THE PLATFORM ILlusion
Who wins and who loses in the era Tech Titans
By Jonathan Knee
Over the past two decades, the world's hyper-ambitious entrepreneurs - do they exist- there now some other kind? - have largely pursued two objectives in tandem. First: Become a platform. Second: conquer the world. The first is supposed to lead to the second, as it apparently did for the five conglomerate companiess under the intimidating acronym FAANG. Facebook, Apple, Amazon, Netflix and Google have taken such a bite (get it?) From the global economy that in the past five years alone, their value has more than tripled - at a rate three times the speed as the growth of the entire S&P 500 - and are now worth more than $ 7 trillion. The appeal of building a platform is clear.
But what, exactly, is a Platform? In the analog world, a platform is where you take a train, launch a rocket, or give a speech - somewhere where you go to do something else. In a digital context, platforms facilitate transactions. Facebook and Google don't sell much themselves; they earn money by connecting advertisers to your eyes. Apple profits from the sale of phones, but a significant portion of its incomes comes from the discount every time you buy something from someone else in their app store. The promise of the platform's business model is its magical self-reinforcement: once the platform is in place, the money is supposed to flow through the system without much extra effort. Image
Platformdom's siren song has proven to be irresistible to countless start-ups, with many people finding a way to get the word out in their investor presentations - WeWork has used it 170 times in its unsuccessful attempt to go public - as an easy signal of ambition if not always the reality of their business. Peloton, which sells indoor apartment bikes, calls itself an "interactive fitness platform." Casper, which sells mattresses, is a 'platform designede for better sleep ”. Beyond Meat, which sells faux burgers that taste like beef, pork and poultry, insists that they are in fact "three platforms of plant-based products." The world's most established companies are not immune to this trend. In an episode of a podcast produced by Boardroom (a "sports content platform for businesses " co-owned by basketball superstar Kevin Durant), Goldman Sachs chief executive David Solomon said that Goldman is not a bank but a company with "three main platform companies.
The word "platform" was used so many times in so many ways that it has almost lost all of its meaning, a fact that Jona que Knee, who teaches at Columbia University business school, tries to explain in his new book, "The Platform Delusion ". Knee does not support large platformses, which he describes as "succubus companies " that "suck all the value, returns and growth from companies that actually do things right." But neither does he plead for their dissolution. It just offers a warning: being a platform isn't all it's meant to be.
Knee's book is filled with Business school case studies that might be a bit of the weeds for general readers. (One of the successes he identifies is a company that makes software for a very specific financial accounting function.) But for aspiring entrepreneurs, these stories offer a glimpse into the illusion that Knee identified. and show how to avoid the two main errors in judgment that cause it. . The first is the belief that platforms have emerged with the advent of the Internet. In fact, they have been around for decades. Shopping centersiaux are platforms. Cinemas are platforms. Credit cards are platforms. (Not to surprise you, but the money itself could be the original platform.) Additionally, Knee argues that these analog companies were often better than the digital companies that replaced them. A suburban mall operator will never achieve global scale, but the business has built-in competitive advantages: stores are stuck on long-term leases, and buyers traditionally have no choice unless to travel many kilometers. In e-commerce, where 90% of businesses are said to fail in their first four months, these barriers do not exist. My dog's favorite food is available for the same price on Amazon or Chewy or many other sites that I can access with a few taps. Although much has been said about the declinefrom the mall, Knee writes that the top performers still have operating margins of 70%. Amazon only manages about 7%. Image Jonathan Knee Credit ... no credit needed
You shouldn't feel bad for the FAANGs, who feed off each other as much as anything else. (Apple earns billions each a year from a deal to include Google as the iPhone's default search engine - a platform that runs on top of another platform.) It's clear that something is different about our digital platform giants; Otherwise, your local mall tycoon might also financer its own space program. The internet has allowed these businesses to reach unprecedented size and scale, so the top-performing competitors - many of whom Knee cites - are those who choose to nibble on a little corner of a particular business rather than compete directly with the giants.
But the crux of Knee 's argument is that "beyond their size and success" - This is no small feat - there is little that the big platforms have in common. This brings us to the second symptom of delusion, which involves blind faith in the supernatural powers that digital platforms are said to possess: "network effects", "big data" and other buzzwords that have has been nodding audiences at TED talks for years.
Facebook's growth, for example, has been largelynetworking is related to the power of network effects - the more people use your platform, the more beneficial it is for all - which, Knee acknowledges, is perhaps the key business differentiator. But Knee points out that Facebook has yet to dig a wedge around it in much the same way that Warren Buffett would advise any business to do. When competitors come up with a competing product, Facebook spends a lot of time and money copying or buying it, lest users easily switch to another social network.
Knee admits that the scale and reach of giant technology platforms is "impressive," but he thinks our collective fear of them is overstated. (Other than a few nods to their impact on the news industry and the state of our informed democracy, Knee does not consider their societal implications.) Platforms have faults.iblesses like any business, he argues, and the succubi themselves push the myth of their own invincibility in order to deter any potential competition.
But what the Myth has above all done, it is to make young entrepreneurs to try to match them. Knee teaches an investing class at Columbia, where graduates have largely left Wall Street to work in start-ups, often of their own creation. The personal and societal virtues of starting a business are many, in theory, but no business school graduate seeks to create a mom and pop outfit that will piece together the social fabric torn apart by our digital Goliaths. Almost all of them want to start a small business that will grow into a big business, and the venture capital world encourages such bets. A start-up founder I spoke to recently had met a prominent venture capitalist who said: "I am interested in finding a company that can own the ocean.
Knee believes investors, and many of her students, are fooling themselves into thinking that building a global platform is a viable goal. Platforms are successful not because they are platforms, but because they harness the same kinds of benefits that successful businesses have enjoyed for decades. It's a boring achievement, but one that Knee hopes will save his students from not only chasing bad ideas, but ruining their lives. The platform sirens song, he writes, "fatally hinders the ability of many to clearly consider what they might actually enjoy ". Not everyone has to start a business to be happy. And not all businesses need to take over the world.