Booting Up

Remember platform shoes?

Source: Pxhere. CC0

Platform shoes were a fashion trend that started in the late ‘60s. They gave the wearers additional height, making them more prominent. Rock star David Bowie wore them when he performed as Ziggy Stardust. So did other pop stars. The fad faded in the mid-‘80s, as people took to a more classic business-like style.

But business platforms are huge today, especially digital platforms. A business platform brings people together so they can do something more. A Middle-Eastern souk is a platform. So is a mall or hospital or stock exchange. In 1980 Bill Gates famously turned DOS into a platform when he created the operating system for IBM and charged no royalties or licensing fees as long as Microsoft, and only Microsoft, had the right to license it to other companies. He also gave away software development kits to third parties who wanted write applications or build PC expansion cards with extra memory or modems or graphic applications. Gates turned his operating system product into a platform where thousands of hardware and software makers could come together.

Today, the biggest businesses in the world are platforms: Amazon, Google, Facebook, Apple, Tencent, Alibaba, and Microsoft. Together, they’re worth more than $5 trillion. So are some of the most innovative and disruptive startups, like Airbnb or Uber or WeWork. These companies are marketplaces where buyers and sellers can connect to provide consumers what they want when they want it and how they want it.

There are two fundamentally different types of platforms. One approach wants to help people get things done. These companies provide tools for their users be more efficient. They’re what Steve Jobs called “bicycles for your brain.” In this sense, word processing software is just a more efficient typewriter. Shopify is an example of a digital bicycle. They provides an efficient way for hundreds of thousands of unique merchants to compete in their own distinctive way. Last year over 200 million consumer bought products from Shopify without ever knowing Shopify exists, buying Budweiser and Untukit and Wrightwood Furniture’s sites. Microsoft and Apple are brain-bicycles too, tools that help us get where we want to go.

Source: Stratechery

The other approach is the aggregator. They want to do things for you. Google is an aggregator. Larry Page said he’d like to provide search results before you ever type them. Aggregators deal in information, providing standards for modular content and a simple interface for consumers to find that content. It’s why Google’s site, filled with white-space and a single, central search bar, is so iconic. Advertising is central to the aggregator’s business model, since ads are just one more type of information. Aggregators are like a stock exchange. Everyone benefits from more providers and more users: the listers, the buyers, and the exchange. The listing is uniform, the user-experience is standardized. There’s fundamentally no difference in the experience between buying GE or XOM on the New York Stock Exchange. The more people that use an aggregator, the more powerful the network effects become. Facebook and Amazon and Tencent and Airbnb are also aggregators.

Aggregator business model. Source: Stratechery

It’s important to understand how platforms differ. They’re all vying for our business, and they present very different regulatory and competitive issues. Apple doesn’t have an issue with data privacy, because they’re not selling ads, they’. But they’re locked in a struggle with Android as a smartphone OS duopoly. Android is open, iOS is closed in a way similar to the Mac and PC. Remember those commercials? And then there was Linux. They were all ready for a reboot!

There’s room for both brain-bicycles and user-aggregators in our market. We just shouldn’t confuse them.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2019-07-18T08:17:32-04:00July 18th, 2019|Global Market Update|Comments Off on Booting Up

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