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How Power Is Shifting From Corporations To Platforms

2015 April 12
Jeff Bezos

It was largely during the 20th century that corporations rose to power. Private enterprises— usually run by a cadre of professional managers rather than by entrepreneurs— came to rival the reach and influence of governments, controlling massive resources that were not bound by traditional borders.

Today, however, that dominance is on the wane.  Consider the case of Ford. During the recent financial crisis, the company lobbied hard for the government to bail out its rivals.   It wasn’t an act of altruism, but survival.  If GM and Chrysler went down, so would the supplier networks upon which Ford depended.

In a connected world, the most important resources are no longer what you own, but what you can access and the line between competition and codependence is beginning to blur. That changes the game entirely.  Successful enterprises can no longer prosper merely by deploying assets efficiently, but must effectively manage and deepen connections.

Death At Digital Speed

The word “disruption” has become a cliche in business circles lately.  However, like most cliches, there is a strong fact pattern that underlies it.  Since 1960, the average lifespan of a company on the S&P 500 has fallen from more than 60 years to less than 20.  As of 2011, only 13% of the original Fortune 500 companies still existed.

Yet despite the carnage, there’s no evidence that today’s managers are any less competent than in previous generations (certainly, today’s CEOs are better educated and more handsomely paid).  The problem, as I pointed out in a previous post about Blockbuster, isn’t so much incompetent management of operations, but a significant change in platforms.

In Blockbuster’s case, while management clearly saw the threat posed by digital technology, the firm was encumbered by its existing platform of retail stores, along with the people, processes and systems that came with it.  In a similar vein, Border’s wasn’t beaten out by another bookstore, but by Amazon, which earns 40% of its revenues from 3rd party sellers.

Another interesting example is Wal-Mart, which built a powerful logistics platform over a period of decades.  In this case, however, their choice in platforms works equally well with both physical and virtual storefronts.

The Rise Of Ecosystems

Sun Microsystems co-founder Bill Joy once said that, “No matter who you are, most of the smartest people work for someone else.”  Now known as Joy’s Law, the principle has expanded far beyond managing talent.  Today, firms are finding that they are often better off tapping into ecosystems than owning resources outright.

These ecosystems tend to function as open platforms rather than closed, proprietary networks.  An iPhone, for example, wouldn’t be nearly as valuable without the millions of apps available for it.  In much the same way, new cloud infrastructure services like Microsoft Azure and Amazon Web Services allow you to connect to hundreds of applications.

Notice the difference.  In the old corporate economy, transactions went one way.  Firms would manage a value chain in order to deliver a superior product at a lower cost.  Yet today, transactions are multi-sided.  Firms not only need to court customers, but also others that will enhance their platform.

As I noted in an earlier post, today the cloud is bursting out into just about every facet of life imaginable.  Xero in accounting, Kareo in healthcare, Tidemark in ERP software, IBM’s Watson in cognitive computing, Wink in smart homes, the list goes on.  In a networked world the best way to become a dominant player is to become an indispensable partner.

Strategy In A Networked World

When corporations ruled, strategy was driven by acquiring assets and building capabilities. A firm could dominate through larger marketing budgets, better negotiating power with customers and suppliers and greater access to talent.  However, in a platform driven environment, enterprises must widen and deepen connections.

Let’s return to Blockbuster and Borders.  Both were highly efficient operators with ample resources and massive negotiating power.  Yet none of that helped them.  In fact, their vested interests in the retail platform, including leases, employees, franchisees (in Blockbuster’s case) and supplier relationships hindered their ability to migrate to the new platform.

An ecommerce business is not merely an online merchandiser with an alternative infrastructure.  New platforms require new skills and new perspectives.  Netflix and Amazon’s won not because they were necessarily better or smarter, but because they were unencumbered and therefore more able to build the skills that suited the new ecosystem.

An enterprise is no longer so much a collection of resources and capabilities as it is a set of platforms.

The Triumph Of The Commons

A long standing dilemma in economics is known as the tragedy of the commons.  Self interest, historically, tends to degrade community resources through over-utilization. However, in an economy driven by platforms rather than bureaucracies, just the opposite happens.

Traditional retailers, for example, cannot compete with the size and sophistication of  Amazon’s platform.  Through the Bloomreach platform, however, they can each benefit from analytics derived from common data, just as we all can find things easier on Google because of the millions of other people’s searches that train its algorithms.

In much the same way, technology companies are learning to put as much effort into their software development kits (SDK’s) and application programming interfaces (API’s) as they do into their products.  Today, a product without connections is a product without capabilities.

In a connected world, power no longer emanates from the top of the heap, but the center of the network.

