Platform Revolution

As you’ve seen in the previous chapters of this book, platforms have been transforming entire sectors of the economy, marginalizing incumbents and enabling small startups to rise rapidly to global dominance. It’s rare to see a single new business model sweep the field in so many industries so quickly.

Still, you might be feeling that we’ve been overstating the impact of the platform, at least a bit. After all, hasn’t the platform revolution so far been restricted to a relative handful of sectors? Many of the most important aspects of our economy, our society, and our lives—education and government, health care and finance, energy and manufacturing—appear largely unaffected by the rise of the platform.

That’s true—so far. But these and other arenas are already seeing the encroachment of platform business models. In the years to come, we believe it’s likely that platform businesses, while not claiming control of every aspect of these economic sectors, will stake out significant areas of influence in all of them. In this final chapter, we want to sketch some of the future trends that are already taking shape and that you will want to be aware of as you make plans for your own future.

In our research into the disruption of industries by platforms, we’ve noted characteristics that make a particular industry especially susceptible. Here are some of the types of businesses that are most likely to join the platform revolution in the years to come:

• Information-intensive industries. In most industries today, information is an important source of value—but the more crucial information is as a value source, the closer the industry is to being transformed by platforms. This explains why media and telecom are two of the industries that have already been disrupted so thoroughly by platforms. New entrants have created ecosystems that can create and disrupt content and software more quickly and easily than large firms with thousands of employees once did.

• Industries with non-scalable gatekeepers. Retailing and publishing are two examples of industries that traditionally have employed expensive, non-scalable human gatekeepers—buyers and inventory managers in the case of retail, editors in the case of publishing. Both are already undergoing disruption thanks to the rise of digital platforms, with millions of producers (artisans, craftspeople, writers) creating and marketing their own goods through platforms like Etsy, eBay, and Amazon.

• Highly fragmented industries. Market aggregation through a platform increases efficiencies and reduces search costs for businesses and individuals looking for goods and services created by far-flung local producers. Platforms ranging from Yelp and OpenTable to Etsy, Uber, and Airbnb have made it easy for customers to visit a single source to gain access to thousands of small suppliers.

• Industries characterized by extreme information asymmetries. Economic theory suggests that fair, efficient markets require that all participants have equal access to information about goods, services, prices, and other crucial variables. But in many traditional markets, one set of participants has far better access than others. Used car dealers, for example, knew much more about the condition and history of the cars they sold, as well as about supply and demand variables, than their customers—hence the distrust in which they were held. Data aggregating and sharing platforms such as Carfax are now leveling the field, making detailed information about used car values available to anyone willing to pay a small fee. Other markets where information asymmetries have made fair dealing difficult, from health insurance to home mortgages, are ripe for similar changes.

Based on the factors above, one may question why banking, health care, and education continue to be so resistant to transformation. All three industries are information-intensive. (Health care may seem like a service-intensive industry, but all of its efficiencies are powered by information.) However, industries that might seem to be susceptible to platform approaches, yet are likely to be resistant to such disruption, have certain other characteristics. These include the following:

• Industries with high regulatory control. Banking, health care, and education are all highly regulated. Regulations favor incumbents and work against the interests of startups trying to unlock new sources of value. Emerging platforms are starting to attack this problem in an effort to create new sources of value, but regulatory control is holding them back.

• Industries with high failure costs. The costs of a defaulted loan or matching a patient with the wrong doctor are much higher than the cost of showing inappropriate content on a media platform. Consumers are reluctant to participate on platforms when the perceived costs of failure are high.

• Resource-intensive industries. Resource-intensive industries have typically not been dramatically affected by the Internet. Winning participants in these markets still depend on their access to resources and their ability to manage efficient, large-scale processes such as mining, oil and gas exploration, and agriculture, in which information has a limited role to play.

The impact of these factors will change over time. As more and more processes and tools get connected to the Internet, every industry has the potential to become an information-intensive industry. For example, resource-intensive industries like mining and energy will increasingly need to leverage the power of platforms, creating efficiency gains and faster learning by connecting their resources—material, labor, and machines—over a central network to coordinate workflows. Over the next few years, we will see the start of transformation in large resource-intensive companies as they leverage platforms toward greater efficiency gains.

Even as we consider the relative likelihood that various industries will be susceptible to platform transformation in the near future, let’s bear in mind that industry boundaries are becoming increasingly porous due to the impact of platforms. Think about the advertising industry, for example. In a world of pipelines, businesses’ access to consumers was limited to media and retail channels: television networks, newspapers and magazines, department stores. Very few businesses could afford to own their own direct-to-consumer channels for promoting their goods and services. By contrast, in today’s world of Internet-powered platforms, any business can engage with consumers directly, capturing data about their preferences, connecting them with external producers, and offering personalized services that provide individual customers with unique value.

In effect, every company can now be an advertising company. Uber, for example, has the potential to be the world’s largest hyperlocal advertising business. Through its rider data, Uber can gain unique insight into where users live, where they work, when and how often they commute, and many other such aspects of behavior. The company could use such data to connect users with local merchants. Many other kinds of companies with vibrant platforms, from banks to retailers, could employ a similar strategy.

The power of the platform is modifying—even erasing—many other, similar barriers that once separated industries from one another. Thus, one of the most dramatic effects of the rise of the platform has been the emergence of unexpected new competitors from seemingly unrelated industry sectors. Bear this in mind as you consider the possible future impact of the platform model on your own industry, whatever it may be.

