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2015 MIT Sloan CIO Symposium guide: Digital disruption

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Platform business model picks up steam -- what's the CIO role?

The platform business model develops and derives value from the ecosystem of users it connects. CIOs need to be in on it.

The platform business model, a rapidly growing economic force, requires a fresh take on how organizations build and manage IT architectures.

Interviews with academics, consultants and technology executives reveal that platforms represent a sharp departure from traditional product-oriented businesses and, accordingly, call for new thinking about IT infrastructure. While experts advance various platform business model definitions, there's general agreement on the main ingredients: a focus on external communities, a set of ground rules for community participation and an infrastructure that lets participants easily plug into the platform.

As Marshall Van Alstyne, an associate professor at Boston University and research associate with the MIT Initiative on the Digital Economy, puts it, "Products have features; platforms have communities." It's a formula that's driving some of the world's top companies. Moderating a panel during last month's MIT Sloan CIO Symposium, Van Alstyne noted that Amazon, Apple and Google -- all platform companies -- represent three of the top five companies as measured by market capitalization. Platform business models have proliferated beyond those seminal examples. Platforms now penetrate a range of industries and markets, including real estate (Airbnb), arts and crafts (Etsy), investment (Onevest) and even international cricket (CricHQ).

Marshall Van AlstyneMarshall Van Alstyne

The upshot for CIOs: expect to do things differently when it comes to platforms. The scope of change includes not only the way IT systems are designed, but also the very role of the CIO. The need for CIOs to collaborate with business-side peers only intensifies in a platform business model.

"You need to think about the platform, itself, as a business," advised Mark Bonchek, founder and chief catalyst at thinkORBIT, a Weston, Mass., company that advises clients on social business strategies.

Early-stage platforms and IT

John HagelJohn Hagel

The CIO's role in the early phases of a developing platform may be minimal, as the business focuses on cultivating the community the platform hopes to attract. John Hagel III, co-chairman of Deloitte LLP's Center for the Edge and author of the recent report, The Power of Platforms, points to the example of Li & Fung, whose platform orchestrates supply networks in the apparel industry. In its early days, the Li & Fung platform relied mainly on the telephone and fax to get off the ground.

"Some of the most sophisticated platforms we see, particularly around orchestration, are actually being done today with limited technology," he said.

Instead, emerging platforms tend to focus much more on defining a governance structure, Hagel explained. The governance structure, along with standards and protocols, address such issues as the process for admitting people who want to join the platform and how to resolve disagreements among participants.

"The starting point is thinking through, in a very systematic way, what are the governance structures, standards and protocols that … would help larger and larger numbers of participants join in and interact with each other and create significant value," Hagel said.

In a platform model, you are not just connecting your IT systems with other IT systems in the ecosystem; you are, to a large extent, creating the IT system for the ecosystem.
Mark Bonchekfounder and chief catalyst, thinkORBIT

"To do it properly requires not just the technology, but the right governance mechanisms," Van Alstyne added.

He said governance in the platform context is broader than IT governance: "It's ecosystem governance."

Van Alstyne said ecosystem governance not only covers the rules that define who gets to participate and conflict resolution, but also how the platform's value is divided. Platform owners who are reluctant to share the value discourage participation.

"You have to be generous in sharing that value … with the ecosystem," he said.

Hagel agreed: "There is a tendency in the platform owner to become too greedy and capture more of the value for themselves. Ultimately, the value is in the platform and if you discourage participation -- for engaging and investing more resources in the platform -- it will wither and die."

While such platform policies aren't necessarily IT-related, CIOs can still play a role at this early stage, Hagel said. He noted that CIOs are accustomed to dealing with the enterprise, promoting standards and sorting policy disconnects -- skills that apply to platforms, even in a non-IT context.

"They have experience with governance structures, standards and protocols," he said.

IT: Scaling the platform

As platforms grow, scale becomes an issue and IT begins to take on more of an enabling role.

Drew Butler, chief technology officer at Onevest, a platform that connects early-stage companies with accredited investors, said the fledgling platform's need for IT will eventually emerge as the company confronts the problems associated with scale.

"We tend to see IT as technical debt to be paid later when scale requires us to solve those problems," he said.

In the meantime, Onevest has yet to develop much of an IT culture, at least in the conventional sense. Butler said Onevest and other startups look to automate and outsource traditional IT through cloud services. Those services, he said, are more than good enough to meet its current needs.

"At some point, I recognize that scale will require us to move more of these in-house," Butler said.

When that time comes, Hagel said IT can serve as an enabler and an important force to help organizations scale their platforms, but the architectural form IT takes may look quite different in the platform setting.

Hagel said aggregation platforms, which he described as those that connect users to resources -- buyers and sellers in a marketplace, for instance -- are fairly straightforward in terms of IT implementation within an enterprise. But he said the technology issues become more challenging in emerging mobilization and learning platforms. Those platforms aim to coordinate very complex, long-lived interactions among platform participants -- as opposed to short-term transactions. A mobilization platform, for example, moves participants to "act together to accomplish something beyond the capabilities of any individual participant," Hagel noted in his platform report. Li & Fung fits this pattern, he noted, since the platform lets participants collaborate on extended business processes.

