Beyond dashing a lot of plans to retire early or buy that Bay Area mansion, could Uber’s IPO debacle signal something more serious – the decline of a business model that’s dominated the tech (and, increasingly, non-tech) industry for a decade?
Even before the disappointing debut, some voices were warning that Uber-variety platform businesses – basically, any enterprise that creates a digital environment for different parties like buyers and sellers to interact – carry elevated risks of failure.
Views like these are especially notable because of the torrent of hype that preceded them. By some estimates platform businesses now account for seven of the top 10 biggest companies globally. Studies show an overwhelming majority of firms across a wide range of sectors now see digital platforms as an integral part of business strategy. Companies as august as GE and BNY Mellon have got into the business of platform-building. For some time the default message has been: platform or die.
Less talked about (at least until now) is that for every Lyft or Airbnb, there’s a Homejoy, and high-profile, supposedly transformational platform initiatives sometimes end badly. The Uber IPO will no doubt prompt more critical analysis of the platform model, and those previously isolated platform cynics may feel a little less lonely. But – as with so many other technologies that have generated excitement – the real issue may be less a fundamental problem with platforms, than misconceptions about what they are, and what they should be used for.
Beyond ‘build it and they will come’
There’s a lot that’s appealing about the idea of creating a great platform for people and/or enterprises to connect with each other and (paid) services; letting the network effect take hold; and watching the revenue roll in. Sometimes, that’s exactly the way it works. But there’s a few inherent vulnerabilities in this model too. First, as CB Insights has so aptly noted, is the persistent tension of trying to keep both sides of an equation happy – perhaps Uber’s biggest struggle is making drivers feel fairly compensated and riders feel like they’re getting a good deal at the same time.
Another is that network effect. Often to attract the kind of critical mass that makes a platform viable, companies try to either offer something that appeals to a broad range of users and throw the gates wide open; or constantly tack on new offerings or features to cultivate different user groups. The former (as Uber certainly knows) usually entails a low barrier to entry for competitors, particularly since the core technologies that enable platforms (like cloud computing) are rarely unique. With the latter comes expensive proposition of constantly innovating and expanding your technology infrastructure – and probably drifting away from whatever your core business was in the first place.
And that might just be the most dangerous misconception about platforms – that they should be designed exclusively to make users happy. They have to do that, of course, but as some experts have pointed out, platforms need internal purpose. In thinking about becoming more ‘digital’ and building a big user base, it’s easy for organisations to lose sight of the fact that platforms should also connect directly to their own goals, and help them do whatever it is they do better. If those connections are hard to draw, the enterprise is probably better off without one. The verdict on Uber might still be out, but if the IPO prompts a few organisations to reconsider platforms for platforms’ sake, it may have already created some value.