Playing To Win

Platform Businesses & Strategy

More Same than Different

Roger Martin
8 min readFeb 27, 2023


Source: Shutterstock

Last week, I received a great reader question (thanks, Jim) on platform businesses: do they inevitably shift to cost leadership even if they start as differentiators? I decided that it is well worth dedicating my 12th Year III Playing to Win Practitioner Insights (PTW/PI) piece to Platform Businesses & Strategy: More Same than Different. You can find the previous 122 PTW/PI here.

Platform Businesses

Platform businesses are companies that serve as a platform between two customer groups (hence, their alternative name: two-sided markets). It is often treated as a brand-new phenomenon — introduced to the world by innovative technology companies. But platform businesses have been around for a long while. Newspapers, which have existed for hundreds of years, serve as a platform linking readers and advertisers. Credit cards, brought into existence in 1958 by Visa and American Express (and followed in 1966 by Mastercard), have thrived for the past 65 years by serving as a platform productively linking purchasers on one side to merchants on the other.

But recently, platform businesses have become the biggest deal in the capital markets because a number have quickly become among the highest market capitalization companies in the world. As of last check, five of the 15 most valuable companies on the planet are native platform companies (#4 Alphabet, #5 Amazon, #9 Visa, #12 Tencent, and #14 Meta). Plus, the two of the three most valuable (#1 Apple and #3 Microsoft) have dramatically increased their value by becoming platform companies in part.

That list has six relatively new tech companies, plus one relatively old financial company. So, it is no surprise platform businesses are the coolest thing in business these days and considered to be a tech phenomenon.

Our Same/Different Instinct

Human nature causes us to understand the world by way of analogy, which I have written about more extensively before on this platform. It is not a choice. In fact, some argue that we can’t understand anything that we encounter unless we can analogize to something we already know and understand. Because of the drive to analogize, we can’t help but judge anything we experience as either analogous to something else — i.e., the same — or definitively not so — i.e., different. Things rarely end up naturally in the middle ground between same and different.

If our mind immediately makes a ‘same’ judgment, we focus entirely on sameness. If the judgment is ‘different,’ we focus on differences. On platforms, I would argue that the world has focused entirely on differences. A good example is MIT Professor Marshall Van Alstyne. And what I am going to say is not a direct or implied criticism of Van Alstyne. He is really smart and one of the world’s leading experts on platform businesses. He has written a terrific Harvard Business Review piece on the subject that I recommend. I am just using him to illustrate the human tendency, which is equally observable in smart people as in dull ones.

Van Alstyne’s very enlightening lecture on platform businesses is an excellent example. He talks for 34 minutes about platform businesses and if you take note, at least 90% of the talk focuses on what makes them different than all other businesses. I would be the first to say that it is valuable to understand the differences between this important phenomenon and what we might think of as ‘normal companies.’ However, if the focus on differences is this singularly intensive, a lot of important sameness will be missed.

Getting to the Reader Question…

The reader observed that normal companies have a fundamental strategy choice between differentiation and low cost, and they tend to perpetuate whatever strategy decision with which they start. However, his interpretation is that the behavior of platform companies is markedly different. Even if they start as differentiators, they all migrate to low-cost players over time, highlighting a big difference between normal companies and platform businesses.

Let’s explore this question/observation…

A key to the success of platform businesses is that they lower the transactions cost for the user. Using Airbnb to find an awesome summer rental on Cape Cod is easier than buying all the newspapers in Cape Cod towns and looking at the rental classified ads. And the implied insurance and the quality ratings that the Airbnb platform provides further lower transactions costs. Plus, the platform provides much more selection than any alternative.

All of that adds up to awesome differentiation, which drives more volume of guests and renters to the platform, which creates huge network effects for Airbnb, which increasingly lowers the cost of running the platform business, notionally driving the company to pursue a low-cost strategy (even though, of course, the network effects benefit customer value as well). And, so the argument goes, that is completely different than the case for normal companies who experience no such inherent, inexorable drive.

Or is it?

The same cost argument could be applied to the Tide business, the most valuable brand of the #20 market capitalization company in the world, Procter & Gamble, a normal company. Tide enjoys an absolutely dominant 50% share of the US detergent market, the most valuable detergent market in the world. With the scale advantage of over 4 times the next biggest branded player, Tide enjoys a huge cost advantage. Any absolute dollar level of R&D spending can be done at a lower percentage of sales than for any competitor. Any absolute dollar level of advertising spending can be done at a lower percentage of sales than for any competitor. It has purchasing scale advantages and productive cost advantages. The list goes on…

The incentive and capacity for becoming a low-cost player is more the same than different for Tide compared to any platform business. It could spend as little as its tiny competitors do on innovation and branding, and win as a cost leader, with ease.

Despite being more same than different, Tide hasn’t followed that path of winning based on cost leadership. Rather, it doubled down on differentiation, most recently making a gigantic move into a new form: Tide Pods. And it wasn’t without risk. It suffered major production challenges around launch time, but when it worked out the kinks, P&G dramatically enlarged Tide’s differentiation advantage.

