If you are a tech lover and want to learn about their business models then this article series will be of great interest for you.
This part will start with an overview over a range of examples of hardware / software technology businesses.
As you can see from our mind map below, we are talking about platforms that are underlying other technologies and businesses, such as SaaS, social media, search, online travel agencies, fin tech and many others.
This is part 1 of our hardware / software technology platform business model series.
Note that we cover the related field of Software-as-a-Service in a separate series because of the big differences in their business models.
Categorising Hardware / Software Technology Platforms
On the hardware side, we see things like computers, tablets, smartphones, wearables, internet of things devices, game consoles and other smart consumer electronics.
On the software side, we include operating systems, app stores and actual consumer software from apps, to games to other user software.
And then there are a lot more platforms, such as virtual assistant, development platforms, etc.
This is of course still only an excerpt of what there is but you get the point of what we see as a hardware / software platform business and additionally it's a useful way of categorising such platforms.
The Platform Business Model
It is fitting and not a coincidence that the most important technological enablers of the platform business model are often platform business models themselves.
If you are unsure what the platform business model is, check out our articles on the fundamentals. I am very certain that you will be pretty amazed. We are using all these technological devices, gadgets and platforms without even realising how intriguing their details are on a business model and even microeconomic level.
What's the big deal about the platform business model?
Let's just do a 1-minute summary.
One of the most important aspects of platform business models are the creation of network effects. We all know this well when we talk about platforms like Uber, Airbnb, DoorDash, Facebook and many others. But as we will see, all the hardware / software tech platforms shown in the mindmap make use of indirect network effects (more on this very soon).
Here is a key diagram for the above-linked article that shows the idea.
The platform grows as different participant types join the platform.
The more drivers join Uber, more the platform becomes more valuable for riders (in terms of shorter waiting times, lower fares, etc). This then leads to more riders joining which makes the platform more valuable for drivers in terms of income, lower idle times, etc.
The thing is that the same mechanism holds true for hardware / software technology business models.
Granted, it may be a little bit more difficult to see it than in the case of Uber, Airbnb and other.
So, let's take a look at it next.
Linear Business Model vs Platform Business Model
The linear model is well known. We source things from suppliers, add value to it in various forms and sell it to our customers. Of course, it’s nowhere as simple as it sounds (ok, in some cases it may be a rather simple model but in today’s age most business models have become pretty sophisticated).
We have covered Software-as-a-Service in our recent articles and they fall under the linear business model. All SaaS are using many fascinating technologies and you can see them as the suppliers (though it’s not associated with any material flows, of course).
Hardware/software technology platform business models are different. Here the value is provided from the the supply side to the demand side. Let’s take the Apple iPhone that allows developers to sell (or otherwise monetise) their apps to users.
By doing so, hardware/software technology platforms add value to this process in many ways, in particular by connecting the demand and supply side in meaningful ways. Apple has a very sophisticated App development platform on the iOS (and other operating systems, e.g. macOs, Watch OS, etc).
Now, with this in mind take another look at the mind map in the beginning of this article. You will see that all examples there do the same thing.
They connect a demand side with a supply side in value adding ways.
How the platform business model (almost) bankrupted Apple
This concept is so powerful that it first almost bankrupted Apple and then made it the first billion dollar company.
In the remainder, let’s take a look at how it almost bankrupted Apple (and next time we will look at how it made Apple a trillion dollar company).
We need to go back to the 70s/80s where the epic battle between Microsoft and Apple raged, ending with a crushing victory for Microsoft. Even if you were not born then, you would have heard about this battle.
The main thing that happened there is that Apple closed their operating system to 3rd party developers whereas Microsoft did the exact opposite. They connected hardware and software developers with users.
We will discuss the curious decision of Apple to lock out 3rd parties more in the next article.
Let’s first look a bit more how Microsoft created a platform business model with their DOS system and later Windows. It’s intriguing that the term and concept of a platform business model was not known at the time.
Today absolutely anyone knows that a good ecosystem is of greatest importance to the success of any platform.
However: Not every ecosystem is a platform business model.
But: all successful platform business models lead to a valuable ecosystem over time.
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Windows is not different from Uber and Airbnb!
Take a close look at the last image. I think it makes it pretty clear.
DOS and later Windows created a platform business model with users on the demand side and hardware & software manufacturers on the supply side.
Windows is not different from Uber and Airbnb!
Surprised? Take a look the network effects diagram in the beginning of this article.
True, with Windows things happen in other timeframes. But it's the same mechanism of a marketplace of demand and supply.
Apple had 7 pieces of software. Windows had hundreds and thousands (and then more). Apple had a few hardware components, Windows integrated hundreds and thousands (and then more).
Windows did not manage the marketplace. Today we have App Stores that are the marketplace. And App Stores monetise on being the marketplace. But Windows enabled such marketplaces to emerge even if they were fragmented across millions of retailers.
Windows didn't make use of monetising through an App Store. Apple can be credited for this.
Take another look at the last image and you will also see game consoles. Jean Tirole won his Nobel Prize in economics for uncovering the 2-sided marketlpace character of platform businesses. And game consoles were among his early study object.
With this in mind go back again to the mind map and take a look at it with what you have just learned. You will realise that pretty much all the businesses shown in the mind map do the same. Each one does it in a different area but the fundamentals of their business models are the same!
I think so. This is also why I have researched this topic over the last 5 years. You can learn more in our products and apply it to your idea.
You may have come here trying to find out something specific. But the truth is that any specific information is connected to a lot of other details.
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