The success of platform businesses like Alibaba, Airbnb, and Uber is so remarkable that discussion about them often misses just how hard they are to build. For every successful platform, there are many more that struggle or simply don’t make it. Apple and Google, two of the world’s most valuable companies, have had their share of platform failures as we’ll show. Studying these successes and failures, we’ve identified half a dozen key reasons platforms fail, all of which boil down to managers’ misunderstanding of how platforms operate and compete.
Platform businesses bring together producers and users in efficient exchanges of value – Uber, for example, connects drivers and passengers just as YouTube connects videographers and viewers. And, they leverage network effects – the more participants on the platform, the greater the value produced. Managerial mistakes that inhibit value exchange or network effects can kill a platform. Let’s look at the key errors.
Because platforms depend on the value created by participants, it’s critical to carefully manage the platform’s “openness” – the degree of access that consumers, producers, and others have to a platform, and what they’re allowed to do there. If platforms are too closed, keeping potentially desirable participants out, network effects stall; if they’re too open there can be other value-destroying effects, such as poor quality contributions or misbehavior of some participants that causes others to defect.
Steve Jobs failed miserably at managing openness at Apple in the 1980s. He charged developers for toolkits – inhibiting the very software producers he should have wanted on Apple’s platform. The result was that Apple struggled to create a robust platform connecting Apple customers and software producers. For years Apple’s market penetration hung in the single digits. Apple has since figured out this balance, of course, by opening the iOS platforms to app developers. By contrast, Bill Gates opened Windows to both software and hardware developers, making Windows the dominant desktop platform by virtue of its superior ability to connect software and hardware producers with consumers.
Yet platforms can become too open. They must retain enough control over core assets to maintain control of the ecosystem and to make money. Google learned this lesson when Amazon and Samsung fragmented (“forked” in tech lingo) the open Android platform to create their own open-source versions. Google Android quickly lost market share to the new versions. Reacting quickly, Google regained control of the Android system by restricting access to difficult-to-replicate services such as mapping and by shifting important application programming interfaces (APIs) to the proprietary Google Play Store. Android’s story demonstrates that platform openness is one of the key managerial decisions that can determine platform success or failure.
Opening platforms the right amount is necessary but not sufficient. The platform owner must also show software developers what’s in it for them if they contribute. In 2013, Johnson Controls invited developers to help them build Panoptix, an energy efficiency platform for buildings and office space. But by early 2015 they stopped accepting new submissions to their open market and discontinued their API support for external developers. Panoptix had not attracted enough new apps to justify pouring resources into supporting this limited external development.
It’s not enough to open the door and set the table. Successful platforms engage in platform evangelism, providing developers with resources to innovate, feedback on design and performance, and rewards for participation. Think of it this way: To host a successful event you must plan carefully, invite the right people, have the right food, and manage competition with the party next door. If Android throws a Hawaiian luau with a five-course feast, free travel, and attendees get to meet Robert Downey Jr.;