Just as the Industrial Revolution upended manufacturing 250 years ago, the Digital Revolution continues to evolve business as we know it. But rather than making existing processes more efficient—for instance, replacing hand tools with power-driven machines—the Age of Data leverages technology to create entirely new sources of value.

In this context, traditional business models based on a company’s production and sale of a singular product or suite of products are outdated. Forward-thinking companies may be aware of this and seek to shift from a product-centric mindset to a more platform-centric one, but often they don’t know where to begin.

Inspired by Mark Bonchek and Sangeet Paul Choudary’s Harvard Business Review article on the topic, Causeit has created this guide. We hope it will help you understand new expectations of today’s customers, flesh out what it means to become a platform-centric company, and identify next steps to apply this new model to your organization.

When it comes to innovation, there are three kinds of companies:

No matter which kind of company you are, it’s important to understand the expectations of the customers you want to engage.

Children of the 1990s were the first generation to grow up with the widespread adoption of the consumer Internet. Commonly referred to as digital natives, this population understands digital technology as a core part of infrastructure and relies on it for information about the world around them.

As technology continued to develop in the mid-2000s, digital natives have been joined by data natives, a new generation that expects all aspects of their daily life to be digitally mediated. In the data native’s world, commerce has become a series of interoperable technologies that serve to make all of their experiences quicker, smoother, and most of all, more convenient.

A digital native might learn about a concert online, call a friend to see if they want to go, purchase tickets online via credit card, hail a taxi to the concert hall, pay the driver in cash, and show their printed-out tickets for entry.

The data native might receive a push notification about the concert, purchase tickets for themself and their friend with one click via ApplePay, have their friend pay them back via the payment sharing app Venmo, hail a ride-sharing service like Lyft to take them to the concert, and gain entry by displaying a QR code on their mobile device.

Though not far apart in age, these two populations have vastly different expectations of the products and services they engage with. Digital natives may be satisfied with access to information, but data natives have come to expect data tailored to them. They don’t just want to ask their device to navigate them to a destination, they want it to tell them what time they need to leave based on historical traffic information, and to offer alternate routes in case of road delays. For them, technology isn’t just informative: it’s real-time, adaptive, and predictive.

Where a digital native might be satisfied with product innovation—for example, the evolution of music from cassette to CD, and from CD to online streaming—the data native expects to play an active role within that product evolution. They don’t just want streaming music, they want social playlist features, community reviews, recommendations for similar songs. They don’t just download, they upload too. On a service like YouTube, watching clips alone is not enough—they want to create their own clips, then share, remix, comment, and interact with other users.

In short, today’s customer doesn’t just want to be a passive consumer—they expect to be a co-creator of value within a brand’s larger ecosystem. Companies need to shape their offerings around these expectations. The companies that meet and exceed the expectations of data natives will shape the future of their industries.

Customer expectations aren’t the only thing that has shifted in the last few decades. How business leverages technology continues to change as well. In the 1990s and early 2000s, companies integrated information technology into their existing processes in order to streamline production and sales. While this allowed companies to push out product faster and more cost-effectively, most of the value was created through improved efficiency.

But in this Age of Data, technology’s role now shifts from optimizing products to enabling platforms.

Given today’s user expectations, these new platforms are no longer about finding better ways to push out goods and services. Instead, they’re about creating entry points for participation, giving users and strategic partners the opportunity to co-create, consume, and extract value in surprising ways, all within a branded environment.

What does this evolution from IT-enabled systems to networked platforms look like?

Once a company understands the benefits of moving from a product- to a platform-centric model, the question then is: How?

Many companies approach the challenge of platform innovation from the same mindset they’ve been using for decades. Some unknowingly revert to old models by applying fresh design or new technology to existing systems, expecting innovation to somehow occur on its own. Others focus on innovating in one specific area of their business, but find it challenging to connect this singular locus of change to their wider offerings. 