With these insights in mind, let’s consider some of the most plausible and intriguing future scenarios for the expansion and evolution of platforms in specific sectors of the economy.

Education is perhaps the prime example of a major industry that is ripe for platform disruption. Information-intensive? Check. In fact, the fundamental product being sold by schools, colleges, and universities is information of various kinds. Non-scalable gatekeepers? Check. Ask any parent whose child has recently had to navigate the slow, complex, inherently arbitrary process by which a lucky handful of students are admitted to the most prestigious and selective colleges, and you’ll hear plenty about the shortcomings of some of the world’s most powerful gatekeepers. Highly fragmented? Check. Within the United States, there are over 13,000 public school districts, as well as thousands of private school systems, colleges, universities, and proprietary schools, each fiercely independent and proud of its unique programs and standards. Information asymmetry? Check. Only a small percentage of parents feel competent to judge the qualifications and reputations of schools and colleges—hence the proliferating, competing, and confusing array of rating systems and the ever-increasing pressure on students to earn entry to the handful of institutions that are universally admired—the Harvards and Yales of the world.

With millions of families forced to negotiate this non-system system every year, it’s no wonder that most emerge frustrated and uncertain as to whether or not they’ve found the right school for their child. Then factor in the unsustainable cost inflation that education has experienced in the U.S.: having grown by twenty-five times over the past fifty years, higher education spending has skyrocketed even faster than health care spending. The overall picture is of an industry under tremendous pressure to change so as to deliver better value for the dollars being invested.

The drive to build education platforms is well under way, as businesses like Skillshare, Udemy, Coursera, edX, Khan Academy, and others suggest. Eager to avoid being rendered irrelevant or obsolete by upstart platform companies, a number of the world’s greatest universities are moving to position themselves as leaders in this educational revolution. Institutions including Harvard, Princeton, Stanford, the University of Pennsylvania, and many others are offering online versions of some of their most popular classes in the form of “massive open online courses” (MOOCs)—many in partnership with companies like Coursera.

In the years to come, the spread and increasing popularity of teaching and learning ecosystems will have an enormous impact on public school systems, private schools, and traditional universities. Barriers to entry that have long made a first-class education an exclusive, expensive, and highly prestigious luxury good are already beginning to fall. Platform technologies are making it possible for hundreds of thousands of students to simultaneously attend lectures by the world’s most skilled instructors, at minimal cost, and available anywhere in the world that the Internet is accessible. It seems to be only a matter of time before the equivalent of a degree from MIT in chemical engineering will be available at minimal cost in a village in sub-Saharan Africa.

The migration of teaching to the world of platforms is likely to change education in ways that go beyond expanded access—important and powerful as that is. One change that is already beginning to happen is the separation of various goods and services formerly sold as a unit by colleges and universities. Millions of potential students have no interest in or need for the traditional college campus complete with an impressive library, a gleaming science lab, raucous fraternity houses, and a football stadium.

The traditional university makes education available to a select few: professors with specific, laboriously obtained academic credentials and highly qualified students with the time and money to invest in campus life. For this relative handful of people, the old model of education may work well. But education platforms like Skillshare make high-level teaching and learning available to thousands who can’t or won’t fit the traditional mold. Suddenly, brilliant instructors and eager learners can find one another anywhere, anytime. It’s a priceless opportunity that the online platform makes available at a tiny fraction of the traditional cost.

Education platforms are also beginning to unbundle the process of learning from the paper credentials traditionally associated with it. As of 2014, statistics show that only about 5 percent of students who enroll in MOOCs receive certificates of completion—a data point that has led many to conclude that online teaching is ineffective. But a study of more than 1.8 million MOOC enrollees at the University of Pennsylvania found that 60 percent of students become actively engaged with the course content, watching class videos, connecting with their peers, and completing one or more assignments. The researchers concluded that “students treat MOOCs like a buffet, sampling the material according to their interests and goals.”¹ As students gravitate to MOOCs—especially those that teach specific work skills, like the many online courses in fields such as software engineering, design, marketing, and film editing—they appear to be more interested in the real-world abilities they are honing than in such traditional symbols of achievement as a class transcript or a diploma. A high ranking on TopCoder, a platform that hosts programming contests, will earn a developer a job at Facebook or Google just as fast as a computer science degree from Carnegie Mellon, Caltech, or MIT. Platform-based students for whom a conventional credential is important can often make special arrangements to receive one—for example, at Coursera, college credit is a “premium service” you pay extra for.

The platform-based unbundling of educational activities is separating the teaching of specific skills from reliance on vast, multipurpose institutions like traditional universities. Duolingo uses a crowdsourcing platform to teach foreign languages. Its founder, Luis von Ahn, is a computer scientist who never studied language instruction. After reading the most respected books on the topic, he performed comparative tests of the leading theories using the crowds that visited his website and an evolving set of testing tools to measure the results. Today, more people are using Duolingo to learn a language than all the students in high school in the U.S. combined.²

Duolingo separates language teaching from traditional educational institutions. The same thing is happening with the teaching of programming on TopCoder, marketing on Salesforce, or guitar on Microsoft Xbox.

Learning platforms are facilitating many other experiments with the form, structure, and substance of traditional education. For example, the Minerva Project, launched in September 2014, with an initial class of thirty-three students, aims to replace the traditional liberal arts college with an online platform that allows students to attend interactive seminars with professors located anywhere in the world. The students themselves will live for a year at a time in dorms in various cities—San Francisco, Berlin, Buenos Aires—where local cultural, professional, and recreation facilities will be incorporated into the curriculum. Minerva hopes to grow to admit some 2,500 students per year, each paying a total fee of around $28,000 (including room and board)—about half the cost of attending a selective college or university.

