A platform is a digital infrastructure or ecosystem that facilitates interaction between multiple parties, often businesses or consumers, for the purpose of conducting business transactions. Examples of online platforms include ecommerce sites like Amazon, ride-sharing services like Uber, and social media platforms like Facebook. These digital environments connect users to create a marketplace for the exchange of goods and services, with the platform operator providing the underlying technology and setting the rules for how these interactions occur.
A platform can be built in many ways, from a single application to an entire suite of tools. Regardless of how the term is used, however, a key distinguishing feature is its powerful growth potential. Platforms grow by adding a variety of third-party and custom components. This is why it’s important to carefully consider the core functionality of a given platform before investing in it, as explained by professors Azoulay and Tucker in their MIT Sloan Executive Education course, Platform Strategy: Building and Thriving in a Vibrant Ecosystem.
Platforms have a unique role in today’s business landscape. They enable businesses to build valuable, two-way relationships with customers and users and can generate new revenue streams. As a result, they can become the economic engine of modern firms and disrupt traditional business models.
However, successful transitions from product to platform require a shift in thinking. Instead of focusing on creating differentiated products for specific needs, platforms focus on encouraging mass-market adoption in order to maximize user interactions and leverage the resulting network effects. They also move away from a single source of revenue and towards creating value through multiple sources, such as the transaction fees charged by intermediaries on their platforms.
It’s important to note, however, that a shift to a platform model does not mean abandoning traditional business strategies. Instead, successful companies make a gradual shift and deploy the tools necessary to enable this change. For example, they may employ a DevOps team to curate and manage a platform that provides the engineering teams across an organization with what they need to do their jobs. This can involve the development of APIs, tools for creating and connecting applications, and infrastructure to deliver these capabilities, such as computing power and a software stack.
Often, a platform is more flexible than a suite of products because it’s designed to be extensible. As such, it may provide a more cost-effective alternative to purchasing a collection of applications. This is because platforms typically support integrations that allow different tools to work together, as opposed to requiring custom, complex integrations. The company Datadog, for instance, started out as a point solution for systems monitoring and now operates as a platform that allows its tools to interconnect. This allows the platform to expand with the business and provide more robust functionality. It is, in effect, a “suite in platform clothing.” This approach is a common way for organizations to scale as they grow. However, it can lead to siloed practices if the platform is not well-managed. platform