To understand the powerful forces that are being unleashed by the explosion of platform businesses, it helps to think about how value has long been created and transferred in most markets. The traditional system employed by most businesses is one we describe as a pipeline. By contrast with a platform, a pipeline is a business that employs a step-by-step arrangement for creating and transferring value, with producers at one end and consumers at the other. A firm first designs a product or service. Then the product is manufactured and offered for sale, or a system is put in place to deliver the service. Finally, a customer shows up and purchases the product or service. Because of its simple, single-track shape, we may also describe a pipeline business as a linear value chain.
In recent years, more and more businesses are shifting from the pipeline structure to the platform structure. In this shift, the simple pipeline arrangement is transformed into a complex relationship in which producers, consumers, and the platform itself enter into a variable set of relationships. In the world of platforms, different types of users—some of them producers, some of them consumers, and some of them people who may play both roles at various times—connect and conduct interactions with one another using the resources provided by the platform. In the process, they exchange, consume, and sometimes cocreate something of value. Rather than flowing in a straight line from producers to consumers, value may be created, changed, exchanged, and consumed in a variety of ways and places, all made possible by the connections that the platform facilitates.
Parker, Van Alstyne, Choudary, Platform Revolution: How Networked Markets Are Transforming the Economy and How To Make Them Work For You (W.W. Norton and Company, Inc., 2016), 6.