Business models: pipes vs platforms

A real online shift is happening. Business are more and more becoming platforms and shying away from the limiting pipe strategy. So what are these business models?

Pipes

Pipes have been around us for as long as we’ve had industry. They’ve been the dominant model of business. Firms create stuff, push them out and sell them to customers. Value is produced upstream and consumed downstream. There is a linear flow, much like water flowing through a pipe.

 Platforms

Unlike pipes, platforms do not just create and push stuff out. They allow users to create and consume value. At the technology layer, external developers can extend platform functionality using APIs. At the business layer, users (producers) can create value on the platform for other users (consumers) to consume. This is a massive shift from any form of business we have ever known in our industrial hangover.

Definitions from Platformed.info, the complete guide to platforms

Traditional retailers such as Walmart are typically pipe models while Ebay is a perfect example of a platform. Oddly enough these retailers at the same time are moving in the direction of becoming a platform, with Amazon offering a program for third-party sellers as well as opening their fulfilment centers for these third parties. In the Benelux you can see a similar move with Bol.com opening their shops towards third-party sellers. It’s easy to understand why: opening up to third-party sellers offers a risk-free (no stock) earnings model and supports these companies’ mission of offering the largest product selection available. Expect much more platform thinking in the online world soon!

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