Platforms: Cambrian explosion or Devonian extinction?

As our use of computers becomes ubiquitous — pervading our lives from our phones to our TVs to our cars — software is becoming the primary means for interaction. And apps are undergoing a “Cambrian explosion” of availability and diversification. The new “place” of business is on the buyer’s device, and goods and services must be available where and when their buyers want them.

But there are several kinds of devices, hundreds of manufacturers and thousands of SKUs. It would require an army of programmers to build specific software for each device just for one business. This is not practical for a company of any size. Yet somehow, some companies have solved this problem. They have created the right technology infrastructure and business incentives to motivate others to build software that appeals to their buyers. And they have managed to do this without getting tangled up in traditional multi-year IT project life cycles.

In order to succeed, these businesses have become platforms. Like Microsoft, Cisco and Intel in the 1990s, they are engaged in ecosystem-based competition. As platform providers, hundreds or thousands of other companies both benefit from them and create benefit for them. Today, we can count Facebook, Best Buy, Federal Express and eBay among others as platform businesses.

A company can’t succeed in a dynamic and competitive world by itself. Following the platform model, companies should focus on the kinds of partnerships — not the specific partners — that they need to be sustainably competitive. Next, they must identify the differentiated capabilities that are most relevant to thier target partners. Finally, smart businesses should develop a coherent set of economic incentives and technical infrastructure to attract and enable these partnerships.

How FedEx became a platform

Over the last decade, FedEx has focused on partnerships with smaller, specialized companies that need help with logistics — from planning to delivery and returns. They looked at their differentiated capabilities — not just as a transportation network, which is hard to differentiate over the long run — but as an intensely connected, measured and information-rich transportation network. They then built economic incentives for these partnerships. Rather than simply providing standardized discounts and business development, they offered their unique information and logistics intelligence to enable partners to be more competitive in their own markets. And they provided a technical infrastructure of Web services that opened their business to partner developers.

As a result, as FedEx moves to support mobile and device-driven computing, they are poised to attract a new generation of partnerships and developers that will continue to contribute to their platform business model and leadership position in the logistics industry.

Barriers to becoming a platform business

However, not every business will be able to make the transition to a platform model.

The typical roadblocks are:

Executive psychology: fear of giving up control and general risk-aversion
Financial inertia: large corporations have many systems built around making money the old way
Dominant competitor: inability to project their platform offering over the competitor’s noise
Technocratic fallacy: belief that having an API is in itself enough to be a platform business

The rapid change in the nature of competition across industries means that the future of your company is at stake right now. For businesses that don’t become platforms, one of two futures awaits. Either they will become statistics in a wave of extinctions, or they will migrate to a different layer of the industry’s ecosystem, becoming a partner for the former competitor that has won the platform layer.

For further reading on platform businesses, I recommend the work being done by Annabelle Gawer, Tom Eisenmann and their colleagues. For further inspiration on platform technology infrastructure, I recommend reviewing Facebook’s developer page and Twitter’s developer page. I also like Kishore Swaminathan’s “Ecosystem-Adoption Cycle” as a way to view the future of competition.

Sam Ramji is vice president of strategy for Apigee, the API company, where he helps companies become software platforms and compete in the app economy. Prior to Apigee, Ramji led open source strategy across Microsoft.

Image courtesy of Flickr user Sodanie Chea.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.