Understanding platform power—disruption or destruction?

Note: In the last week of November, we organised a week of learning for our community on the Future of Platforms. This masterclass is part of that.

Platforms have come to dominate our lives. But there’s increasing worry now about the power they wield, their impact on supply ecosystems, as well as the monopolistic tendencies they've exhibited. Suppliers have been up in arms. Regulators are scratching their heads on what sort of policy prescriptions they ought to look at. Even consumers, after being wooed by hefty discounts, are now realizing that the choices are actually getting limited.

A stellar panel including Harvard Business School professor Karim Lakhani, ecommerce entrepreneur K Vaitheeswaran and True North’s Haresh Chawla help us understand this new landscape, how leaders and organizations need to reorient themselves, and how do we compete in this platform era. The discussion was moderated by Indrajit Gupta.

Highlights from the conversation

• Three things are coming together: the amount of venture capital available to these companies, the leverage from their network effects, and their ability to cross-subsidize other businesses. This combination gives them the ability to distort markets, hurt other businesses, suppress new entrants, and change people’s minds and behaviour.  
• The net result is that while it appears these companies are giving consumers a choice, the reality is, they are finding a way to suppress choices both inside the platform itself and from competitors as well.
• You’d expect  monopolies to be profitable. But nearly all of these platforms are struggling to create value in their fundamental businesses. Instead, they strive to make money from other areas. In that sense they don’t have very efficient utilization of resources.
• Founders and investors have confused a marketplace and network effects, by assuming that everything is going to have good returns at scale or that switching costs will be low. Uber and Lyft in the US and Ola in India show you that you can in fact have competition, and you can fight against these growing scale businesses that Uber thought it was.
• Do we really want regulators to determine the winners and losers? Sure, the incumbents are at risk, but maybe that’s a good thing—they should adapt. If we support incumbents too much then we are basically corporate welfare, subsidising their bad behaviour.
• Amazon is the new GE. There’s a lot to learn from it and a lot to push back on.
• India is unique at multiple levels. Incumbents also haven’t had history in India. Several markets are in a state of disruption that is ongoing. The playground is therefore very different from the US or China. That poses challenges as well as opportunities.
• More platforms, more data, more analytics are what's going to be driving the base of the economy, the base of how we create companies. We need to be able to build the capacity for Indian businesses at all levels to be able to plug into platforms, compete on multiple platforms and succeed, by serving the Indian market and also the global market.
• The assets that are available with offline retailers are actually extremely strong assets built over the years. But we now live in a digital world and they need to change and change deeply. Just getting an app or a website is not the solution. They need a change in mindset—in how they rethink customer experience and value their frontline sales staff. And there are lessons here in the comebacks Apple and Microsoft made.
• For suppliers and merchants on the marketplaces, as long as the brand (say a Coca-Cola) is getting sold, there's still a chance. But if it is the product (a generic cola) that is getting sold, there will be a problem. Platforms will increasingly start dominating those relationships.
• For the participants in platforms, having a point of view about value sharing is going to be very important

More on this

Special content as part of our week of learning on the Future of Platforms for the Founding Fuel community.

Making sense of the New Capitalists | Founding Fuel | Haresh Chawla

Your smartphone is the gateway for platform businesses to drive their hooks deep into your psyche and pockets, edge out traditional businesses, and reset markets. In doing so, they are becoming monopolies, the likes of which we’ve never seen before. What is fair play in this new world?

The difficulty of cross-selling | Founding Fuel | NS Ramnath

How far can businesses push the power of platforms to sell new types of products?

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