Platforms everywhere: how does a platform business model work? podcast

Platforms Everywhere: how does a platform business model work? – transcript

Fiona Allison (FA)

My guest today is Ned Rava PhD, is a long-term practitioner of strategic development, having worked in the public and private sectors, and for United Nations, the World Bank, and the European Union. He has also developed the Interactive Design framework, co-founded Futures of Social Innovation at the sLab, and managed a portfolio at the Joint Fund for Sustainable Development Goals. A link to the book is available here

Welcome to the Emerald Podcast Series. In this episode, I'm speaking to the author of Platforms Everywhere, Ned Rava. Hi Ned, how're you doing today?

Ned Rava (NR)

Good, yourself?

FA

I'm very well thank you. Thank you so much for joining me today it's an absolute pleasure to talk to you. So your book Platforms Everywhere: Transforming Organizations by Integrating Ecosystems in Business Design presents a new comprehensive paradigm for platform businesses and a practical methodology for platforming organisations across sectors and industries. So could you maybe just briefly explain a bit more about platforms in business?

NR

Thank you very much. There is a need for transformative approaches that will be able to address the complexities of the 21st century. And for that, we need a very different innovative business model that would enable ecosystem entities to co-create value and engage ecosystems in learning and community development. We have seen increasingly the stakeholders seek to be empowered, and the current models that are applied in businesses, governance, society, are simply not adequate. So my main argument in the book is a platform is exactly that new business model; it will be able to help us move on. The conventional, or sometimes called pipeline, approach to organising businesses and creating value has been dominant since the Industrial Revolution, and it basically colonised all sectors and industries. But it's simply not able to cope with contemporary challenges, needs and aspirations, and we see that it's increasingly inefficient and ineffective and unsustainable in dealing with social and economic complexity.

NR

So maybe I should just give you a bit of a background of how I came to this. Most of the people who enter in the space of platforms, they come from either digital tech or service design. Some of them come from the space of organisation development, network theory. I've been working in the network organisations, learning organisations for more than 20 years. And I've experienced that these attempts to bring together distributed actors often fail, or at least, it's not durable. So I've been looking for a business model that would basically support networks in establishing solid foundation for actually being businesses, not just, you know, occasional communities of practice, or some passion projects. And I consider the platform to be a candidate for that kind of business model, and have done research that included, you know, really comprehensive analysis of what we know about platforms so far. And what was really shocking is that despite the rhetoric and you know, platform, as a word being used so much, there were no definitions, or some sort of a concept that would actually explain what is the platform. So, I ended up spending most of my time trying to figure out what the platform beyond the use of the word was in daily contexts.

NR

And as I was digging further into this, I realised that we need to go beyond what's currently dominant, which is digital platforms, beyond limiting platforms to data, and beyond the corporate platforms. And soon I realised that platform as a business model, is a completely different beast. It's fundamentally different model from what we have, since the Industrial Revolution. But that was both a modern business model, but it has also very strong ancient roots, it might have been the first business model that humanity used at the very beginning. So I was going deeper into this and as I always avoid, you know, standard definitions, to reject concepts, I ended up with minimum specifications. So elements of any business model that would qualify it for the platform, again, no standard definitions. And it includes a number of elements primarily, who are the actors of how the value is being created. And that then led me to realise that we actually are facing fundamentally different business model, which is on par with industrial pipeline, assembly line model, and that it's not just another type of an organisation or a business, it's a whole different universe. And that actually opened up new opportunities and the book is going further into these proposing concepts, but also methodological approaches, specific practical tools and methods that can help us turn those businesses into platforms.

FA

That's fascinating. Thanks that's really, really interesting research that you came into. When I read your book, a point quite very early on in the book stuck with me. And that is that platforms do not solve problems, but enable individuals and organisations to do what they want/need, when and how they go about it. Could you expand on this a bit, please?

NR

Thank you. So the main reference when we talk about business, overall, at least in modern times, is of course, Peter Drucker. And I use his approach to business models, which he called The Theory of the Business. And he claimed that the purpose of business is to solve problems for its customers' clients. And that's true for the conventional model, what we tend to call pipelines. So let me just briefly explain the pipelines so that we can see what's the difference with platforms. So pipeline is basically a linear model, that copies the way how factories or assembly lines operate. That's why we sometimes call it 'industrial model'. It's very simple, actually. And that's why it was able to be applied in so many different sectors and industries. It has three main elements: you have input, which is, you know, putting certain resources, human resources, financial resources, material resources, into a process. And then this process creates value, and produces outputs. And these outputs are supposed to be standardised because we are looking into mass market production.

