What's the difference between a platform-based business model and a platform-based business?

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A lot is being written about platform-based business models. I differentiate them from platform-based businesses as follows:

  • Platform-based business models (PBBM) are transactional in nature-- focused on bringing parties together on a platform to exchange products and services for money; it can also include additional value including content and data to accelerate the network effect. Simon Torrance offers many good articles on this topic, including this recent interview with Sangeet Chaudary. In this model, about 25% of Apple's revenues come from platform-based services (think iTunes.)

  • A platform-based business (PBB), however, is more about strategic alignment -- focused on orchestrating all elements of an enterprise (including its extended ecosystem) around differentiated, sustainable value creation. With this definition in mind, I'd argue that 100% of Apple's revenue comes from being a PBB. Just like a technology platform that defines the standards and rules for applications that sit on top, Apple has applied a brand- or enterprise-level platform (Think Different) that defines the rules and standards required to seamlessly interconnect everything that sits on top; all of its products behave according to the rules of the platform, enabling flexibility and endless extendibility into new markets. A PBB is an apple tree that grows apples (PBBMs). But you can't take a solitary apple (PBBM) and expect it to produce more fruit anytime soon.

Disruptors born in the internet age are accomplished at PBBMs precisely because they are also PBBs. They serve specific customers with specific jobs to be done, and orient their entire business around differentiated value creation across a wider ecosystem. The PBB enables organizations to simplify complexity, and therefore expand far beyond the boundaries of traditional firms. Platform-based business requires a fundamentally different mindset than traditional business -- it's a shift from a mechanistic, linear "machine-based" metaphor to a biological, living-systems metaphor. A living system is inherently adaptable and resilient, able to self-organize around shared purpose and complementary value exchange.

If a large, unwieldy traditional enterprise wants to evolve to a future-ready, platform-based world, it must first become a platform -- a tree planted in fertile soil with the right growing conditions. If you tackle PBBM without becoming first a PBB, then yes, you can temporarily reap some benefit. Some good examples include:

  •  GE's Predix Platform, a critical operating system for the Industrial Internet of Things that connects industrial equipment, data analysis, and delivers real-time insights

  • Target's acquisition of delivery marketplace Shipt

  • P&G's Connect and Develop, an older example, which fuels their innovation pipeline

However, these "tack-on" PBBMs do nothing to evolve the overall organization to succeed in today's complex, fast-paced environment. The underlying platform-based mindset and operational approach must be applied to the entire business.

If you're not jiving with my tree metaphor, think in terms of operating systems. You can't run Apple's Keynote on a typical PC. You can either run Keynote on a stand-alone Apple computer that's disconnected from your network, or you change your entire operating system so that everything plays by the same rules. If your organization is running off of the traditional operating system that we inherited from Henry Ford 100 years ago, tacking on a platform-based business model will only get you so far. You'll need to shift your business to an entirely new operating system to compete head-to-head with Internet-era-born disruptors.

For more on platform-based business, start following our series on the Value Platform, a strategic model designed to help traditional businesses evolve to a more future-ready operating system.