Beyond The Buzzword: Harnessing Platforms’ Real Power

Two decades ago, talk of platforms was mostly centered around software, often by academics and engineers in highly technical settings. Today, the term is still focused on software — and is still talked about among academics and engineers — but its impact as an innovation enabler makes the word as popular to use as it is powerful to see in action.

However, a platform by any other name may not, in fact, wield the same amount of strength.

This was the topic of discussion in the latest Beyond the Buzzword podcast, as WePay Co-Founder Rich Aberman and PYMNTS’ Karen Webster talked about what it means to be a platform — and where the term is most relevant.

At a basic level, Aberman noted, platforms are the connective tissue that make it possible for two partners to find each other and do business. Sometimes those platforms are software — the online marketplaces that remove the friction from buyers and sellers who want to do business together. Sometimes those platforms are physical — the shopping mall that makes it possible for consumers to find a range of merchants in one physical space.

Or, at least those platforms used to be physical, before online marketplaces and the software platforms that power them disrupted the balance of power in retail.

“People use and define the term for their own purposes,” Aberman told Webster. “I know when we define it internally at WePay, when we are thinking about our target audience of platform businesses — what we mean is a non-merchant that creates the space for merchants to sell their wares in a way that is friction-free and value-added for both the buyers and the sellers.”

That “value-add,” he noted, can, and does, vary widely.

For instance, eBay is about creating connections between buyers and sellers around the world who might otherwise never encounter one another, let alone figure out a way to transact securely. OpenTable gives restaurants an online reservation solution by connecting their entire back-end and point-of-sale system to a software platform, granting customers looking for a place to eat access to available inventory from all of OpenTable’s restaurant clients. Uber does the same thing by connecting drivers and passengers via a booking solution and offering a seamless payments experience that eliminates the need to present a card for payment once the ride is over.

Platforms can vary in what they do, Aberman noted, but at their best, they all deliver the same thing:

A Conduit for Value

In the pre-Airbnb world, Aberman noted by way of example, the idea of traveling to a foreign country and sleeping on a stranger’s couch would have seemed intimidating to most consumers. Today, however, such an arrangement is commonplace — a change that is emblematic of the power platforms have to drive and, in some cases, alter consumer behavior.

“When we think about the most exciting platform use cases in the world, they … enable those use cases — but in a way that builds trust and safety into the value proposition in ways that have never been possible before,” Aberman said.

That “trust and safety” boon is visible in any number of platforms — even with B2B platforms such as FreshBooks (one of WePay’s client firms). The online accounting software platform doesn’t provide the discovery benefits of an eBay-like platform or the full-tilt vertical disruption that travel platforms like Airbnb or Expedia have wrought in the marketplace; instead, it allows invoices to seamlessly be tracked, managed and paid — offered in a way that injects safety and trust, as well as a curated portfolio of services for their business customers to use as needed.

Come for the Services — Stay for the Network Effects

Marketplace-style platforms, Aberman noted, all face a similar problem in their early days: the famed, dreaded, chicken-and-egg problem. To really do its best work, a platform needs scale, enough sellers to make buyers want to sign on and enough new sellers to keep consumers coming back.

Without all three, a platform develops an ignition problem.

Achieving those network effects, Aberman noted, is critical. The best types of platform businesses are the ones that create massive network effects that allow smaller players to discover wider distribution than they would if they weren’t working with a marketplace that brings both buyers and sellers to the table.

However, the road to those network effects are oftentimes built on offering the right services to merchants — who, in turn, use them to create a stronger, stickier product for consumers.

Anyone, of course, can rent out a room. But setting up an online display, pricing, accepting payments, handling refunds — those are all difficult things an individual property owner doesn’t want to do. Airbnb’s platform handles everything. Anyone can sell the jewelry they make from fish hooks on the web; all it takes is the patience to set up an online store. But Etsy helps merchants build an online store in a craft marketplace where the type of person who might be inclined to buy fish hook-themed jewelry often shops.

The list goes on: BigCommerce, Shopify, OpenTable — all Software-as-a-Service platforms that give their partner merchants a set of back-end tools that allow them to control things like order flow, inventory, payments gateway functionality (a.k.a. all things Aberman said are the basic infrastructure any merchant needs so they can do what they do best — “start selling their wares”).

What’s Next

A quick industry-by-industry tour, Aberman noted as the conversation wound down, is a great tutorial on all the places marketplaces have had a big effect. Online retail, restaurants and travel are the most obvious areas of transformation over the last decade or so.

However, the changes are ongoing, he said. Particularly interesting these days are the ways in which firms — specifically big tech firms — are themselves becoming platform businesses, at least in part. In the past, Apple, he noted, has been primarily categorized as a hardware provider, but via the App Store and its expanded service offerings, the company’s primary piece of hardware, the iPhone, can also be described as a platform.

“And that pattern is persisting across technology companies that might have, in the past, sold hardware or software … [but which] are now becoming platforms [off which] other smaller technologies are developing. That is, IBM, Google, Facebook — they’re all increasingly defined by their platform businesses,” Aberman said.

It’s a trend that is likely to continue into places like physical retail, he predicted, where the shift would be unexpected.

IKEA, he noted, bought TaskRabbit because it didn’t just want to sell furniture; the company also wanted to manage the platform that connects the furniture buyer with a person who knows how to build a couch from nonsensical instructions and is willing to do so for money.

Tesla may be a merchant when it comes to cars. But the software that runs the vehicle — that is embedded natively — is designed to provide a platform where developers can reach an audience, Aberman said — a situation which is becoming increasingly common in the automotive industry and in the era of the connected (and perhaps someday autonomous) car.

This shift creates a challenging situation for pure-play merchants, who, in a world filling up with platforms, fear being intermediated out of their relationship with customers. It’s an issue, both Webster and Aberman emphasized, that needs a solution — and fast.

Platforms are more than a buzzword. They’re increasingly becoming the way a lot of business is being conducted — online, offline and in all the spaces in between.

“Any time you have an engaged audience, no matter where the engagement is, if that engagement is powered by software and connected to the web, there is a chance to create platform value there,” Aberman said.