Therein lies the answer. It is a choice. It is always a choice. Normal companies share much sameness with platform businesses on this front. Are they entirely the same? Hell no. But are they entirely different. Hell no. There are samenesses and differences.

Why it Looks Different…

I don’t disagree with the reader that many platform companies do choose cost leadership. Meta is a good illustration of the danger of automatically lapsing into the phenomenon that the reader observes. Facebook started as an amazing differentiator. It created a mind-blowingly unique and valuable user experience. And as a reward, it became huge, with the resultant favorable network economics. Then it turned into a classic cost leader. It waited for innovation to happen elsewhere and used its huge cost advantage to either buy or copy the innovator. If photos appear to be becoming important, buy Instagram. If Snapchat Stories gets traction, simply mimic it three years later. That is all easily doable for the low-cost player driven by network economics.

But this illustrates the big trap facing every differentiator — whether platform business or not. It is hard to reinvent your differentiation. It is easier to attempt to rest on the laurels of your initial differentiation. I like Tide because it has been the differentiator for 77 years. It is only on top today because of a long history of reinventing its differentiation — from the first automatic washing machine detergent, to phosphate-free, to liquid, to with-bleach, to with-softener, to coldwater-capable, to Pods.

Unlike Tide, lots of differentiators have one great idea and take offense when a competitor replicates their differentiated idea — how dare they! Consequently, they aren’t primed to reinvent their differentiation. Moreover, often low-cost players enter with an entirely different strategy. In consumer-packaged-goods, that is private label. Lost-cost players compete in a fundamentally different way. If the original differentiator doesn’t reinvent its differentiation, its scale advantage erodes as its share is stolen by other differentiators and the true cost leader. As the original differentiator’s scale erodes, it ends up stuck in the middle — neither a cost leader nor differentiator.

The same thing happens in platforms. Facebook was the differentiating innovator. Then it rested on its laurels and used its network economics to print money like it was the US Treasury. It used that money (and/or its soaring shares) to buy and use Instagram as its new basis of differentiation, while the Facebook app stagnated. Then when out-innovated again, it mimicked Snapchat, probably arrogantly seeing itself as innovating even though it was simply matching.

But then along came TikTok, which differentiates with a different customer value — authentic user-generated short-form video. Since TikTok’s international debut in 2017, the network effects-driven scale advantage of Meta has been largely dissipated. Depending on what numbers you believe, TikTok is either approaching the scale of Instagram or has matched it — and is growing at a staggering pace, with big brother Facebook’s user lead in its sights. And head-to-head in its targeted segments, TikTok is already winning. (BTW, these are just the facts, not something I celebrate. I will go on record as saying that I don’t welcome TikTok and don’t trust it farther than I can throw a Canadian moose.)

The Reader Answer…

The answer to the reader’s question is a definitive ‘no!’ It is not at all inevitable that because platform businesses operate by different economic rules than normal businesses, they will migrate from differentiation strategies to low-cost strategies as they grow and develop.

However, while not inevitable, it is the easiest trap in which to fall. Because the network effects on costs of modern Internet-based platform businesses are so strong, the easiest thing to do is follow a low-cost strategy powered by network effects. So, the observation that many do so is not off-base.

However, Meta shows the danger of defaulting reflexively to that strategy. It had a seemingly unassailable position that has already been successfully surmounted. And I would argue that it has forfeited the chance to reestablish its previous lofty position. That is gone and it needs to think very seriously and fundamentally about where to go from here.

Practitioner Insights

Whenever anyone asserts to you that ‘this is the same as that,’ ask yourself: in that sea of sameness, what is different? And, whenever anyone asserts ‘this is different than that,’ ask yourself: in that sea of difference, what is the same? If you do that, you will not fall prey to the fundamental human nature of going to the extreme of same/different. Platform businesses are different in some ways and the same in others — and that is the most powerful way to see them.

And remember, there are always two ways to win. Recognize that transitioning from differentiation to low-cost is really, really tricky. Differentiators have legacy costs which are likely to limit them to being, at best, cost-competitive, not low-cost. That puts them in danger of native low-cost players. I see this all the time with the so-called ‘fighting brands’ of differentiators. Differentiators claim they're ‘fighting brands’ to be low-cost competitors to the native low-cost insurgents, but I have still never seen a low-cost ‘fighting brand.’ I have seen plenty of pathetic ‘fighting brands’ that only serve to waste the differentiator’s differentiated earnings. And messing around with a ‘fighting brand’ tends to distract the differentiator in question, creating a pathway for other differentiators to study their customers and imagine ways to totally delight them in new ways.

If you are working at a platform business, don’t fall sway to the ‘it’s completely different’ logic. Platforms can continue to invest in and maintain differentiation — Apple and Tencent do, I believe. If you don’t, you open yourself as did Meta, to being successfully attacked.



Roger Martin

Professor Roger Martin is a writer, strategy advisor and in 2017 was named the #1 management thinker in world. He is also former Dean of the Rotman School.