Why Platforms Beat Products Every Time

Is the product business model broken?

According to Professor Marshall Van Alstyne, Digital Fellow of the IDE, and moderator of the MIT Sloan CIO Symposium panel, “Platform Shift: How New Business Models are Changing the Shape of Industry and the Role of CIOs,” the answer is definitely yes.

Case in point: BlackBerry. While there remain some holdouts relying on their BlackBerrys, the numbers don’t lie: in 2009, BlackBerry had nearly 50% market share in U.S. operating systems, and now the company has 2.1% market share.

On the other hand, in 2013, 14 of the top 30 global brands by market capitalization were platform-oriented companies. These are companies that have created and now dominate areas in which buyers, sellers, and third parties are connected. In addition to the platform-oriented brands listed in the chart below, standout platform companies include Uber and Airbnb. They’ve each created innovative and disruptive business models that have drastically changed how consumers (and now businesses) secure transportation and lodging. (Read our previous posts related to Uber and Airbnb.)

But adopting a platform strategy is not limited to those organizations that are just or only websites and mobile applications. As Paddy Srinivasan, Vice President of Products at Xively and a panelist participating in the platform discussion pointed out, “Companies with physical products—such as lightbulbs—are exploring how to become platform companies.” Fellow panelist Bryan Kirschner, Director, Apigee Institute, attributes much of the innovation in the platform business model to the movement of companies to open up their APIs to create ecosystems.

Companies that can get closer to the customer and transform their traditional business models into platforms (or network models) will have a competitive advantage based on new insights into pricing, network effects, supply chains, and strategy. It’s no longer about simply selling a product, it’s about adding value and engaging the customer.

MIT Sloan Executive Education offers a program, “Platform Strategy: Building and Thriving in a Vibrant Ecosystem,” which explores the emerging platform business model. The course is led by Pierre Azoulay, Sloan Distinguished Associate Professor of Technological Innovation, Entrepreneurship, and Strategic Management and Catherine Tucker, the Mark Hyman Jr. Career Development Professor and Associate Professor of Marketing.

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This article originally appeared on MIT Sloan Executive Education’s innovation@work blog.