the required resources, such as logistics and cavalry, and capabilities, such as combat power and morale. Business strategy is created to win the battles that arise in that process.
Platform strategy values cooperation as well as competition. Put simply, decisions are made from the perspective of competition between platforms and cooperation within a platform. Cooperation is necessary because complementors—partners and, more broadly, even customers—play an essential role in filling the platform’s empty space and jointly developing shared value.
Accordingly, if a platform is treated merely as the responsibility of a single organizational unit, it is difficult to produce a true platform strategy based on connections across the larger system.
Apple, for example, earns most of its profit from hardware, but that performance would not have been possible without iTunes. Yet if each division had been managed solely to maximize its own profit, music and app prices might have risen until hardware stopped selling. From a whole-system perspective like Steve Jobs’s, the company must be able to say that if strong iPhone sales benefit Apple, the iTunes division should be rewarded on the basis of Apple’s overall performance even if that division earns less profit. This requires strategic alignment that connects organizational units smoothly, as well as distinctive standards for external collaboration culture and performance rewards.
- Outcomes Created by Platforms
Among startups, Uber and Airbnb are among the most highly valued companies. In commerce, Alibaba, eBay, and Amazon are platform companies far ahead of the field. Toys “R” Us, the US toy retail giant that recently encountered difficulties, has also been losing its leadership as a retailer as online toy purchases through Amazon have increased.
By rankings based on the value of global IT companies, including revenue, platform companies Google, Apple, Facebook, and Microsoft occupy four of the top five positions. Many unicorn startups valued at more than KRW 1 trillion continue to emerge in the United States, but they too are said to aim for acquisition by Google, Facebook, and others rather than independent survival.
Platforms became an issue in Korea nearly eight years ago, yet they continue to return as a major market issue every other year. This is because their formula for success continues to be demonstrated in the market. The advantage enjoyed by leading platform companies is in fact growing stronger, and the process remains ongoing.
- Key Attributes Shared by Platforms
In a traditional pipeline business, interaction between supply and demand is absent or limited. On a platform, supply and demand interact within the platform space. Because the platform serves as a catalyst (Catalyst), its contribution makes interaction more active and increases the value participants gain.
Platforms have several distinctive characteristics. I will share three of them.
First is the value of the network.As participation and interaction increase, the value created by connections grows exponentially.
Second is the relationship of complementarity.A complementor is a person or partner whose participation increases mutual value.
Third is asymmetry.A platform’s revenue structure may appear to be based simply on fees, but it often involves complex combinations of paying and non-paying customers and paid and free products. Platforms commonly offer subsidies on the customer or product side. With Baemin, for example, restaurant owners pay advertising fees while ordinary consumers pay no separate fee. Gillette’s earlier model of giving away razors and making money from blades is another case in which the pricing structures of complementary products were connected asymmetrically.
Networks, complementarity, and asymmetry are only some elements of platform design, but they can serve as key criteria distinguishing platforms from other models. Introducing a platform therefore requires a deep understanding of these concepts and choices about how to apply them within our organization to create value.
- The Starting Point for a Local Cultural Platform
Not everything needs to be a platform. This means that creating a platform is not itself the goal. We must first clarify the value we seek to achieve through platformization. We also need sufficient discussion about whether a platform must be the primary path of execution for achieving that purpose. The reason is simple.
Building a platform and enabling it to function as one take a very long time and often involve a difficult process. An expert becomes an expert only when others call them one. The same applies to a platform. People connected to it—local residents, partners, local governments, and other stakeholders in local culture—must recognize the local cultural center as a platform and believe they can solve their problems through it before they will gather there.
A platform must therefore first inspire people to believe before presenting proof of value—it must sell a vision—and continuously create success stories through the platform so that people can settle into it.
A platform is a way to become a self greater than oneself. This is called the Super Ego. It is possible only by forming a “we” through relationships with the outside world rather than isolation, and when value is created within it. Through “we,” a larger self is discovered and comes into being. From the perspective of a local cultural center, the following questions can then be asked.
(For a local cultural center)
- Why must I become a self greater than myself?
- With whom must I build relationships to do so?
- What do we hope the “we” formed through that process will be like?
- Why are we confident that it will create a larger self that transcends the isolated self of the past?
- What problems can those included in “we” solve on our platform, and what value can they gain?
- Is that truly compelling enough to make people willingly want to become “we”?
- If so, what reason is there that I cannot take the lead and act right now?