Are You a Product, Platform or Ecosystem Company?

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Another week; another ridiculous amount of hours on an airplane, so this post is coming from Bangalore. During last week, I noticed an interesting pattern that I had seen several times over the last year: many companies and their leaders are not clear on what business they’re actually in, especially as it comes to being a product, platform or ecosystem-centric company.

The distinction is important as each type of company comes with its own set of characteristics and criteria. A product company is concerned with selling a, typically standalone, product. The goal of the company is to sell the product to as many customers as possible against the best price possible in order to maximize margins and revenue. Although the product may have to be integrated with other systems at the customer, the company only needs to focus on a single stakeholder.

A platform company, on the other hand, seeks to commercialize a multi-sided market where, in the simplest case, suppliers and consumers are meeting to exchange value on top of the platform. The platform may require installation on end-user equipment, such as your computer’s ecosystem, or it may only provide the marketplace, such as an online hotel booking site. The key characteristic is that the platform is concerned with offering the best possible solution for different stakeholders exchanging value. This means, it needs to balance the interests of different stakeholders as well as its own interests in a way that leads to the best global optimum.

Finally, a company organized around an ecosystem has many similarities with a platform company, especially if it is the keystone player in the ecosystem, but there are some differences in that functionality provided by the platform, the functionality provided by complementors and others as well as customer-specific functionality built by customers are all in the same domain and the dynamics around the evolution of functionality. For instance, the ecosystem platform needs to continuously incorporate new functionality in order to stay relevant and avoid commoditization. In this context, the keystone partner needs to be very careful to ensure a fair context for all participants in the ecosystem.

The challenge when not being clear on what kind of company you are is that the characteristics and success criteria are different for the different types of companies. And trying to execute on multiple strategies easily leads to conflicts, both internally and towards the market and rest of the business ecosystem surrounding the company. For instance, a product company seeks to maximize value capture by avoiding others interfering in the relationship. An ecosystem company needs to ensure that others can generate revenue by delivering value to others in the ecosystem.

In my experience, in many companies there is one espoused strategy and one strategy in use. In other words, companies say one thing and behave in a different way. In a world that is increasingly driven by meaning and purpose and continuous relationships rather than transactional customer engagements, a discrepancy between words and actions is easily interpreted as hypocritical, resulting in reduced trust and, in the long run, customers moving on to competitors.

Concluding, be crystal clear on the position you are taking, be it a product, a platform or an ecosystem company and then act in accordance with your selected strategy. Failure to do so results in internal confusion and contradictory behaviors as well as reduced trust and engagement in the market.

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