Of the $4.3 billion in quarterly profit that Apple reported for 2010′s Q4, over $1 billion came from iTunes sales.*
Seth Godin’s latest book Poke the Box encourages provocation – challenging long held beliefs or accepted practices. Seth (and others) suggest we need to re-examine our “boxes” and relish the opportunity to reinvent them. I’m looking forward to reading it because, personally, I think the box is dead. And at the same time, more important than ever before. Let me explain…
It dawned on me the other day when I did a quick inventory of the juggernaut business success stories of the 21st century. Apple. Amazon. eBay. Facebook. Google. Zappos. From A-Z (literally), these businesses have one thing in common – they’ve made their billions not by selling better boxes or “thinking outside the box”, but by escaping the box mentality completely. These companies (and others) create platforms.
Simply defined, if a box is a clearly defined product or service, a platform is a basic set of parameters that allow others to create their own boxes.
Whether it’s internally or externally facing, a platform consist of four core components:
- A base: The internet works well for this. So does any existing physical entity.
- Tools: A platform is a place for others to build. Give them the tools to do so.
- Simplicity: Complexity creates walls, a lid. Too many rules and your platform will start to look eerily like a box.
- Purpose: Facebook gives people a chance to connect with their friends. eBay’s a place to make some money. Tell people why they should build on your platform.
The challenge with traditional boxes is that even the most successful have a limited shelf life and a growing number of competitors. Let’s revisit Apple’s revenue report – the other $3.3 billion in profits from 2010′s Q4 came from iPhones, Macs and iPads. How many of the current versions of those products will be selling the same volumes six months from now? Two years? To be in the box business, you need to be constantly creating new boxes (iPad 2 due out early this year). Not so with platforms. Apple needs to make virtually no changes to the iTunes store to maintain (and likely grow) the current level of activity.
Unlike Boxes, Platforms have exponential growth potential. As more consumers adopt, more contributors are drawn in who, in turn, create more for consumers to adopt. And the faster the platform grows, the harder it becomes for a new competitor to stand a chance. First Mover’s Advantage takes on whole new implications in the Platform world.
So are boxes dead? Traditional boxes, yes. We need to think about them in new ways. As mentioned, the iPad is a box. But it’s also a portal to the Apple platform. And that’s the important part. Understanding that Apple typically keeps 30% of every App sale, how many Apps do you think a consumer has to buy before Apple made more off those than they did off the device itself? There’s a reason why Apple TV was re-launched at $99 last year – every person that buys one is also committing to a significant number of App Store purchases and, by lowering the price point from the original $229, Apple encourages new users to adopt their platform as well.
The main message is to not limit yourself to box thinking (regardless of whether you’re “outside the box” or in it). Boxes are best when they act as a base for a well thought out platform.
One final thought on platforms: They work as well internally as they do externally. In my list of platform companies above, I mentioned Zappos, an online shoe retailer that sold in 2009 to Amazon for $1.2 billion. They sell shoes. Zappos is, however, noteworthy for another reason: Zappos didn’t turn their offering into a platform. Instead, they used the power of the platform internally – turning their call center job description into a platform. From their Las Vegas head office, Zappos call center representatives are given the training, tools and freedom to dazzle and impress their customers on their own terms. No script, just a genuine desire to help. And permission to do so. Does it work? Zappos CEO, Tony Hsieh has 1.2 billion reasons to think so.
The following article was first shared in the spring 2011 issue of The Art of… Magazine.