“The Minerva boast,” journalist Graeme Wood observes, “is that it will strip the university experience down to the aspects that are shown to contribute directly to student learning.”³ Will Minerva succeed? Only time will tell. But whether it does or not, many other educational experiments are sure to follow. The flexibility and power of the platform to facilitate connections between teachers and students makes this virtually inevitable.

The long-term implications of the coming explosion in educational experimentation are difficult to predict with certainty. But it wouldn’t be surprising if many of the 3,000 colleges and universities that currently dominate the U.S. higher education market were to fail, their economic rationale fatally undercut by the vastly better economics of platforms.

Like education, health care is an information-intensive industry that features non-scalable gatekeepers (in the form of insurance company networks and much-in-demand physicians whose referrals are needed before any consultation can occur), a high degree of fragmentation (among hospitals, clinics, labs, pharmacies, and millions of individual practitioners), and enormous information asymmetries (thanks in part to professionals who sometimes encourage an attitude of “doctor knows best” among patients who are often overwhelmed by the complexities of modern medicine). And like education, health care is an industry widely felt to be in crisis, particularly in the United States. The fragmented U.S. health care delivery system imposes huge costs in missed diagnoses, garbled data, wasted time, and squandered resources.

In its simplest form, the platform model can make accessing health care faster and more convenient by providing an Uber-like interface that permits people to summon medical help wherever they are. Such a system has already been launched in several cities, including Miami, Los Angeles, and San Diego, by a company called Medicast. Click the Medicast app, describe your symptoms, and a physician is guaranteed to arrive within two hours. The service is popular among doctors who want to earn a few extra dollars during their off-hours.⁴

But the potential impact of the platform model on medicine goes far deeper than such basic one-off interactions. In fact, the platform revolution offers huge opportunities to remedy many of the problems that plague American health care. Connecting all suppliers—as well as health care consumers themselves—in a hyperefficient platform has the potential to revolutionize the system.

One of the early harbingers of the kind of change we can expect in the decades to come is the enormous popularity of mobile health care apps and wearable fitness devices linked to networks that provide analysis and information based on the personal data generated. Millions of Americans are already demonstrating that they are comfortable having electronic tools measuring their pulse, blood pressure, activity levels, sleeping patterns, and other health indicators, as well as sharing this information with a software package that can offer diagnostic readings and customized advice. Expanding and enhancing this approach can help shift the emphasis of the health care system from curing or managing illnesses—often diagnosed late and treated at very high cost—to preventing them.

It’s also easy to envision a platform that could help individuals manage such chronic—and costly—health care problems as diabetes, hypertension, heart disease, asthma, allergies, and obesity. For example, a wearable device could track a diabetic’s nutrition intake, exercise regimen, and blood glucose levels; use the data to describe and explain recommended treatments based on past medical experience and history; and alert a clinician when warning signs of an impending medical crisis arise. One analyst estimates that such a platform could reduce the national investment in diabetes management by at least $100 billion per year.⁵ Extend the same logic to the other chronic illnesses that affect tens of millions of Americans—and which our current pay-for-service health care system manages poorly—and the potential cost savings could skyrocket … to say nothing of the thousands of lives that would be extended and improved.

Even greater benefits will be realized when one or more platforms emerge that are capable of integrating a wide range of health care data from multiple sources—not just wearable sensors but also patient input and electronic health records generated and maintained by service providers. Developing a platform that is accessible both to patients and to an array of professionals—physicians, nurses, technicians, therapists, pharmacists, insurance carriers, and others—while still protecting patient confidentiality will represent a crucial challenge. As health care consultant Vince Kuraitis notes:

Many healthcare value propositions will be dependent on broad networks and platforms. If you had high blood pressure and needed to manage your own care with support from your physician, what good would it be if your lab values were on one platform and your medications were listed on another, non-interoperable platform? If you were traveling and went to a hospital emergency room, what good would it do you if your health data was stored on a network not accessible by the hospital?⁶

Many of today’s leading technology companies are already beginning to position themselves for the coming battle to dominate the health care platform business. Microsoft, Amazon, Sony, Intel, Facebook, Google, and Samsung have all launched platforms designed to stake out at least one corner of the rapidly growing fitness–health care space.

One intriguing entrant is Apple’s HealthKit app, announced in mid-2014, which allows a range of health and fitness apps—including those from outside providers like Nike—to share data with one another. Apple announced plans to work with the famous Mayo Clinic and other health care companies to develop systems that would allow data from HealthKit to be shared with physicians and other caregivers (with appropriate privacy safeguards). And in early 2015, Apple unveiled its new Apple Watch, which boasts an array of health and fitness tracking, measurement, and communication tools.

Under the circumstances, it’s not surprising that, according to consultant Kuraitis, Apple has been hiring a large number of professionals to staff up its health platform business—including many with MD and PhD degrees. It seems clear that, within the next decade or two, at least one giant platform business will become a major player in the U.S. health industry. Apple is one of the companies with its eyes fixed on that goal.

The transition from today’s fragmented health care system to an efficient platform-based system will not be easy. The barriers to health care platform development include economic and managerial forces that discourage the sharing of patient data and services. These forces help to explain, for example, why the implementation of electronic medical records mandated by the Affordable Care Act (2010) has been poorly managed, with record systems so customized by institution that two hospitals in the same community are often unable to share data regarding the same patient. The problem is exacerbated by the financial incentives for health care organizations to keep each patient within a single medical “home.” Many patients are mandated by their insurance carriers to seek services within one health care system, usually defined by geography—an approach that is untenable for patients who are highly mobile or transient, like many young adults.