The real answer to “How?” is that it takes a radical mindset shift. Companies need to take bold imaginative steps if they want to participate in this new digital economy, seeing digital technology not just as a means for enhancing existing systems, but for creating entirely new sources of value. 

Think of Apple. While the company began as a computer manufacturer, it began transitioning from products to platforms with the introduction of iTunes. iTunes created an entirely new experience of music whose value extended far beyond the songs themselves. Users could organize their music, stream songs, purchase new music, leave reviews, build playlists, and discover new artists. In fact, they didn’t need to purchase a single song on iTunes or an Apple device to extract a great deal of value from the platform.

According to standard business models built around the idea of selling “things,” a user who never translates into a customer is an unsuccessful sales conversion. But within a platform model, which runs on many different kinds of value, users like this can be a prized and vital source of co-created value through contributing reviews, sharing playlists, etc.—whether they ultimately end up purchasing, or just enriching the platform experience for other customers. 

Making this mental shift—from making and selling things to enabling value—is fundamental to transitioning to a multi-sided platform (MSP) model and can profoundly transform your company’s relationships with its audience and partners. 
 

Building a multi-sided platform is all about developing a digital ecosystem that enables users and partners to build products and services that co-create value for all parties involved. To begin to thinking about such a platform, your model should include these four interlinked layers:

 
See how these four elements of an MSP come alive when applied to the example of the Apple iPhone:

• DATA: Apple creates both on-phone and in-cloud datasets about their customers. This data isn’t used primarily for Apple’s purposes—it’s for customers to gain further insight about themselves or to receive better functionality from their devices and apps (for example, health data that can be used securely across multiple apps).
• INFRASTRUCTURE Apple has developed an extensible operating system with APIs and SDKs that enable third-party developers to create on top of their own hardware and software platform, minimizing their own cost and risk. The company’s HealthKit is one such API, which allows wellness apps and wearable sensors to use each other’s data and functions.
• MARKETPLACE: The iOS App Store functions as a centralized marketplace and distribution channel for app creators to sell their products. For example, users can download apps like Nike+ or Strava, which tap into data about a user’s health via the HealthKit API.
• COMMUNITY: Users create new value for the iOS App Store by discovering and reviewing apps, and for other communities, like Nike+, where users can connect for fitness ideas, encouragement, and friendly competition.  

Unlike the technology of the 90s and early 2000s, which typically optimized for internal stakeholders only, MSPs use digital technology to create new outward-facing opportunities for all parties involved. In fact, ongoing relationships are one of the main hallmarks of a successful MSP, where the more users participate, the more value they get.

For the company that develops and hosts an MSP, this may mean building closer relationships with customers and earning access to more data about them, as well as enjoying the shared revenue created by partners. For partners, value comes in the form of being able to create, distribute, and profit from products the develop on the MSP’s marketplace. And users receive value from the engaging with a constantly expanding set of apps on the platform, as well as by allowing data about themselves to be fed back to them in useful ways, such as recommendations.

Once you’re ready to shift your strategy away from products towards platforms, start by getting clear on your company’s true value proposition. This requires you to dig deeper into your true offering, possibly even beyond your existing product or service. The goal of this inquiry is to identify the part of your business that only you can do and that no disruptor or competitor can imitate. That purpose forms a powerful base from which to develop your MSP. When you invest effort in this question, the answers may well surprise you.

Nike is a good example of a company that shifted their strategy from product to platform after understanding their true value proposition. Beyond the sale of T-shirts and sneakers, the company ultimately came to understand that they were really about enabling each customer to live a healthy and fit lifestyle. This purpose guided the creation of Nike+, an online membership community that provides members with numerous apps and resources to encourage health and fitness.

The Nike+ platform has all four components of an MSP:

• DATA: Members use apps to track their activity stats and performance goals.