NR

This model worked well in factories, and then this model was applied in basically every sector industry that we have today. So for instance, education, you know, we put people and we put knowledge, and we put certain time of professors into the process, which then produces – or at least, it's expected to produce – standardised knowledge of those students who then go out and apply it in the market. That works well, when you really focus on efficiency, when you focus on a mass market. However, when you engage with complexities that we are now experiencing in 21st century, this simply is too rigid. And also we are experiencing very different contexts where stakeholders are really wanting not just to be a piece of machinery, but really be empowered and engaged in creative processes. So platforms are different from pipelines, because they don't have a process of input, transformation, output, solving a problem for the customer, they have an infrastructure that enables what we call platform peers, but these are individuals, organisations from the broader ecosystem, to engage with each other and co-create, and often co-deliver this value to themselves. So platform as such does not solve any problems, it enables others to solve their problems by exchanging with individuals, organisations that have similar purposes. That's why it's very difficult to even get to the value proposition on the platform as a business model, because the platform as such does not have any proposition value – proposition is defined by those who are coming from the ecosystem onto the platform to engage and co-create value.

FA

Thank you for explaining that. That's very succinct. And it's very important to remember that; that it's not there to solve the problems, that's not the aim of the platform. That's great. Thank you so much. So you also speak about meta platforms in the book, not to be confused with Facebook's new brand or new brand name. So could you go a bit more into into the meta side of the platforms, please?

NR

Yes, thank you. So as I was going through this process of discovering or rediscovering platforms, I realised that platform is not just another type of an organisation or business, not that we have, you know, sometimes, you know, assets, creators, distributors, or whatever other topologies we use. It's a, it's a different universe. And there's no one particular business model that we can call platform, there's a huge variety. And people have been trying to develop these technologies or platforms for a long time. It's really difficult because they are mostly starting from the perspective of the pipelines. So they're saying okay, so their platform is in investment, their platform is in communications, their platform is in technology, but what I discovered, or, again, rediscovered because I believe the platform is an ancient model, is that there is something that then I call 'meta', from Greek meaning 'beyond' or 'transcending', meta business model. So there's something which is more generic, abstract, which says, these are the main elements that would make some business a platform.

NR

But these elements have to be applied, and then this creates a variety of different business models. And I use the the concept of generating system from Alexander. And there is a very good example. He says, grammar is so called 'generating system' or 'meta model'. So no one really applies grammar by reading a book on grammar, we apply grammar in all different kinds of ways through created conversations. So for me, this 'meta' was really convenient, because then when you have these main elements, then you can start differentiating between pipeline and platform, and then also gives an opportunity to get into this huge variety of platforms, specific practical applications of the metamodel, most of which I strongly believe, do not even exist today, that we are still to create those. So I opened up the whole new universe of this fundamentally different business model, and, that also helped to go beyond the usual focus on digital platforms – so, not all platforms can, you know, need to be digital – and throughout history, most platforms were not digital. If you go back to the ancient bazaars in cities, if you go to auction houses, original educational institutions be it, you know, academia in ancient Athens or being these Islamic learning hubs in Baghdad, Cordoba, Samarkand, Cairo, those were platforms. And they were not using digital technology; digital technology basically helped us to scale, which was one of the shortcomings of platforms throughout the history, and it also has this data element that, you know, provides additional value. And of course, platforms doesn't have to be corporate. So by understanding platform as a fundamentally different universal business models, this really helped bring clarity, but also enable better design of platforms, because majority of platforms probably 80-90% of attempts to create the platforms fail.

