Pipeline and platform business models describe how an organization interacts with the customer. The traditional pipeline business model is characterized by a linear flow of value from the producer to the user. The model applies characteristically to manufacturing, services, media, and other businesses. A business entity transforms raw materials into a final product sold to the consumer. However, recently businesses have adopted a revolutionary business model, which has propelled some businesses to greater success. According to Hukal et al. (2022), the platform model facilitates a business transaction between the producer and user by creating value for both. The model mainly leverages different technologies and data analytics through which products and services are offered. The platform model is based on human interaction rather than processes to create a transaction through a beneficial exchange by creating a ‘network’ effect.
Apple is one of the most successful companies that managed to shift from the pipeline model to the platform model. In 2007, Apple was a small company mainly dealing with computers and operated just about 4% of the market share. The manufacturing of mobile phones was dominated by Samsung, Motorola, Nokia, LG, and Sony Ericsson, which controlled over 90% of the business’s profits globally. Apple commenced operations in mobile phone manufacturing in the same year, and by 2015, the company alone amassed over 90% of the total industry profits worldwide (Hukal et al., 2022). The previous leading brands recorded dismal or no profits.
The success exemplified by Apple in the mobile phone business was a result of the platform model. The company introduced the App Store through which the customers of the iPhones would connect with application developers in a two-sided market and, at the same time, generate value for each other. Hukal et al. (2022) state that Apple attracted over 1.4 million applications, and developers earned over $25 billion by January 2015. The platform model also disrupted the gaming industry by providing extra gaming features such that it could compete successfully with the Sony PSP. It also developed a camera that outfoxed the Canon Powershot and Sony cameras. In addition, Apple succeeded due to the synchronization capacities of its products and content. It leveraged cloud computing to create iCloud and iTunes, which enhanced the value of its products through the platform businesses face.
Nike is another company that transitioned into the platform business, particularly through the development and operation of applications. It operated a typical pipeline business in developing applications connected to sports and fitness. However, in January 2012, the company departed from the traditional pipeline business to a platform strategy by introducing the FuelBand, a wearable technology device that can track user fitness workouts, including calories burned and steps walked. The FuelBand is synchronized with the shoes and constantly interacts with mobile applications. Users can then access vital information that can enhance their fitness, athletic performance, and health pursuits (Hukal et al., 2022). Therefore, the FuelBand creates an interaction with the user and builds an ecosystem using the data captured. Over time, the system can use the data to create more relevant experiences for the users and link them to one another, resulting in beneficial exchanges.
In conclusion, the transition from the pipeline model to the platform interface has proved powerful in the current digital age. This has been enabled through the ‘network effect’ that creates interaction between the producer and the customer. It creates a powerful customer-supplier connection with a bigger view of the potential of interaction instead of focusing solely on the resource capability of an organization. The platform model focuses more on the quality of interactions among the players in the ecosystem; Apple and Nike succeeded in its application.
Reference
Hukal, P., Kanat, I., & Ozalp, H. (2022). Different strategy playbooks for digital platform complementors. MIS Quarterly Executive, 1–15. Web.