• INFRASTRUCTURE: While activity can be tracked via smartphone, Nike also partnered with Apple to pre-install Nike+ in certain iPod models, and with TomTom to develop its own FuelBand and SportWatch GPS wearables. Nike+ also integrates with Apple and Spotify to motivate users via music.

• MARKETPLACE: Nike+ users are lightly encouraged to shop for Nike products, which are also promoted indirectly via community members discussing the best gear.

• COMMUNITY: Users can motivate each other, get tips, connect for real-life meetups, engage in friendly competition, and share successes within the app, as well as on Facebook, Twitter, Pinterest, and Instagram.

As you can see the Nike+ example, part of the shift from product to platform is about deepening your brand’s relationship with its customers. When Nike positioned itself as an apparel company, they might interact with a customer just once a year, when it was time for them to buy new sportswear. But by transforming themselves into a MSP dedicated to their true value proposition—a life dedicated to health and fitness—Nike now has dozens, if not hundreds, of customer touchpoints within a single month.

Once you’ve identified your core value and developed community marketplace model, your next move is to develop an infrastructure roadmap to support it. You can’t innovate across all areas of your business in-house, so you need to decide what to build yourself, what to buy, and what to partner on. You should view this dependence on third parties as a benefit, as it will quickly become apparent that your MSP will be better—and less risky—when you are networked with other parties. 

Airbnb is a helpful example here. Emerging from the vacation rentals market, the company was clear that its true value proposition was to provide customers with on-demand beds. But instead of creating every single part of the supply chain necessary to deliver on that offering, they linked up with strategic partners to build out their MSP and create value at the same time. On the infrastructure level, they weren’t going to create a new payment system on their own, so they partnered with Mastercard and Visa to process transactions. They also tapped into the infrastructure, communities, and marketplaces of Apple and Facebook to promote the company via targeted ads, encourage users to refer the service to their friends, and create an even more seamless user experience via features like single sign-on. 
 

For companies that want to thrive in the 21st century, the challenge is to willingly unyoke themselves from the business models that have gotten them where they are today. Doing so requires a firm leap of faith, but exponential opportunities lie on the other side. 

More tentative product-driven companies may understand the value of such a leap but find themselves unable to make it in one fell swoop. So they employ various strategies to get started. Some develop strategic partnerships, some merge with or acquire more innovative companies, and others develop innovation labs: internal start-ups that engage in edgier experiments to test out platform innovation before scaling the new model up to the enterprise level. 

We’ve seen these strategies employed by automakers over the past few years. Once they discover that their true value proposition revolves around the concept of mobility rather than the manufacturing cars, entirely new business possibilities become available. BMW, for example, created the Drivenow platform, which provides the brand’s vehicles on an hourly model akin to Zipcar. Others focus on developing strategic partnerships, like Ford, who tested out non-traditional business models by partnering with peer-to-peer carsharing service Getaround, or GM, who invested heavily in Uber competitor Lyft. 

Whether your company commits to transforming their entire model or experiments with offshoots and partnerships, here is the fundamental question to ask: How do we create a branded ecosystem that enables others to easily pick up where we leave off? Starting from this question positions you to build the kind of infrastructure that encourages community, enables a marketplace, and supports the full exchange and co-creation of value within your MSP. 
 

WHAT YOU CAN DO IN THE NEXT QUARTER

Delve deep into the mindset shift and strategy work outlined above. During this phase, you can benefit from bringing in the fresh eyes of an external partner like Causeit for a kickoff meeting with key stakeholders to help introduce these new ways of thinking. We can help you determine your true value proposition, assess available resources, and provide insight on linking disparate parts to develop your very own MSP model.

WHAT YOU CAN DO IN THE NEXT YEAR

Apply the Build/Buy/Partner lens to your new MSP business model. This may mean developing new infrastructure and integrations or forming strategic partnerships. Keep in mind, regardless of whether your partners are internal or external, they too will likely need an introduction to the thinking behind platform-based business models. Causeit can guide conversations to help everyone align around vision and engage effectively with the emerging platform.