Six reasons why platforms excel
Better, faster, stronger? Platform companies have the edge when it comes to growth, efficiency and innovation.
1. Platform businesses are different to regular pipeline companies:
they don’t sell a good or service but instead facilitate exchanges between consumers and producers.
On YouTube 300 hours of video uploaded every minute: almost none of this is directly created by YouTube.
2. As they need few assets, platform firms can expand incredibly quickly.
Uber vs IBM
7 : 50 years
Uber expanded to 67 countries in 7 years; it took IBM 50 years to do that.
3. Platform companies tend to have very few direct employees.
Airbnb vs Hilton
2.368 : 162.000 employees
In 2015, Airbnb had just 2368 employees and revenues of $1.7 billion (2016).
The Hilton hotel chain had comparable revenues of $1.03 billion but an employee count of around 162,000.
4. Investors have high expectations for the growth of platform businesses:
Growth of platform businesses
150%, 220%, 80% – 27%
in the three years to May, Facebook, Amazon and Alphabet (Google’s parent) increased in value by 150%, 220% and 80%, respectively, compared to a 27% gain for the broader S&P 500.
To a large extent, they are justified: from 2014 to 2016, revenues of the five largest platform companies in the US grew more than three times faster than US GDP.
5. Platform companies are incredibly innovative.
In 2014, just nine US platforms were awarded 11,585 patents – 35% of the total granted that year.
6. Many traditional-style companies are now trying to build platform business models.
ING believes a new platform giant could emerge in the internet of things, which could number 8.4 billion items by the end of the year.