NR

I believe platform is an amazing business model. But it's really, really hard to design and launch and, you know, sustain a successful platform. So this meta platform is basically based on four main minimum specifications. If you don't have all four, I would not consider this business to be a platform. So one is that there is value co-created by the peers. So if there's not this co-creation, if there's not at least two minimum peer groups who are engaging and exchanging, it's most probably not a platform. That's why I often say that Netflix is not a platform because there's no exchange happening. Netflix is basically digital delivery of content. It's not really value co-creation, despite Netflix using data to improve customer experience. It has to be more than a network, there are so many networks, but they are not necessarily businesses. And there has to be a governance mechanism. Governance is, in recent studies identified as the major obstacle in reaching the stage of successful platforms. So governance is often overlooked, and governance has many functions – so if you don't have onboarding facilitation, and matchmaking, you're probably most probably not a platform. And platforms do not have value propositions in conventional sense. But they have purpose and impact that has to be based on learning and they always involve a community. On top of this, I realised that it's a convenient time to bring back what used to be a core subject in our business and management education, which was business policy. That was before the strategy business strategy became popular. And platforms actually are more effective when they follow a business policy rather than having a more linear and more conventional pipeline strategy, which is kind of bringing all four minimum specifications or elements of the meta platform together.

FA

Thank you, thanks for going through really detailed explanation that'll be so useful for listeners. I really liked what you were just saying about Netflix not being a platform. I, you know, a lot of people would presume that it is if someone says, oh, is it a platform business so I'd go yeah, Netflix. So it's really important that you're, you know, defining that and explaining that clearly. So the second half of the book, it really looks at the practical tools and methods of platforms. So what's the main elements of the platforming methodology? And what is the role of the adaptive innovation strategy?

NR

Thank you. So just maybe to follow up on on the previous conversation, because I feel, you know, when we are talking about this concept, it may seem a bit abstract for people who are not in the area. So, as I was mentioning, I believe platforms are one of the most ancient, maybe the first business model that you know, humanity applied. Now I give examples of bazaars or auction houses, but also all different kinds of community organisations, political and corporate assemblies. Now there it's a stock exchange, some different laboratories could be understood or could sometimes be a business model, shopping malls, many people understand infrastructure, if it's organised as a business, to be a platform. And that's why I think, you know, going into a meta concept is important, as that when they hear platform as a business, they think of digital platforms, and they think of, you know, Google, Facebook, Amazon, Twitter, Uber, Airbnb, Coursera, and others. Which, which are, most of those are platforms, or at least they're hybrids, like Amazon; Amazon has a very substantive pipeline business, in addition to its platform business. But, understanding that, you know, any organisation, this is why I'm calling the book Platforms Everywhere, because I started seeing opportunities for platforms, really, in every single aspect of our society and economy, it is important to understand that, you know, platforms are beyond, go beyond, this quite limited approach, mostly coming out of Silicon Valley.

NR

So for instance, I would consider the most successful platform of all times to be Wikipedia, which is rarely – I mean, of course, people say Wikipedia is a platform. And of course, there's, there's another example, early on before digital technology was the Visa card, or Visa International. So I think we need to open up the conversation, because that holds then it's not about whether we, you know, who cares whether I say that, you know, that is a platform or not. It's important, exactly because of the methodology. So if you think you are developing a platform, and you are not, you will most probably fail. And this, this is what's happening with people thinking that, you know, if I have an app, or a website, it's a platform. And then they fail, both in terms of, you know, success for their business, but also they fail in using the opportunity platforms produce. So, Netflix could do something like YouTube in its own way, and have value being co-created on its infrastructure. But it's not doing that. It's basically just, you know, going to cinema, but this cinema is being provided to us in our homes through digital technology.

NR

And the methodology is important, because, you know, we cannot stay just at the conceptual level. And I'm not saying that this methodology is kind of finalised, it's really work in progress. But I believe there are strong elements that – some of those are not new. Some of the tools and methods that I proposed are used elsewhere. Some are used elsewhere but I kind of accommodated those to the particular project, but I was specifically focusing on how to plot for an existing organisation, or legacies. So you have already a business. And you want to turn the whole business or part of that business into a platform. Most of the literature and most of the methodologies are focusing on on startup platforms (so how to create a platform from scratch), or how to scale up existing platforms. But I saw a gap in terms of wanting to transform existing business fully or partially into a platform. And sometimes it leads to hybrids. Sometimes the whole business could be turned into a platform by opening up to the ecosystem. And that's important because oftentimes, with, when existing organisations or businesses want to have a piece of platform in their portfolio, they just acquire an existing platform, or they digitise to some extent their business, but they are not necessarily always transforming parts of the business model into a platform. And then I'm proposing ways to do it. You can platform supplies, you can platform delivery, you can platform the operating system, and eventually you can platform the value proposition which will turn you into a quote unquote, full platform.