Furthermore, there is huge variability in how clinicians interact with the health care system. Some are employed by hospitals or other large institutions, which means they usually enjoy relatively easy access to platform data. Others are employed by the government, which means that the platform data they generate are accessible to the government but not to others. Still others are privately employed, which means that the platform data they produce are extremely fragmented.

Until financial incentives are aligned to encourage universal sharing of patient services and data, the growth of platforms within health care may be slow. Helping to bring about this alignment should be a key focus of regulators and industry leaders.

In a world driven by vast amounts of energy—and in which the supply and usage of energy are intimately linked to such crucial factors as global climate change and international geopolitical conflict—we can’t afford to squander the energy supplies we have or use them in ways that harm the natural environment. That’s where platform technologies can make a big difference. The electrical energy grid, fueled by sources that include coal, gas, oil, water, wind, solar, and nuclear power, has long been a giant interconnected network of complex technologies. However, it’s a network plagued by numerous costly inefficiencies, such as the mismatch between supply and demand caused by variability of energy use over the course of a day and across seasons of the year. The more fully we can convert this network into an intelligent, interactive ecosystem of participants who can produce, share, conserve, store, and manage energy wisely together, the greater the value we can extract from our energy resources—and the healthier the world we’ll pass on to future generations.

Today, energy companies and government authorities around the world are working with scientists and engineers to implement “smart grid” technologies that are improving the use and control of energy through digital systems for measuring, communicating, analyzing, and responding to vast amounts of data. Enhanced electrical metering tools are making it easier to implement variable pricing systems that improve the responsiveness of the system to variations in demand, encourage conservation, and smooth out fluctuations in energy availability and use. Decentralization is reducing the grid’s reliance on a few vast production facilities, increasing reliability, decreasing vulnerability to sabotage or disaster, and making it easier to distribute energy produced by consumers using wind turbines, photovoltaic panels, and other small-scale systems.

These changes prefigure the interactive network that is likely to shape tomorrow’s global energy marketplace. In effect, we’re migrating from the one-way pipeline model of energy production and distribution to a platform model, in which millions of individuals and organizations are interconnected and able to play varying roles as circumstances change—consuming energy one moment, producing and selling it the next. Centralized production and control of energy by a few massive utilities will in time give way to millions of small producer–consumers, many as modest as a single solar panel on a family’s rooftop.

Continued technological breakthroughs will drive this transformation. Battery technology, for example, will play a crucial role. The leading sources of renewable energy, wind and solar, are both intermittent, which leads to mismatches between supply and demand. More efficient rechargeable electrical storage batteries could provide an answer. Tesla, most famous for its electric vehicles, is currently building a so-called gigafactory in Nevada that is expected to manufacture a new generation of powerful batteries that are capable of supplying energy to a home for up to two days. Sister company SolarCity—run by a cousin of Tesla chairman Elon Musk—which already controls 39 percent of the residential solar market, has announced that, within a decade, all of its power units will come complete with battery storage.

The disruptive potential of this technology for the traditional utility industry is enormous; in fact, a 2013 report by the Edison Electric Institute warned, “One can imagine a day when battery storage technology or micro turbines could allow customers to be electric grid independent.” Energy analyst Ravi Manghani foresees a day when today’s energy utilities become “something closer to service providers and minders of an increasingly distributed grid rather than the centralized power producers they are today.”⁷

It’s a pattern we’ve seen being played out in every corner of the world of platforms: power, which once flowed in a single direction from a central source, is increasingly shared and controlled by millions of market participants. The shift applies to the literal power that flows through electrical lines as well as to the metaphorical kinds of power traditionally wielded by corporate chieftains.

The missing link in the transformation of the energy industry has been a platform that permits large-scale energy transactions. That is beginning to change. The state of California now allows bundlers of distributed energy resources to offer those resources on the wholesale market, and, as we discussed in chapter 4, the state of New York is considering the development of a platform dedicated to the management of distributed energy resources. By mobilizing existing distributed resources, systems like these should facilitate the integration of clean renewable power to accommodate the inherent variability in energy demand.

What is unclear is whether current stakeholders in the energy industry will embrace the emergence of energy platforms or engage in drawn-out regulatory battles in an effort to preserve their current advantages. The challenge for regulators will be to design a system that benefits as many stakeholders as possible—including the future generations that are counting on us to leave them with both adequate supplies of energy and a clean, healthy environment.

In a sense, the earliest forms of money—historically documented at least as far back as the Babylonian Code of Hammurabi in the second millennium BCE—represented the first platform businesses. Money is a form of value accepted by all the participants in a particular economic system, who thereby constitute an interactive network able to engage in transactions with one another for mutual benefit. So the world of finance—payment, currency, credit, investment, and the myriad transactions these generate—has always involved platform-like behavior.

Today, online financial platforms like PayPal and Square have created new ways of conducting payment transactions (online in the case of PayPal, mobile and app-based in the case of Square), which in turn open doors to the creation of new categories of merchants. Just as the invention of money some four thousand years ago facilitated astonishing new flexibility and economic growth, the new digital platforms for financial transactions are encouraging thousands of participants to become producers and sellers as well as consumers.

