There was a time not long ago when commerce flowed linearly. Companies produced products, shipped them out and sold them to consumers. Single product lines were profitable. Today, not as much. We’re now in the midst of a seismic shift in business models, powered by the Internet and a generation of connected users. Firms are increasingly making the leap to platform-based businesses, but it’s a treacherous transition, warns innovation expert Nathan Furr. And only some will survive the jump.
The motivation to try is understandable. Products deliver a single revenue stream; platforms generate many. Then there’s market share. Consider Microsoft, whose Outlook program has been losing ground to Google’s Gmail and to the email apps integrated into iPhones and other smart devices. Microsoft is now shifting its simple email product into a platform connecting users to a multitude of third-party services, such as Uber, Yelp and Evernote. It’s a decisive test – not just for Microsoft, but also for a growing number of businesses built around products and services, says Furr, an assistant professor of strategy at INSEAD, in the April issue of Harvard Business Review.
Can companies replicate the success of Amazon, Apple, Lego, Nest and others in creating new platforms? Or even better, in turning existing products into platforms? Furr believes yes, and he points to an old but overlooked tool with remarkable power to manage periods of trying transitions: hybrids.
In their study of more than 20 firms that have tried to become platform providers, he and his coauthor Feng Zhu, an assistant professor of business administration at Harvard Business School, found that those that were most successful combined both product-based and platform-based business models. But adopting a hybrid business model doesn’t necessarily mean embracing it forever.
“The advantage of hybrids is that they are a half-step that can help their developers manage long and difficult transitions, such as the one between generations of technology or the transition between careers,” explains Furr in a complementing HBR.org article, “Hybrid Business Models Look Ugly, But They Work.” “The challenge… is that they are only temporary half-steps, and so in retrospect they can look clumsy.”
The hybrid approach is one of four steps Furr and Zhu identified as making the difference between effective product-to-platform transformations and failure. Read “Products to Platforms: Making the Leap” in its entirety to learn more. For more insight into Furr’s research on hybrid business models, you might also be interested in his HBR article, “The Prius Approach.”