The Long View

Part 2: What Does It Mean to Be a Platform + Ecosystem Company?

Authored by Avanish Sahai, Tidemark Fellow and former ecosystem leader at Salesforce, ServiceNow, Google, this series explores winning strategies to build platforms and ecosystems.

In our first article, we explored core concepts around what a platform and ecosystem are, why they are becoming more prominent, and key questions to ask when considering a platform strategy. In this article we will take a deeper look at common types of platforms and the internal alignment and decision making required to bring these different types of platforms to life.

What are the various types of platforms for tech companies?

In the tech sector, “platform” can mean many different things. Here, we define some common platform approaches and historical examples:

  • APIs: Expose Application Programming Interfaces (APIs) to enable certain functions to be done quickly and easily (hiding the complexity from the developers). Examples include Twilio delivering Messaging APIs and Stripe for Payment APIs.

  • Common data models: Creating a “standard” definition of certain objects/content that becomes widely accepted and adopted. Examples include ServiceNow’s implementation of the Configuration Management Database (CMDB) for IT Assets and Services and Salesforce’s pioneering standardization of Contacts and Accounts for sales data.

  • Integrated Workflows: The ability to quickly and easily connect application flows while sharing underlying data/data models to create a more seamless experience. Salesforce’s Lightning App Builder and ServiceNow’s Now Platform accomplish this.

  • Platform as a Service: A holistic offering that enables developers to rapidly build applications by leveraging pre-built underlying services. AWS Elastic Beanstalk, Google App Engine and Salesforce’s Heroku are examples.

  • Infrastructure as a Service: Core infrastructure capabilities (databases, networking, and security) that can be used as building blocks to create the underlying stack on which applications can be built, providing greater control and flexibility to developers. Examples include Google Compute Engine and the core Amazon Web Services.

  • App Marketplaces: Offerings that expose any combination of the above to enable customers to discover, purchase, and install apps and integrations aligned with a certain platform. Salesforce AppExchange and Microsoft Azure Marketplace are examples.

These platform approaches are not mutually exclusive. Many companies provide a “mix and match” of multiple platform capabilities. Thinking about where you sit in the spectrum of platforms and where you see your users and customers engaging can help you to determine the right mix of capabilities.

Looking at the journeys of companies with successful platforms offers valuable insight into how a platform strategy can evolve over time.

  • Salesforce: App -> Multiapp -> Platform

Salesforce launched with Sales Force Automation (SFA) software. Over time, the company added applications for customer service and marketing. Underlying these applications was a common data framework around the customer; a natural step was to build a platform layer on/around the core applications to enable extensions of use cases and workflows.

  • ServiceNow: Platform -> App -> Multiapp + Platform

ServiceNow started out as a cloud platform in 2004, but it was a cloud platform before its time. The team then went back to the drawing board and built an application for IT Service Management (ITSM) which allowed it to flourish. They later expanded that application for other components of IT services including operations and monitoring, creating a billion dollar business. Now with incredible traction, they have returned to their platform roots, supporting the development of a range of Workflow applications for IT, Employees and Customers, built on top of their core cloud platform and integrating with hundreds of other tools and apps, all exposed via their marketplace, the ServiceNow Store.

  • Hubspot: App -> Multiapp - > Platform

Hubspot started as the “go-to” application for inbound, content-driven marketing. Based on the success of this offering, the company has since expanded into Sales and Customer Service, as well as content management and operations for SMB and mid-market customers. Hubspot, based on customer demand, has also built a substantial partner ecosystem that allows for customers to easily extend the core applications with offerings from partners (Disclosure: the author sits on the Hubspot Board of Directors.)

  • Amazon/AWS: Retail App -> Infrastructure Platform

Amazon famously started as a retail application and remained so for its first decade or so. While its retail app has become ubiquitous, many people may be surprised to learn that most of the company’s profits now come from its platform, an infrastructure Amazon offers to others to build on top of it - Amazon Web Services. Many applications and websites today run on AWS and its infrastructure services have grown into a $60 billion business.

  • Apple: iPhone -> App Store/Ecosystem

Apple’s iPhone is a gold standard example of how a successful platform can create network effects as we talked about in our first article. The more apps created, the stickier the platform becomes and it helps to drive adoption and create opportunities for aggregated merchandise, infrastructure service, and more.

  • Atlassian: Multi App (via M&A) -> Marketplace for Developers

Atlassian started out in Australia with developer-oriented products like Jira and Confluence. Over time it acquired numerous other products/companies (Bitbucket, Trello, etc.) and has become the de facto standard for in-house developers and software engineers to manage their development processes. It has since also built a thriving marketplace where 3rd party developers can list their own offerings and seamlessly sell their wares to Atlassian customers with pre-built integration hooks. This marketplace has resulted in over $1 billion in sales, with the developer community aggregating most of the value.

These examples underscore the myriad of entry points to a platform strategy. Going a level deeper, each type of platform brings a different set of decision making requirements and tradeoffs. What are the investment requirements? What will the go-to-market for the platform look like? Who will the primary customer/user target personas be?

Adopting a platform strategy requires alignment among decision making entities across the company. For boards, pursuing a platform is a core element of a company’s strategy. Platforms require investment and patience; becoming a platform doesn’t happen overnight. Internally, it is critical for teams like product, marketing, sales, partnerships, channels, etc. to have a shared understanding around what it means to be a platform. For example, there needs to be clarity on how to handle conflicts and how partner programs are built and executed.

Equally important is the ecosystem. Stakeholders need to have confidence in the platform from a quality, investment, and access perspective. It is also important to have acceptance within the ecosystem that the platform vendor, or orchestrator, may become a competitor at some point.

Once these internal and external components are aligned, how do you recruit partners to build on top of your platform and create value for your users? We will explore these strategic elements in our third article. Stay tuned!

Appendix: Platform + Ecosystem Players Consistently Outperform  

Platform + ecosystem players have consistently outperformed the broader market as shown in the below charts detailing the performance of platform indices vs. the S&P and NASDAQ over various time horizons.

No alt text provided for this image
No alt text provided for this image

Source: CapIQ (data through 11/01/2021)

Note: Pure-Play Platform Index (CRM, HUBS, NOW, TEAM, TWLO) and Broader Platform Index (AAPL, AMZN, CRM, GOOG, HUBS, IBM, MSFT, NOW, SAP, TEAM, TWLO, WDAY) based on weighted-average market cap methodology

Next up: Part 3 - How to Start, Scale and Think About Your Platform + Ecosystem

Avanish Sahai

Tidemark Fellow and Board member at Hubspot

The information presented in this post is for illustrative purposes only and is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by Tidemark or any of the securities of any company discussed. Tidemark portfolio companies identified above are not necessarily representative of all Tidemark investments, and no assumption should be made that the investments identified were or will be profitable. For additional important disclaimers regarding this post, please see “ Purpose of the Site; Not Investment Advice; No Recommendations” and “Regulatory Disclosures” in the Terms of Use for Tidemark’s website, available at Terms of Use (tidemarkcap.com).

Stay in the loop

Enter your details and be notified when we publish new articles on The Highpoint.

Thank you! Your submission has been received.
Oops! Something went wrong while submitting the form.