Financial platform companies are also working on unlocking new forms of value hidden within transaction data itself—something that only the new digital tools for gathering and analyzing that data make possible. Knowing who has transacted with whom can help companies discover consumer tastes and spending habits, information they can leverage to generate still more economic activity. For example, MasterCard is a venerable platform business that today operates a financial ecosystem linking two billion cardholders to 25,000 banks and more than 40 million merchants around the world. Now its technology R & D division, known as MasterCard Labs, is experimenting with payment mechanisms that are focused on creating new opportunities to expand the platform’s usefulness. Leveraging contextual data captured on the platform, these new tools encourage users to transact by determining the next possible payment opportunity, prompting the user toward it, and facilitating the interaction. ShopThis!, for instance, is a MasterCard Labs innovation that lets magazine readers click on an embedded app to instantly purchase an item they’ve read about from an affiliated retailer, such as Saks Fifth Avenue.⁸

Other familiar financial platforms—many of them traditionally quite conservative in their business culture as well as significantly constrained by regulation—will be pushed to develop innovations based on the latest platform technologies. Commercial bankers, for instance, have been closely monitoring the rise of online peer-to-peer lending communities like Zopa and Lending Club, which are facilitating billions of dollars’ worth of financial transactions and providing credit while bypassing traditional gatekeepers. Peer-to-peer lending platforms have the potential to be particularly disruptive because of their ability to identify patterns in lending and borrowing from the troves of digital data they collect. Using these patterns, these platforms may be able to do a better job of identifying behaviors that predict defaults and fraud than traditional banks that rely on a static set of data markers. Partly for this reason, Lending Club is able to offer most borrowers a lower interest rate on their loans than that available from a traditional bank—while lenders earn a higher return than they would get from most conventional investments.⁹ Over time, commercial banks will be driven to adapt the same big-data tools that peer-to-peer lending platforms are using to measure and control risk.

Alternative sources of funding for businesses are also creating new competition for banks. Platforms such as AngelList allow investors to join syndicates that offer funding to early-stage startups in exchange for equity participation. While these applications are themselves still at an early stage of development, they suggest the kinds of new investment models that platforms are making possible.

Platform-based data analysis tools can also be used to enhance the marketing of financial products. Personal finance platforms such as Mint have begun gathering and analyzing data about users’ financial status, challenges, and goals that can enable financial institutions to target them with products designed to cater to their specific needs. Well-designed financial platforms can do a better job of consummating mutually beneficial matches between financial services and the consumers who need them than traditional sales and marketing channels have done.

Even more important, traditional financial institutions are beginning to use platform models to expand the reach of their services to segments of the economy that they formerly could not touch. For example, banks are leveraging platforms to tap the cash economy, which they see as a huge future source of growth, particularly in Asia. To gain a foothold in this arena, banks are building invoicing and payment platforms that enable small businesses in the cash economy to better conduct business with one another while capturing data about their interactions in the process. The analytics derived from this data will help banks target small businesses with financial products for the first time in a highly relevant manner. Likewise, some banks are offering digital services to assist consumers with real estate searches in the hope of gathering data that could indicate lending opportunities.

Insurance is another space that is set to be rapidly transformed in the age of data platforms. Connected cars are now gathering real-time data about driving behavior, and insurance companies are leveraging such data to offer customized premium pricing based on user-specific driving habits. The growing popularity of wearable devices for tracking health and wellness indicators will create opportunities for health insurance companies to offer similarly customized insurance packages.

Still another potential source of future growth is the hundreds of millions of “unbanked” people, both in the developing world and in less affluent neighborhoods in the U.S. and other developed countries, who currently have no access to tools that can help them pay their bills, borrow money, save, and make investments. Because they live in areas without bank branches and lack the capital needed to qualify for a traditional bank account or line of credit, the unbanked are forced to rely on costly, inconvenient, and sometimes fraudulent alternatives like check-cashing services, money order businesses, payday loan companies, and illegal loan sharks. These substandard financial operators represent another barrier to self-sufficiency that makes it harder for the poor to escape poverty.

Now that millions of these less affluent consumers have access to mobile technology in the form of cell phones, the possibility of creating affordable online financial platforms customized to their needs has become a reality. Naturally, each of these poor or near-poor customers will generate less value for a bank or financial platform operator than a wealthy customer might—but their numbers are so vast that this market represents a huge business opportunity. In sub-Saharan Africa and other developing regions, telecom and technology companies such as Vodafone (through its Safaricom subsidiary) are sparring with traditional financial institutions such as Kenya’s Equity Bank to determine who will control the leading financial platform and its hundreds of millions of potential customers.¹⁰

In this area, as in many others, the bankers have heard the message that is spreading through one industry after another—disrupt or be disrupted. Increasingly, they are looking to the platform model as the chief disruptive mechanism.

Logistics and transportation—the business functions by which people and things are moved efficiently from place to place—are resource-intensive industries that were once largely unaffected by the emergence of digital business models. Logistics companies such as FedEx have enjoyed significant competitive advantages because of the huge fixed costs of owning a fleet of cars, trucks, and planes, which create enormous barriers to entry for competitors. But a platform approach doesn’t require fleet ownership. Platforms that can aggregate real-time market information on the movement of physical goods and carriers can orchestrate an ecosystem of third-party delivery agents to manage an efficient logistics and delivery system while requiring minimal capital investment.

