Why Platforms Scale Better Than Linear Businesses

May 23, 2019 Karli Langner

 

Ready or not, the death of the linear supply chain is upon us; platform businesses models are taking over. What exactly is the difference in a linear business and a platform business? Let's break it down:

 

Traditional linear  businesses take in raw materials, produce a product or service, then sell that to consumers. Inventory is owned by the business and it shows up on their balance sheets. Legacy businesses like GM, Gem Toyota were linear businesses.

 

Platform businesses use technology as an enabler of their business. A platform business facilitates the exchange of value between two or more groups, such as an end customer and a producer. Supply chain partners within the platform can connect, collaborate, and communicate over the network and automate business processes.

 

Let's clarify something; while technology enables a platform business, a platform is a business model, not a piece of software. A platform business focuses on the network, bringing more value to each business that is connected.

 

Why does anyone care about a "platform?"

 

Platforms facilitate "network effects" – the incremental benefit gained by a user for each user added to the network. The more entities on the network, the more value the users receive. Inventory is owned by third parties and is not on the balance sheet of the platform. Platform businesses have the advantages of being able to scale to a size that linear businesses can’t and have higher profit margins. Examples of current platform businesses include Facebook, Uber, and Amazon.

 

More information is on its way! Stay tuned to learn about the four core functions of platform businesses.

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