NR

So I'm proposing a methodology in this book which starts with the guiding principles, because it's, you know, we are talking about business design, so we cannot have overly rigid linear approaches. So guiding principles really help provide a context or scaffolding for designer platforms. For instance, the first one (there are 10 different categories) for the first one says that network of future platform peers should already exist. So very often platforms think that they can create a network and then bring this network onto a platform as a business. But if you look into how successful platforms emerge, there was a network, which was distributed, which was not activated, and then they used this network to upgrade it onto a platform, rather than just starting from scratch, or second principle is that you have to have third principle minimum two peer roles. So if you don't have two different peer roles, you don't have exchange. And this is what I was referencing, when talking about Netflix.

NR

After these 10 guiding principles, there are three stages of platforming design. They're quite difficult, because it's the mapping theory of the business development, and then the final governance, learning and operations. And it's kind of three design diamonds, you know, iterating with each other, some are more substantive, but they come later. And this is, again, lessons learned from from the practice, is that you start developing systems, operating systems, you know, even if you want to do it through a digital deck, only later in the process. First, you need to really clarify who are your peers, what they're exchanging what's the value, and what kind of channels you're using. This led to developing a very convenient tool, which I call a platform navigator. And that navigator is actually not, it has four different elements, platform design, research, theming, and policy capability and integration, and convening and innovation. But these are not phases, because platforms are not linear design, because they're not linear business models.

NR

So you always need three things. You can basically – that's why I call it navigator, because it's like a compass – you can start almost at any aspect, any entry point in this navigator, but you have to cover the other ones. So you can start by, you know, bringing the team together and developing policy. Or you can start by understanding what capabilities are important in the ecosystem that you want to ensure are brought onto the platform. So combining the three stages and the navigator, you have really, you know, convenient, but sufficiently complex approach, each of these being supported by templates, for instance, ecosystem map or platform canvas, and additional large number of additional methods and tools to ensure that there is a mixed approach, adaptive innovation strategy cuts across all of those. So, we're talking about a strategy that is built on business policy, it's about innovation, because any design of any platform is – or platform or existing organisation – is by by its nature, innovation, but it's adaptive. So you don't have a strategic plan. And then you just follow its implementation, you are constantly modifying strategy on the goal. So you have this interaction between the intention defined by the platform, business policy, and the circumstances in which you're engaging. So this is one of the really important aspects of the methodology, because this is exactly where platform business model is better than the pipeline to deal with really increasing complexities that we are experiencing in economy societies, and organisations' communities. And this is why the I proposed the platform business model is the model that can help us address the challenges of the 21st century.

FA

Thank you very much. So that leads to one of my further questions, actually. So is the future of business and successful business models, only going to feature platforms?

NR

This is not the argument I'm making. And I mean, you know, I'm saying platforms everywhere. And you know, I'm kind of advocating for the platform, but we're never gonna have like a neat ecosystem of business models where, you know, we say all of those are the same. Unfortunately, we tended to have that with the pipeline. So, almost all businesses in the past, you know, century or two, were pipelines, and actually, that was part of the problems that we experience now, you know, economic, social, environmental problems. They were always platforms, they were always certain network organisations that that had an element of the business, but they were not dominant. I don't think platforms are going to become dominant. Although nowadays, when you look into the business model that has highest market valuation, all of them are platforms or they claim to be platforms. I think this is a great opportunity, not only so much in the digital corporate world, but outside of it for all different kinds of organisations that basically plateaued with the pipeline model.

NR

And just to go back to Peter Drucker when he was explaining his theory of the business, which we now call business model, he was giving an example of a German university from early 20th century. So understanding that platforms provide unique opportunities beyond just, you know, market valuation, but in bringing distributed stakeholders to co-create together and more effectively solve their own problems. I think this is the, you know, this is the value that you should be looking in terms of platforms. I believe that we'll have more and more platforms, and there is certainly, you know, data that shows that there's a proliferation of platforms. And platforms are entering new industries, like, you know, financial and infrastructure and so on. But the problem with platforms again, going back to my main argument is that they are understood in very limited sense.