Specific industries that rely on complex logistical processing are already being transformed by the superior ability of platforms to coordinate the movement of vehicles and resources using highly efficient algorithms to match demand and supply. For example, San Francisco-based Munchery is one of several rapidly growing new food delivery platforms. By aggregating citywide demand according to specific time slots, Munchery’s algorithms determine the best truck routes to maximize density of delivery points, thereby minimizing the marginal costs of delivery. In Indonesia, a platform business named Go-Jek allows motorbike drivers to offer rides in a manner similar to Uber. Go-Jek also offers free food delivery throughout the Indonesian capital of Jakarta by leveraging the connected motorbikes and using cleverly designed algorithms to determine the most efficient delivery routes.

As we’ve discussed, some of the most dramatic examples of platform advances have involved labor markets. Every indication is that the transformation of work by the world of platforms is likely to continue in the decades to come, with some implications that are easy to foresee—and others that may take the world by surprise.

One assumption that is already being shattered is the idea that only routine, semi-skilled jobs like taxi driving, food delivery, or household chores are susceptible. Even traditional professions like medicine and law are proving to be susceptible to platform models. We’ve already mentioned Medicast, which applies an Uber-like model to finding a doctor. Several platform companies are providing online venues where legal services are available with comparable ease, speed, and convenience. Axiom Law has built a $200 million platform business by using a combination of data-mining software and freelance law talent to provide legal guidance and services to business clients; InCloudCounsel claims it can process basic legal documents such as licensing forms and nondisclosure agreements at a savings of up to 80 percent compared with a traditional law firm.¹¹

In the decades to come, it seems likely that the platform model will be applied—or at least tested—in virtually every market for labor and professional services. How will this trend impact the service industries—not to mention the working lives of hundreds of millions of people?

One likely result will be an even greater stratification of wealth, power, and prestige among service providers. Routine and standardized tasks will move to online platforms, where an army of relatively low-paid, self-employed professionals will be available to handle them. Meanwhile, the world’s great law firms, medical centers, consulting partnerships, and accounting practices will not vanish, but their relative size and importance will shrink as much of the work they used to do migrates to platforms that can provide comparable services at a fraction of the cost and with far greater convenience. A surviving handful of world-class experts will increasingly focus on a tiny subset of the most highly specialized and challenging assignments, which they can tackle from anywhere in the world using online tools. Thus, at the very highest level of professional expertise, winner-take-all markets are likely to emerge, with (say) two dozen internationally renowned attorneys competing for the splashiest and most lucrative cases anywhere on the globe.

The platform transformation of labor will further accelerate trends that have already made huge inroads into the organization of work. The division of labor into smaller and smaller units of work, which Adam Smith recognized as a key to the productive capability of organizations almost three centuries ago, is likely to continue, powered by increasingly smart algorithms that are capable of breaking down a complex job into tiny, simple tasks to be handled by hundreds of workers, then reassembling the results into a unified whole. Amazon’s Mechanical Turk already applies this logic to many assignments.

The trend toward freelance work, self-employment, contract labor, and nontraditional career paths will also continue to accelerate. The Freelancers Union estimates that one in three American workers already does some freelance work; that percentage is likely to increase in the years to come. Of course, this will be a mixed blessing. Many people who want flexibility and freedom to set their own working hours and conditions—artists, students, travelers, working moms, the semi-retired—will thrive in this new environment. Those who prefer stability and predictability in their work—or who are accustomed to relying on an employer for vital benefits such as health insurance and a retirement plan—will find the transition challenging, even painful. Traditional labor unions, which organized and defended the rights of the vast armies of workers that big corporations once employed, will continue to decline, leaving individuals to scramble for security on their own.

As we noted when discussing the regulation of platforms in chapter 11, the growing dominance of the world of platforms will create genuine challenges for society. Traditional corporate employment once provided a safety net for millions of workers and their families. As the platform revolution shreds the final vestiges of that safety net, it seems clear that government—or some other new social institution, as yet unenvisioned—will have to find a way to fill the gap.

Government, of course, is not an industry in the conventional sense. But it’s a major sector of the economy with a huge impact on the life of every citizen. And it certainly has the characteristics of being information-intensive, surrounded by gatekeepers (as anyone who has struggled with an unresponsive government bureaucracy will attest), fragmented (into dozens or hundreds of agencies with overlapping, often mutually contradictory mandates), and marked by information asymmetries (exacerbated by the legal mumbo-jumbo in which laws and regulations are usually written).

So it’s understandable that ordinary citizens, along with well-intentioned legislators, elected officials, and civil servants, might be eager to apply the platform model to governments at all levels. Making government processes as transparent, responsive, flexible, user-friendly, and innovative as a well-designed and well-managed platform would be an enormous blessing to the country and could go a long way toward alleviating the cynicism and negativity with which many citizens currently view government.

Of course, transforming government is easier said than done. Constitutional and legal restrictions, conflicting pressures from interest groups and lobbyists, partisan hostilities, budgetary constraints, the complex challenges inherent in developing services suitable for all citizens rather than just a self-selected subset, and the sheer inertia built into any organization that has grown through accretion over more than two centuries—all of these factors pose huge challenges to leaders who want to apply principles from the for-profit sector to streamlining government along platform lines.

Yet despite these difficulties, local, regional, and national governments around the world are beginning to incorporate some of the benefits of the platform model into their daily operations. Perhaps not surprisingly, one of the leading examples is the city of San Francisco, perched at the northern end of Silicon Valley. The city’s Open Data policy, originally launched in 2009 for implementation through the Mayor’s Office of Civic Innovation, is designed to promote the sharing of city data through an open-access portal, the creation of public–private partnerships to facilitate the development of value-creating tools that citizens and companies can use, and the promotion of data-based initiatives intended to improve the quality of life for everyone living in and around the San Francisco Bay area.

