"Platform" Business Models are Difficult For Lots of Good Reasons

It comes as no surprise that when an industry runs headlong into a business model discontinuity, the search for an alternative model becomes acute. A broken business model is an existential crisis of the first order, challenging the very ability to stay in business. -

And business models have been an issue for connectivity and data center providers for decades, in ways large and small. Competition and its effects on gross revenue and profit margins have been key for the former; a shift to cloud computing has arguably been central for the latter. 

But in both industries, executives must expend serious effort to revamp, revise or create different business models as a way of sustaining growth. One example is the replacement of fixed network services by mobile services as the primary engine of growth in the connectivity business. 

For many service providers, mobility now drives 70 percent to 85 percent of revenue growth and  profit. In the fixed networks business, where voice--especially long distance--once drove industry profits, it now is an essential feature of service, but not the revenue driver. 

Internet access now is the key service, but that product is historically challenged as well. Lower costs per gigabyte have been a trend in the connectivity business in every segment, including the mobile business, with the perhaps predictable outcome that mobile operator profit margins drop over time as well. 

To be sure, local markets have different profiles where it comes to general price levels, growth rates, revenue magnitudes and value of revenue sources such as roaming. So revenue upside and growth potential does vary. 

Still, maturation or saturation remain key business challenges. And that is why connectivity providers have spent so much time trying to reinvent themselves, create additional value and new products and features, to outgrow their declining core businesses. 

That, in turn, explains the interest in platform business models. 

“Platform” is a term often seen when people talk about firm business models, and it often is misunderstood, in part because we are so used to hearing the term used to describe computing products and services. 

A platform is a business model. that creates value by facilitating exchanges between two or more interdependent groups, usually consumers and producers. Platforms facilitate interactions between buyers and sellers, audiences and advertisers, Simply, platforms create interactions, linking supply and demand, rather than creating and selling owned products.  

source: Innovation Tactics 

A platform business model is a type of business model where a company creates a foundation for other companies or individuals to build upon and offer their own products or services. This is done by providing a set of tools, resources, and infrastructure that others can use to create and distribute their own products or services.

A platform can take many forms, but generally, it involves three main components: a set of customers, a set of suppliers, and a set of rules and standards that govern the interactions between them. The platform itself can be a digital product or service, such as a website, app, or marketplace, or it can be a physical infrastructure, like a transportation network or a power grid.

source: Innovation Tactics 

Examples of platform business models include:

• Social media platforms like Facebook, Twitter, and Instagram

• E-commerce platforms like Amazon and Etsy

• Ride-sharing platforms like Uber and Lyft

• Online marketplaces like Airbnb and TaskRabbit

• Payment platforms like PayPal and Venmo

Platforms can create value by connecting customers with suppliers, reducing transaction costs, creating network effects, and making it easier for suppliers to reach customers. Platforms also benefit from economies of scale and scope, as their value increases as more customers and suppliers join the platform.

Whether this can be done in the connectivity business remains to be seen. Some would argue data centers have gotten further down the path. When data centers say they are ecosystems of value, that is true in many respects. Even when the actual revenue model is “selling space, air conditioning and security,” the value of specific data centers frequently includes features such as which connectivity network providers; tenants, app providers; software infra providers or content providers also are collocated within a particular data center.