Urenio Watch Watch: Business Models

The Value lies in the Network: The Success of Platform Companies

Many have envied the success of AirBnb, Amazon, Alibaba and other similar platform companies. It is apparent that companies with network based business models are much better at creating value.   According to the authors of this article, many of traditional type businesses can be also successful, harnessing the power of platforms and networks, without having to turn themselves into a Silicon Valley Startup, meaning reinventing their business model.  

The difference between these types of companies lies in where value is created. A platform connects providers and users in a multisided market. The value is not in the items being produced one at a time, but in the many-at-once made connections. The value of the platform provider is not in creating the nodes (people, things, or data) but in fostering the connections between the nodes.  As an example from Tourism sector we see that while Hilton or Marriot chains create value chains that deliver rooms and related services to their customers, Airbnb on the other hand, creates a network that connects hosts and guests.

Taking in consideration that every organisation has 5 types of capital: human, financial, intellectual, physical, and relational, there are many connections that a company may include in its strategy.

What to do

The authors propose five steps for incorporating the network effects into one’ s business, called PIVOT:

Purpose: Define the shared objective that everyone in your community or ecosystem will contribute to and benefit from.

Inventory: Identify the potential types of capital that might be networked together.

Validate: Test the ability to create value for the network through iteration and co-creation.

Operate: Deploy the platform to foster connections and the exchange of value at scale. This might involve building your own platform, or acquiring or becoming part of someone else’ s.

Track: Create new KPIs to measure the success and growth of the network.

The most important action though of all is the change in the way of thinking, the mental model is as significant as the business model.

You can read the complete article here