The city’s data platform, dubbed DataSF, contains a vast array of information about the city, gleaned from both public and private sources, as well as an application programming interface and tips for outside developers who want to use the data to create apps. To encourage creative use of the platform, the city government has sponsored a series of Data Jams, Hackathons, and app competitions centered on specific civic challenges, from transportation to sustainable development. For example, in June 2013, San Francisco’s City Hall was the site of a Housing Data Jam in which fifty local entrepreneurs took a deep dive into issues related to local housing—homelessness, affordable home finance, building safety, energy efficiency, and more. By October, ten privately created apps had been launched using information from DataSF to create tools for improving housing conditions in the city. They included Neighborhood Score, a mobile app that provides a block-by-block health and sustainability score for every area of the city; Buildingeye, a map-based app that makes building and planning information easily accessible; Project Homeless Connect, which uses mobile technology to help people without shelter find the resources they need to get off the streets and into decent housing; and House Fax, a “Carfax for houses,” that allows homeowners and residents to access the maintenance history of a particular building.¹²

Ongoing efforts to apply platform thinking to San Francisco city government include a number of other initiatives, including the creation of a single central portal where local businesses can manage all the licensing, regulation, and reporting requirements associated with operating in the city; the Universal City Services Card, which provides a one-stop location for accessing San Francisco services ranging from marriage licenses to golf course discounts; and a partnership with Yelp, the restaurant-rating platform, that will incorporate city health department scores for local eateries into their online Yelp profiles.

While San Francisco has advanced the concept of “government as platform” further than most jurisdictions, similar efforts are underway in cities, states, and regions around the U.S. and the world. The federal government is beginning to travel the same path. Data.gov, launched in 2009, has gradually been expanded, updated, simplified, and enhanced to make large amounts of once inaccessible government data easy to reach for every citizen, as well as providing tools to enable the building of apps using the data.

The burgeoning government platforms that are springing up around the world will only be as open, democratic, and empowering as the sponsoring agencies and our political leaders will allow them to be. (It’s not surprising that the National Security Agency and other intelligence organizations are not among the federal offices participating in Data.gov.) Will the platforming of government usher in a new age of universal responsiveness, efficiency, and freedom … or will it further advantage the prosperous and the well connected at the expense of the poor and the powerless?

At its core, the platform revolution is about using technology to connect people and provide them with tools they can use to create value together. As digital technology continues to advance—in particular, as chips, sensors, and communication devices continue to grow smaller and more efficient—the number and ubiquity of these connections continue to grow. Many are now being located not in computing devices such as laptops and cell phones but in ordinary machines and appliances—including everything from home thermostats and garage door openers to industrial security systems. With designers and engineers finding more and more ways to usefully link the machines, gadgets, and other devices people interact with daily, a vast new layer of data infrastructure is emerging that has been dubbed the Internet of things. This new universe of networks will have a profound impact on the power of tomorrow’s platforms.

A wide range of companies is deeply engaged in the effort to build the Internet of things—and, if possible, to control both the new infrastructure and the ultra-valuable data it will provide. As we’ve mentioned, industrial firms like GE, Siemens, and Westinghouse are moving to create information links among the turbines, engines, motors, heating and cooling systems, and manufacturing plants they build and operate, hoping to enable tremendous new efficiencies and cost savings. Digital technology firms like IBM, Intel, and Cisco are racing to design the tools and connections that will make the vast new networks possible. And Internet-centered companies like Google and Apple are designing interfaces and operating systems that will enable both technology experts and ordinary people to have easy access to the Internet of things and use it in countless ways we’re only beginning to imagine and explore.

What’s more, the potential power of the Internet of things will only continue to grow as the varieties of devices available to us and their capabilities continue to expand. To mention just a few examples, consider the transformative power of such just-around-the-corner technologies as driverless cars, cheap and powerful electrical storage batteries for the home, and easy-to-use 3D printers for quickly replicating useful objects. As these and other new tools become widely available, they’ll also quickly be linked to the Internet of things, making even more powerful value-creating platforms possible.

Applied to the Internet of things, platform economics will dramatically alter the business models associated with countless familiar goods and services. Take, for example, the familiar lightbulb. Originally patented by Thomas Edison in 1878, the basic engineering of the incandescent bulb has scarcely changed since then, which is why the typical bulb retails for just 40 cents and provides its maker with virtually no profit margin. It’s also highly inefficient, wasting more than 95 percent of the energy it uses in the form of heat.

Improved products such as the compact fluorescent bulb and the light emitting diode (LED) have made lighting technology much more efficient as well as more profitable. But when home lighting systems are connected to the Internet of things, the very purpose of the lightbulb is transformed. Lights can be programmed for intruder alerts; they can flash to warn parents when a toddler is wandering near the stairs or the stove; they can blink to remind grandma to take her medication. Lights with wireless connectivity can track the energy consumption of other appliances, enabling lightbulb vendors to offer energy management services to homeowners and utility companies. Suddenly, the lightbulb maker can afford to give away a $40 LED in exchange for a share of the ongoing revenues provided by networked services.

