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Is Building a Platform Always the Right Call?

The “Platform Play” is an attractive but expensive strategy. Here are four questions to ask yourself before taking the plunge.

Most new technology solutions begin with the end-user in mind: a specific problem to be solved or opportunity to be exploited. It is usually well-defined and the solution (although not always simple and easy to create and execute) is fairly straightforward.

For example, light bulbs use electricity, electricity costs money and often relies on fossil fuels, so new light bulbs were created that use less electricity using new technologies. Over time, additional capabilities are added to the lighting solution, such as motion detectors and scheduling capabilities so the energy efficient lights become even more efficient by adding an operationally-driven layer of functionality. The lighting solutions company now needs a communications aspect of their solution enabling facilities managers and home owners to control these feature-laden lights, plus there is a demand for reports and before you know it the lighting fixture company is now a software company that happens to make some lighting fixtures on the side.

Increasingly no solution exists in a bubble. That lighting company (now a “smart” lighting company) realizes customers don’t just care about lighting, but also heating, cooling, security and all kinds of other things with absolutely nothing to do with lighting. But that customer doesn’t want seven different apps or dashboards or systems to learn and use and manage, they want to control world from one single place.

Queue Up the Platform Pitches
This is where a platform comes in – that single, magical place where multiple systems, solutions, thermostats, light bulbs and smoke detectors all sing “Kumbaya” and the customer doesn’t worry about who made the refrigerator, air conditioner or keyless card access system.

This is also where things get complicated for companies moving from the outside in, because while the lighting guys may think they should be the platform for everything (since you can’t see without the lights on), the HVAC girls believe it’s their job (because you would be frozen or melted without their stuff) and the fire prevention people have their own claim (since they keep your whole building from burning down in the first place).
And, by the way, there are some other people with their own platform solution who don’t even sell light bulbs, thermostats, refrigeration monitoring systems or automated parking attendant systems… they JUST want to sell a platform that manages all this other stuff!

The Pros & Cons of Platform Strategies
At this point a company has three basic options:

1. They could build a feature-rich platform integrated with several leading vendors in key categories and utilizing multiple “standard” APIs before jumping up and down while holding their breath insisting that customers MUST use their platform.

2. They could build that same platform while simultaneously ensuring their products work with other people’s platforms because, well, you win some and lose some.

3. Or they could take a good look in the mirror and say, “Hey, we got into this business to build lighting fixtures, why are we trying to boil the ocean?” and just make sure their lights work with as many platforms as needed to keep their customers happy and hit their sales quotas.

Taking the first option means “We may have started as a lighting company but we’re a platform company now” and, while the accounts they win might be bigger and more profitable, they will miss opportunities to sell point solutions into accounts where the platform decision didn’t go their way (or was made before they knocked on their door).

With option two, it’s a much more customer-friendly approach (we have this great platform, but even if you don’t want to buy it you can still use our lighting solutions), but they are still investing time and resources into building and maintaining that platform.
Following the third option, the company remains focused on its core competencies, plays nice with others and potentially grabs a larger market share or increases its margins by keeping out of the platform game altogether, but they remain a point solution rather than a holistic one.

Making the Right Platform Strategy Decision
There is obviously no “best” platform strategy, as it depends on many situation-specific variables. But here are some basic questions to consider before diving into the platform game:

What do we risk by NOT building a platform? Aside from obvious additional incremental revenue opportunities, companies must assess whether forgoing a platform play affects the core business.

Do we sell into multi-vendor environments? Rare is the market where customers buy all their stuff from the same vendor, even within the same solution category. If your lighting company is perfect for warehouses but doesn’t have an answer for offices, then your platform must operate in conjunction with office-appropriate lighting solutions as well. You’ve just increased your platform’s complexity before even starting to address other components of the building envelope.

Will the market perceive us as legitimate platform owners? Sometimes companies need to admit they are not as important in their customers’ eyes as they would like to be. The remote control garage door opener company is probably not viewed by the homeowner as the logical choice for their automated home network platform provider, just as a driver wouldn’t look to Michelin for their vehicle navigation and security needs.

What do we want to be when we grow up? Often the most challenging question, as it involves investors and egos and all kinds of things with little to do with making quarterly or annual numbers. A platform is often perceived as a path to increasing company valuation, but it also means building a much different company to get there.

It’s not always easy embracing the role of a peripheral player in a world of platform wannabes, but there’s no shame in delivering great solutions that simply do their job well. And when those platform companies start to inevitably “roll up” complimentary solutions, a company that hasn’t invested a ton of resources into building their own platform might be that much more attractive.

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