– Greg

17 Responses leave one →
  1. April 12, 2015

    Seems there is a blog post titled “From tragedy to triumph of the commons” crying out to be written.

    [Reply]

    Greg Reply:

    Maybe:-)

    [Reply]

  2. John Tull permalink
    April 12, 2015

    While the (until recently) inconceivable amount of analytic data and connectivity possibilities available to anyone certain turn the “tragedy” on its head, the sheer asymmetry between what a budding rival can do to complete with an Amazon versus Amazon’s ability to “see” how to set terms to their unique benefit, seems to need to be addtessed before any conclusion of a potential triumph.

    [Reply]

    Greg Reply:

    I see what you’re saying John, but isn’t that exactly the issue? Very few retailers can compete with Amazon’s data advantage unless they have access to a collective platform like Bloomreach.

    – Greg

    [Reply]

    John Tull Reply:

    Necessary, Greg, but I don’t know how that can be sufficient.
    I don’t have the answer, but I wonder what else you think is required for a sufficiently comprehensive and robust collective eco-system to withstand the commercial hegemony that becomes possible with global platforms, patent walls and the like?

    [Reply]

    Greg Reply:

    In most cases, collective action wins out, but there’s no simple formula. Amazon aggressively innovates and improves its platform, so that helps it stay competitive, but if it faltered for a moment it would run into big problems.

    Also, it’s worth noting that Amazon isn’t a very profitable business, so its not like its platform is powerful enough to control pricing. If anything, it needs to undercut to stay competitive. The only truly good business that it has is the 3rd party sellers platform.

    – Greg

  3. gregorylent permalink
    April 13, 2015

    control of the network, back doors in the network, problematic .. … but baby steps so far do suggest hope .. on the way to emulating and aligning with the number on network, nature

    [Reply]

  4. April 14, 2015

    Hi Greg,

    As always, I find your posts to be thought provoking and exceedingly well-written.

    My latest post was inspired by your good work!

    https://www.linkedin.com/pulse/expanding-ecosystems-elevate-selling-robert-lesser

    All the best,

    Robert Lesser

    [Reply]

    Greg Reply:

    Cool! Thanks Robert.

    – Greg

    [Reply]

  5. April 14, 2015

    I am glad to have come across your work today, as it is a reassuring confirmation of the path I have mapped up for our brand. I am pleased to say “The Brand’s New Open Architecture” & “The Open Ecosystem” are very much in line with our plans. I would love keep you posted on our developments, leaving the door open for collective opportunities.
    Thank you for sharing your wisdom.
    Best regards,
    Oleg

    [Reply]

    Greg Reply:

    Thanks Oleg. Sounds exciting. Keep me posted.

    – Greg

    [Reply]

  6. Koen Vingerhoets permalink
    April 20, 2015

    I was dragged here due to a comment I read on twitter regarding this blog. It summarized as “In a connected world, power no longer emanates from the top of the heap, but the center of the network.”

    That’s old fashioned thinking, the “spider in the middle of the web” axiom. There is no spider, there even hardly is a web. What is the center of the internet? What is even the center of your personal network (it doesn’t have to be you – it’s ok to follow someone)?

    In a network, there is NO center. So what defines power then, if it isn’t about being in the center? Power is derived from the value one ADDS to the network, be it as a company or as a person.

    It’s some form of social validation: the more people rely on your added value, the more power you have. It works like respect… give to get. But even when you have the most power, still you don’t have to be in the center of the network.

    When you have visitors and invite them for dinner, you don’t have to sit in the middle of the table because you prepared their food.

    [Reply]

    Greg Reply:

    Thanks for your comment Koen. I can see why you would think that and, it is true for certain lattice based networks. However, network centrality is an important feature of most real world networks, especially small world networks that characterize social networks.

    Here’s the wikipedia entry on network centrality if you’d like to know more: http://en.wikipedia.org/wiki/Centrality

    [Reply]

  7. April 28, 2015

    Hi Greg,
    Arnoldo Hax, former Chair of Strategy at the Sloan School (MIT) outlined this in detail in his 2001 book The Delta Project. You can find it at http://amzn.to/1GBP7ZP
    I recommend it to you and your readers. Best, Ed

    [Reply]

    Greg Reply:

    Thanks for the tip Ed!

    – Greg

    [Reply]

  8. May 22, 2015

    Hi Greg, good reading but who owns the platforms? Future corporations and therefore power (in this circuit) stays where it is.

    [Reply]

    Greg Reply:

    Not really. Certainly, platforms, by virtue of their place in a network, confer influence, but that’s not the same as control.

    – Greg

    [Reply]

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