NR

So if this continued proliferating only the platforms that leads to a rapid market valuation, this will actually be more of a challenge than the opportunity for going forwards. So if we increase the diversity of our platform businesses, and of course, pipelines are always going to exist, sometimes it's, you know, really better to be efficient and produce standardised products and services for mass market, but I think the main issue, and this is what we hear in the in the media, is about, you know, these platforms that already showed the dark side of platforms, because platforms tend to be monopolies. This is what makes them so powerful, but it also makes them dangerous, in some ways. Some platforms are actually not platforms anymore, because they start to capture and control parts of the market. Uber, by controlling the price is a case of that. Some platforms are actually using their platform to capitalise on a regular pipeline business. I mean, Facebook, if you look into the Facebook, Facebook isn't, it does not generate any profit, if you look into the Facebook platform. So Facebook sells ads, which is a – just in a very typical pipeline, conventional industrial model of business. So this is the ads sold or ad space sold on Facebook that generates revenues. But if you remove this, Facebook is like Wikipedia; there is no profit. So we need to really better understand the platforms not only to better regulate them, but also to be able to focus more on the benefits and mitigate the dark side of it. Nowadays, it's mostly the dark side that is that is being in the programme.

FA

Thank you, you keep referring to Wikipedia, as an example of a platform. So is that an example of a good platform? And and do you have any examples of – again, you sort of touched on this talking about the dark side, but examples of bad platforms?

NR

It all depends what we mean by good or bad.

FA

Well, successful and unsuccessful really, yeah.

NR

Success of the platform, and this is a tricky thing, I mean, the KPIs, the metrics for success of platform, because it's so different, you know, fundamentally different business model from the conventional one, the metrics are very different. So if you apply the metrics of the pipeline, you know, like efficiency, that doesn't work with platforms. So this is another thing that I think we have a lot of confusion, I believe the platform is successful for as long as the platform peers co-create the value they want to co-create.

NR

So Wikipedia is in my – and I'm using Wikipedia intentionally, not only because I think it's pretty successful, but also because it's in sharp contrast with the Silicon Valley, you know, digital corporate platforms, because it's not for profit, and it's not corporate. And so I'm also trying to be a bit controversial there. But Wikipedia is successful, because I mean people forgot, but no one really understood at the beginning how that was even possible that you could co-create content that is now many times more than, you know Encyclopaedia Britannica, just with people spending some time really writing stuff, and then others editing. And it happened. So looking into why it happened on Wikipedia, I'm not getting into the financials of Wikipedia, because you know, they have troubles, they are constantly asking us to donate, and that's why, you know, the financial aspect of platforms is so tricky. But in terms of really delivering value for its peers, I think it was and it still is extremely successful.

NR

Another case that has been analysed in literature quite a lot is Visa card, which also originally was a non for profit, global association of banks. But in terms of the kind of bad ones or I think the bad ones are those that failed to you know, either platform an existing organisation or simply, you know, did not get traction. And there are many of those I don't think we have data but probably 80-90% of attempts fail because it's so very difficult. The other category would be those that have negative economic and social impact as a part of their business model, not as a kind of a, you know, collateral, a result which is Uber that has really negative economic impact, or Facebook with, you know, the impact on society. And there is the third category, which is those that are abusing the tendancy or the potential of platforms to become monopolies – again, Uber – but also those that are using platforms really as just a leverage point for their pipeline businesses. And this is where we get into hybrids – most platforms actually are hybrids, you know, Amazon and Google being the most obvious ones, Amazon with its warehouses and other pipeline businesses, Google with hardware and so on.

FA

It's interesting as you say I think you know, the hybrid is certainly more what we're used to and what we see quite a lot of. Amazon and Google are really good examples of that. I like how you allude to how with Wikipedia success isn't, you know, profit – obviously for Wikipedia – but it was groundbreaking when it came out and I think now we're so used to Wikipedia just being there that it's – you know we've almost forgot how different it was, how new it was. Rather than having large encyclopaedias in your home, or you had to find that information from the library, so it's really interesting, thank you so much. So that concludes our talk today, so thank you for joining me. The book Platforms Everywhere is available and there will be a link within the transcript that goes with this podcast. I would like to thank you for listening and I'd like to thank you, Ned, for joining me today.

Ned Rava  29:48 

Thank you so much, have a good day.

Fiona Allison  29:56 

Thank you for listening to this podcast and thank you to my guest Ned Rava. I'd also like to thank the team at This is Distorted for producing and editing this podcast.

Transcribed by https://otter.ai