Source: van Alstyne, M.W., Parker, G.G., and Choudary, S.P. (2016). Pipelines, platforms, and the new rules of strategy. Harvard Business Review, April.

Abstract: For decades, the five-forces model of competition has dominated the thinking about strategy. But it describes competition among traditional “pipeline” businesses, which succeed by optimizing the activities in their value chains—most of which they own or control. “Platform” businesses that bring together consumers and producers, as Uber, Alibaba, and Airbnb do, require a different approach to strategy. The critical asset of a platform is external—the community of members. The focus shifts from controlling resources to orchestrating them, and firms win by facilitating more external interactions and creating “network effects” that increase the value provided to all participants. In this new world, competition can emerge from seemingly unrelated industries and even from within the platform itself. The authors, three platform strategists, walk executives through the choices they must make when building platforms, outlining the different metrics needed to manage them. Businesses that fail to learn the new rules will struggle, they argue. When a platform enters the marketplace of a pure pipeline business, the platform nearly always wins. That’s exactly what happened when the iPhone came on the scene in 2007. By 2015, it accounted for 92% of global profits in mobile phones, while most of the giants that once ruled the industry made no profit at all. INSETS: Networks Invert the Firm; HARNESSING SPILLOVERS.

Insight:

These authors consider the way in which platform strategies (for example run by the likes of Airbnb, Uber, Alibaba, Netflix) work and compare them with pipeline (that is, classic linear value chain) models of strategy (for example those operated by Walmart). The authors argue that platform strategies change the nature of corporate strategy—and therefore, by extension, marketing strategy—in relation to the customer base and the competitive set, as well as the boundaries separating suppliers, customers, and competitors.

URL: https://hbr.org/2016/04/pipelines-platforms-and-the-new-rules-of-strategy