Elements of platform business models

  • Governance structures, protocols, standards: The IT governance structures familiar to CIOs become "ecosystem governance" in the platform business mode.
  • Policy servers, integration servers, recommender servers: As the platform's community grows, so does the need for technology that automates the rules, for example, on who gets to participate and on conflict resolution.
  • APIs: Application programming interfaces are the gateway to the platform's community, allowing the business to connect to customers and customers to connect with each other.

"To really effectively create and scale those kinds of platforms, particularly if you are talking about them beyond an individual enterprise, you have to go to a very different technology architecture," Hagel said.

He noted traditional architectures evolved from the inside out. That is, they began with centralized mainframes, then added departmental computers and desktops, and eventually supported connections with external business partners. The enterprise, conceived as an independent, individual unit, drove the inside-out architectures, which focused for the most part on transactional activity. Hagel suggested that the newer platforms, which need to support thousands of partners and accommodate long-lived interactions, call for an "outside-in" architecture.

"We are still at the very early stages of thinking about those kinds of architectures, much less deploying them at scale," Hagel said.

In Van Alstyne's view, platforms represent another shift in IT systems, which originated in the back office with ERP, ventured to the front office with CRM and are now "moving out of the office."

This outward-facing approach to IT architecture blurs the lines of distinction among the platform owner's system and those of its business partners.

Mark BonchekMark Bonchek

"The permeability of one's IT systems in a platform world causes a challenge to traditional mindsets, and creates a need for a shift in thinking," Bonchek said. "We are accustomed to thinking about a clear delineation between one's own organization and others. But in a platform model, you are not just connecting your IT systems with other IT systems in the ecosystem; you are, to a large extent, creating the IT system for the ecosystem."

Key IT components

While architectures continue to evolve, companies are rolling out their platforms in the here and now. CricHQ, a New Zealand-based company, operates a platform that provides scoring services and information for the international cricket community. Cricket, with a fan base reckoned to be the second largest in all of sports, is a "very complex game," but the scoring process for the most part has been done on paper, noted Simon Baker, founder and CEO of CricHQ. The company in June secured funding from Tembusu Partners, a Singapore-based private equity firm, to build upon its platform and expand globally.

Simon BakerSimon Baker

Cricket teams and officials use the platform to submit score cards and manage leagues. Fans can look up scores and peruse player statistics. And since the platform captures match and player data, it also provides performance insights for coaches and players, according to CricHQ.

"Our platform allows for crowdsourced, curated cricketing information from across the globe," said Madanagopal Ramachandran, CricHQ's CTO.

CricHQ's platform combines a number of technologies, including Agile methodologies and service-oriented architecture principles, according to Ramachandran. He said the platform's main IT applications include its website and mobile apps for Android and iOS.

As for scalability, the CricHQ platform partners with infrastructure as a service suppliers "who provide us with the tools we need to handle ever-increasing capacity," Ramachandran said.

An API is another IT aspect of the CricHQ platform. The company's RESTful API provides access to player statistics, live match information, scorecard analysis, competition information and others forms of data to external clients and businesses, Ramachandran said.

Consultants view APIs, in particular, as key to platforms and digitization. A Forrester Research brief published in June referred to APIs as "perhaps the most critical technology in digital business."

The report, Four Ways APIs Are Changing Your Business, noted that APIs "underpin dynamic ecosystems of value and allow you to connect to new customers." The main idea: APIs make it easier for communities to participate in the ecosystem.

Other IT elements for bolstering a platform business model include policy servers, according to Hagel. The potential for conflict increases as the number of platform participants -- each with their own policies and procedures -- expands. The policy server, Hagel noted, automates the process of resolving policy differences.

Hagel also views "interaction servers" as another piece of emerging platform architectures. Such servers would provide end-to-end monitoring of long-lived interactions and quickly respond to disruptions to those interactions, he said.

A recommender system ranks as another important platform component, Van Alstyne said. Recommender systems point consumers to everything from web pages to apartments in the case of Airbnb.

"A recommender system is a big piece of doing this correctly," Van Alstyne said.

The CIO's role

As a platform begins to accumulate IT components, the CIO plays an increasing role in guiding its evolution, industry executives said.

Rick FitzgeraldRick Fitzgerald

"The key to this transformation will be two items: First, having a clear and defined vision that you are trying to achieve, and secondly, ensuring you have the right staff and skills to enable the transformation," said Rick Fitzgerald, senior vice president and CIO of MedAssets.

MedAssets' supply chain management platform coordinates more than $4 billion in purchases annually for more than 800 healthcare facilities.

Ramachandran, meanwhile, sees technologists as product-builders in the platform business model: "I believe the role of CTO is to take what are original business ideas and turn them into products using the technology at our disposal."

Modern startups, in general, are more focused on product development, Onevest's Butler observed.

"As a CTO, I consider myself more of a product leader than a systems architect," he said.

Platforms also place a premium on collaboration within the enterprise, more so than with previous business models.

"In traditional enterprises, an IT department has more of a non-essential role, supporting other areas of the business," Ramachandran said. "With CricHQ's digital platform forming the basis of our business model, collaboration with other areas of the business is essential to align our product development with the company vision."

Next Steps

For more on the CIO role in digital business, see John Moore's story on how IoT is forcing CIOs to take on operational technology.

This was last published in June 2015



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Essential Guide

2015 MIT Sloan CIO Symposium guide: Digital disruption
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