Apple is in the news right now for their court case over how they charge developers a 30% commission on their app and in-app sales. While not directly related to our professional lives, the building blocks are very familiar. How should we think about how much value a platform provides us with? How should we think about the audience and benefits the platform creates? What does it mean when a platform changes?
First – let’s get the definitions out of the way. A platform is just a place where buyers and sellers gather. Apple created the app store so that loyal Apple users could download trusted 3rd party apps from savvy developers, improving the overall iPhone (iPod/iPad) experience. They charged the commission as a form of rent for maintaining the platform. Amazon does the same thing when it sells stuff, as does Netflix with visual content and Spotify with audio content. The more users that join, the wider the audience that developers and content creators will have access too. These are network effects and they are very powerful.
Over time, however, platforms shift. Retailers used to pay up for prime real estate in suburban shopping malls. The regional mall platform was a great way to access a desirable network until it wasn’t anymore, largely due to the internet. As the network effects unwound, i.e. fewer shoppers showed up, the value of the platform degraded. This is where we want to focus our attention.
We all work on some form of platform. We pay its costs in exchange for its benefits. Over time we can expect the platform to shift. Most commonly, platforms move from being exclusive to being commoditized. There are winners and losers when these shifts happen. To continue on the retail example, we know Best Buy is still around, but RadioShack has vanished. Why?
To survive a platform shift requires that we retain our exclusivity, or what economists call “scarcity.” The surviving companies typically build smaller platforms on top of the existing platforms to allow for this transition. Instead of relying on the platform to continuously create the dominant portion of the customer experience, they focus on creating as much of the experience as they can in-house. This goes against what the original platform charged rents for, and therefore, it requires an intentional shift on the survivor’s part. RadioShack said, “You’ve got questions, we’ve got answers.” Best Buy just did it all for you with Geek Squad. The network of electronics hobbyists was dwarfed by the far lazier, tech-loving masses.
The finance industry that has been steadily moving away from exclusivity and towards commoditization for a few decades now. Sometimes it feels glacial, sometimes it feels fast, but there’s only one way to survive: build smaller platforms on our current platforms by controlling our own customer experience. It’s easy to say, but it’s hard to do. We have to focus on the exclusive aspects of our businesses compared to the commoditized ones.
Strong customer service, healthy relationships, and custom content are the areas where any professional should have the best odds of creating scarcity. Platforms will always charge some form of rent, but it will always be the developers and content creators that can capture the hearts, minds, and wallets of the customers that will pave the path forward. So long as we stay focused on surviving the shift, we can thrive in any transition.