How do we measure the success of the platform strategy?

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Finally, platform firms often struggle to set up the right metrics internally. Revenue and profitability metrics that directly contribute to shareholder value are easily understood and communicated.

However, when a platform business is just getting started, it can be difficult to measure value creation by revenue alone. Beyond revenue metrics, platform businesses need metrics to measure ecosystem value, and how such value translates to future revenues and enterprise value. Hence, platform execution needs careful choice of non-revenue metrics which demonstrate value creation in the ecosystem. But choosing the wrong non-revenue metric can derail execution.

Poor choice of metrics may result in funding the wrong ventures internally, which succeed in moving chosen metrics but fail to create real value.

Poor choice of metrics may also encourage perverse incentives internally. GE Digital – General Electric’s platform organization – was established as a separate business unit, with a profit and loss and quarterly revenue commitments. Therefore, General Electric prioritized and on boarded partners based on their ability to drive short-term revenue rather than long-term growth for its platform ecosystem, even though it set out to create an ecosystem. In order to encourage value creation by partners, a platform strategy often requires subsidizing partners as well as prioritizing partners based on their contribution to the platform’s value creation. Despite having a platform strategy, the P&L focus motivated the unit to build unconnected short-term projects rather than a platform. Similar to a consulting firm, GE Digital often sold digital transformation services to generate short-term revenue. The distraction ultimately proved to be counterproductive to starting a platform business.

Finally, choosing metrics of convenience may completely prevent true value creation. On online forums, GE employees discuss how the company was focused on integrating applications and developing partnerships, but not solving specific customer problems. Large organizations often get distracted through poor choice of metrics. Metrics such as third-party partnerships and integrations are easier to move, but these metrics aren’t necessarily representative of value creation.

 

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Frequently Asked Questions

How do platform firms effectively identify and select non-revenue metrics that accurately reflect value creation within the ecosystem, and what challenges do they face in this process?

Platform firms typically navigate a complex landscape when selecting non-revenue metrics to gauge ecosystem value creation. Challenges may include defining metrics that accurately capture qualitative aspects like user engagement, network effects, and platform stickiness. Additionally, ensuring alignment between selected metrics and long-term strategic goals can be challenging, as well as avoiding unintended consequences such as gaming the system or incentivizing short-term gains over long-term sustainability.

 

Can you provide examples of successful platform initiatives that effectively balanced revenue metrics with non-revenue metrics to demonstrate ecosystem value creation? What were the key factors contributing to their success in choosing and implementing these metrics?

Successful platform initiatives often demonstrate a nuanced understanding of both revenue and non-revenue metrics, recognizing the interplay between immediate financial outcomes and longer-term ecosystem growth. For instance, platforms like Airbnb and Upwork have effectively balanced metrics like user retention, network effects (e.g., number of active users, frequency of interactions), and ecosystem health (e.g., user satisfaction, quality of transactions) alongside revenue metrics. Key factors contributing to their success include a deep understanding of their target market, iterative experimentation to refine metric selection, and a commitment to fostering a vibrant and sustainable ecosystem.

In what ways can platform firms mitigate the risks associated with poor choice of metrics, such as funding wrong ventures or encouraging perverse incentives internally? Are there established best practices or frameworks to guide platform organizations in selecting metrics that align with their long-term goals and vision for ecosystem development?

Platform firms can mitigate the risks associated with poor metric selection by adopting a strategic approach that prioritizes long-term value creation over short-term gains. This may involve establishing clear criteria for metric selection, such as alignment with platform goals, measurability, and sensitivity to ecosystem dynamics. Implementing robust monitoring and evaluation mechanisms can help identify and address any unintended consequences early on. Furthermore, fostering a culture of data-driven decision-making and continuous learning can empower teams to adapt their approach based on evolving insights and feedback from the ecosystem.

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