Platform-based connections among household and personal devices have attracted much of the publicity surrounding the Internet of things. But the potential for transformation in the B2B world is, if anything, even greater. David Mount, a partner at the high-tech investment firm of Kleiner Perkins Caufield and Byers, refers to the coming wave of innovation as the Industrial Awakening. He lists eight markets with the potential to generate new multi-billion-dollar industries based on smart connections among industrial devices:

• Security: using platform-based networks to protect industrial assets from attacks

• Network: designing, building, and servicing the networks that will link and control industrial tools

• Connected services: developing software and systems to manage the new networks

• Product as a service: transitioning industrial companies from selling machines and tools to selling services facilitated by platform connections

• Payments: implementing new ways to create and capture value from industrial equipment

• Retrofits: equipping the $6.8 trillion worth of existing industrial machinery in the U.S. to participate in the new industrial Internet

• Translation: teaching a wide array of devices and software systems to share data and communicate with one another

• Vertical applications: finding ways to connect industrial tools at various places in the value chain to solve specific problems

In total, Mount concludes (drawing on data from a World Economic Forum report) that the Industrial Awakening will generate $14.2 trillion of global output by 2030.¹³

Economist Jeremy Rifkin has deftly summarized this development, as well as some of its broader implications:

There are now 11 billion sensors connecting devices to the internet of things. By 2030, 100 trillion sensors will be [in place] … continually sending big data to the communications, energy and logistics internets. Anyone will be able to access the internet of things and use big data and analytics to develop predictive algorithms that can speed efficiency, dramatically increase productivity and lower the marginal cost of producing and distributing physical things, including energy, products and services, to near zero, just as we now do with information goods.¹⁴

We may not be on the verge of seeing the majority of physical goods priced at or even near to zero—not yet. But it seems safe to say that we’ve barely begun to imagine the transformative potential of the platform model.

Having read this far, you’ve undoubtedly recognized that the authors of this book are, in many ways, enthusiastic about the economic and social changes being wrought by the rise of the platform. The remarkable efficiency improvements, innovative capabilities, and enhanced consumer options that platforms make possible have already begun to create amazing new forms of value for millions of people in many walks of life.

But every revolutionary change has its dangers, and every major social and economic disruption creates both winners and losers. The platform revolution is no exception. We’ve already seen the problems some long-established industries are suffering as their familiar business models are upended by the advent of platforms. From newspaper publishers to record producers, taxi companies to hotel chains, travel agents to department stores, numerous businesses have seen their market shares, revenues, and profitability plummet in the face of platform competition. The fallout inevitably includes uncertainty, loss, and suffering on the part of countless individuals and even some entire communities.

It’s easy for pundits and consultants to call for business leaders to “adapt and adjust” to a transformed business environment. But the process of adaptation is often lengthy, confusing, and painful, and some companies and workers will never find their way in the emerging platform-dominated world. It’s an unfortunate reality that society must recognize and deal with.

Society must also respond to the structural changes that the platform revolution is creating. We examined some of these in chapter 11, including the unprecedented access to personal and business information enjoyed by the largest platform businesses; the massive shift from traditional forms of employment to more flexible yet uncertain modes of contingent, freelance work; the unpredictable external impacts, positive and negative, that platforms have on the communities in which they operate; and the potential for manipulation of individuals and entire markets by powerful platforms.

Traditional forms of government regulation developed for pipeline businesses are inadequate to addressing the social challenges these platform-based upheavals will bring. But it will take time for policy-makers to fully understand the nature of the changes and to develop regulatory responses that protect citizens from the most serious dangers posed by the platform revolution without unduly stifling beneficial innovations. It will take even longer for ordinary people and the civil society organizations they support and rely upon to absorb the nature of the platform revolution and create appropriate institutional responses.

History shows that it took generations for Western societies to develop effective responses to the dislocations and abuses associated with the Industrial Revolution of the eighteenth and nineteenth centuries—responses that included the union movement, the building of a modern skills-based educational system to prepare workers for new forms of employment, and the funding of a social safety net to care for those who fell through the cracks. In the same way, it will take time for contemporary societies to figure out what they need to do to respond appropriately to the shifts in economic, social, and political power being generated by the platform revolution—which is why we need to begin thinking about these issues now, as the contours of the revolution are beginning to emerge.

One inevitable by-product of dramatic technological change seems to be hyperbole. From the popularizing of the term automation in the 1930s (when predictions about the obsolescence of work were common) to the dot-com and Internet booms of the 1990s and 2000s, there’s been no shortage of enthusiasts and hucksters breathlessly describing the latest innovations and declaring, “This changes everything!”

We hope that, in this book, we’ve provided abundant evidence to document our belief that the platform revolution is indeed transforming our world in a host of significant and exciting ways. But there’s one thing the platform revolution will not change—namely, the ultimate goal that technology, business, and the entire economic system need to serve. The purpose of all these human constructs should be the unlocking of individual potential and the building of a society in which everyone has the opportunity to live a rich, fulfilling, creative, and abundant life. It’s up to all of us—business leaders, professionals, working people, policy-makers, educators, and ordinary citizens—to play our part in making sure that the platform revolution brings us closer to that objective.

TAKEAWAYS FROM CHAPTER TWELVE

Industries that are most prone to platform transformation in the near future include those that are information-intensive, those with unscalable gatekeepers, those that are highly fragmented, and those characterized by extreme information asymmetries.

Industries that are less likely to be transformed by platforms in the short run include those with high regulatory control and high failure costs as well as those that are resource-intensive.

It’s possible to foresee some of the specific changes that are likely to impact selected industries in the decades ahead, including education, health care, energy, and finance.

The platform model will continue to shape transformations in the markets for labor and professional services as well as the operations of government.

The burgeoning Internet of things will add a new layer of connectivity and power to the platforms of the future, linking people and devices to one another in new value-creating ways.

The platform revolution will ultimately transform our world in unpredictable ways, calling for society as a whole to develop creative, humane responses to the challenges this change will produce.