How To Evolve a Product Company To A Platform

By Erik Zambrano

Bigger factories making more products shipping to more countries – vertical scalability is the model that might come to mind when you think about how product-oriented companies typically grow. When we’re talking about digital companies & products, this model looks a little different and leans more towards horizontal scalability – pivoting from a product-oriented company to a platform-based one is becoming a more and more common method of generating growth in the digital age. To illustrate this trend, let’s take a look at a few examples of companies that started out with a product that they then leveraged into a development platform.

Amazon

It’s hard to imagine that the biggest online retailer in the United States began as a simple online bookstore, but Jeff Bezos accomplished exactly that, meticulously cultivating Amazon’s growth from day one. As a merchant bookseller in 1995, Amazon had ready access to wholesale-priced books and benefitted from the huge advantage over traditional book retailers of operating without the costs and limitations of a brick and mortar storefront. Being able to get any book you want at a lower price than at the shop around the corner made Amazon a particularly attractive option for many consumers, and focusing on this lone enterprise helped Amazon develop a loyal, resilient consumer base that grew organically with the company. In 2000, Amazon launched Amazon Marketplace, which allowed third-parties to sell merchandise, in an integrated fashion, on Amazon’s website. While this meant that Amazon the retailer suddenly had a lot more competition, Amazon as a whole became much more valuable through collecting royalty payments without having to hold inventory or incur other logistical costs on any third-party transactions. Adopting the platform model allowed Amazon to achieve a higher volume of transactions with a lower cost per transaction making it the powerhouse it is today.

Square

When you picture the process of making a purchase at a store using a tablet or phone, you likely picture the ubiquitous small, white, Square card reader. The strength of Square’s initial product, Square Reader, is such that their brand is essentially synonymous with mobile card-readers in general. What Square realized, however, is that while they built one highly successful product, it is replicable by other payment companies, such as PayPal. Building off their initial premise of making life easier and more cost-effective for small businesses, Square has created the Square App Marketplace, which provides Square clients with a pool of third-party offerings that integrate easily with Square. The tools available in the marketplace are designed to give small businesses a one-stop-shop for everything they need, ranging from products like Intuit QuickBooks (accounting) to TaxJar (tax compliance) to Weebly (website & ecommerce) to Shopventory (inventory), all revolving around Square as the central commonality. By connecting small businesses with third-party services (that integrate with Square) via the Square App Marketplace, Square is ensuring that more facets of more small businesses are connected to Square, which means more small businesses will see Square as an integral component of their success.

Intuit

Mentioned above for the QuickBooks integration with Square in the Square App Marketplace, Intuit has taken a similar approach to expanding their own reach by making QuickBooks Online an open platform while promoting developer.intuit.com and the QuickBooks App Store, an online marketplace for third party developers to sell their applications to small businesses. Knowing that Intuit’s QuickBooks has a huge user base makes it an appealing place for developers to publish their apps – this, in turn, has allowed Intuit to benefit from hosting the marketplace platform on which consumers and developers make transactions. This strategy has prompted strong growth for Intuit – in 2015, for the first time in Intuit’s 20 year history, more small businesses chose the cloud-based QuickBooks Online version over the traditional desktop version. Through 2014-2015, the number of active developers grew more than tenfold, and the number of apps that worked with QuickBooks jumped from 125 to over 900. This type of growth was not an accident, and reflects Intuit’s wise choice to pivot to a platform model.

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Filed under: Platform Innovation | Topics: enterprise hacks, enterprise innovation, platforms