IBM's e-business: a platform strategy

Gerstner’s shift in strategic focus for IBM to become a leader in “e-business” strategy was profound and revolutionary. It took advantage of IBM’s unique positon, not simply as a provider of hardware and software products and services, but as an integrator of them.  “E-business” strategy reversed IBM’s reliance on its own vertically integrated proprietary offerings and opened up a whole new paradigm of open source integration using the power of platforms.  By utilizing the emerging internet standards and protocols it was able to integrate a wide variety of hardware and software from multiple vendors.  This shift meant that IBM could recommend a combination of products and services that would best meet the customer’s needs, even if it included products that were not IBM brand.  In this way, IBM leveraged its valuable know-how regarding system integration, but more importantly, it shifted IBM away from a ‘pipes’ strategy and toward a ‘platform’ strategy. 

According to Sangeet Paul Choudary, there are two broad business strategies that he labels pipes and platforms.  Pipes have been the dominant model of business in which firms make products that are pushed to customers. Value is produced upstream and consumed downstream, like “water flowing through a pipe.”  The second strategy, platforms, unlike pipes, do not produce and push. Instead they focus on network effects and allow users to both create and consume value.  At the business layer, users create value for other users to consume.  At the technology layer, it is possible for users to interact and create value on the platform through the use of APIs. Youtube, eBay and Wikipedia are great examples of platforms that allow and benefit from user content creation.  This is a massive conceptual, technological and strategic shift.  Gerstner recognized immediately that the Internet is not only a platform itself, it allows any business, building on top of it, to leverage these platform properties.  Gerstner’s success during the decade of transformation stemmed from the realization that all businesses will need to move to this new platform strategy or risk being disrupted by those that do.



Works Cited
Choudary, Sangeet Paul. “Why Business Models Fail: Pipes vs. Platforms.” (10/21/13) Retrieved from http://www.wired.com/2013/10/why-business-models-fail-pipes-vs-platforms/ on 9/12/2014.