Entrepreneurs and investors are enamored with platforms. Platforms provide a base layer in which customers and other businesses can build on top of, ultimately leading to an ecosystem where the platform owner can end up in the enviable position of a rent-seeker. The nature of these businesses bring built in brand loyalty, up-sell and cross-sell opportunities, and (perhaps most importantly) business lock-in.
In the age of the internet, many times we are talk about software platforms that provide a system for creators to easily create and publish content. YouTube or Substack (which this newsletter is built on) are great examples of these. There are MANY other types of digital platforms that stitch our digital world together, but they all share the same basic traits as described above.
Today, we rarely talk about platforms that exist outside of the digital world, but they are quite common. These types of platforms share many of the same characteristics of digital platforms, but skip some key features due to their non-digital nature. What they give up in digital design, they make up for in capital cost moats, as physical goods generally require a larger amount of capex for similar returns.
So, what are common traits that carry across the meat/cyber-space boundary?
Brand Awareness: Having a strong brand to create a sense of trust is important to both businesses and it causes consumers and partners alike to gravitate to the platform.
Lock-in: Digital toolsets make it easy to lock out violators or non-participants of their platform. But that doesn’t mean that meat-space hasn’t adopted similar habits. These companies use things like specific product geometry (special screws in Apply products anyone?) or warranty requirements in an attempt to do similar things.
Planned Obsolescence: If you’ve ever owned an iPhone, chances are you’ve experienced this one. Apple routinely only allow the latest hardware to get its most up to date software features. Physical goods can perform the same feat by changing connectors or some other physical component of a product.
Don’t be afraid to explore your physical world good or service. While software is attractive for its low startup costs and unlimited flexibility, its not the only place you can build a successful business.