platforms > pipelines
Issue 115 - December 23rd, 2022
An article published in the April 2016 edition of the Harvard Business Review called “Pipelines, Platforms, and the New Rules of Strategy” has had a profound impact on the way I think about the future and strategies to build transformative businesses in today’s world. I have taken a lot of this philosophy and thought to heart and currently putting my learnings into practice with our company we are building right now in the real estate industry.
Platforms and Pipelines are 2 different architectures of business models.
Pipelines: Pipeline businesses create value by controlling a linear series of activities—the classic value-chain model. Inputs at one end of the chain (say, materials from suppliers) undergo a series of steps that transform them into an output that’s worth more: the finished product.
Pipelines have been around us for as long as we’ve had industry. They’ve been the dominant model of business. Firms create stuff, push them out and sell them to customers. Value is produced upstream and consumed downstream. There is a linear flow, much like water flowing through a pipe.
We see pipes everywhere. Every consumer good that we use essentially comes to us via a pipe. All of manufacturing runs on a pipe model. Television and Radio are pipes spewing out content at us. Our education system is a pipe where teachers push out their ‘knowledge’ to children. Prior to the internet, much of the services industry ran on the pipe model as well.
This model was brought over to the internet as well. Blogs run on a pipe model. An e-commerce store like Zappos works as a pipe as well. Single-user SaaS runs on pipe model where the software is created by the business and delivered on a pay-as-you-use model to the consumer.*
Platforms: Platform business model build a “means of connection between users”. Platforms have existed for years. Malls link consumers and merchants; newspapers connect subscribers and advertisers. What’s changed in this century is that information technology has profoundly reduced the need to own physical infrastructure and assets. IT makes building and scaling up platforms vastly simpler and cheaper, allows nearly frictionless participation that strengthens network effects, and enhances the ability to capture, analyze, and exchange huge amounts of data that increase the platform’s value to all. You don’t need to look far to see examples of platform businesses, from Uber to Alibaba to Airbnb, whose spectacular growth abruptly upended their industries.
Had the internet not come up, we would never have seen the emergence of platform business models. Unlike pipelines, platforms do not just create and push stuff out. They allow users to create and consume value.
At the business layer, users (producers) can create value on the platform for other users (consumers) to consume. This is a massive shift from any form of business we have ever known in our industrial hangover.
TV Channels work on a “pipe” model but YouTube works on a p latform model. Encyclopedia Britannica worked on a Pipe model but Wikipedia has flipped it and built value on a Platform model. Our classrooms still work on a Pipe model but Udemy and Skillshare are turning on the Platform model for education.
There are hundreds of other examples where “platforms” have quickly upended traditional “pipeline” industries. It is usually too late for the “pipeline” business to catch up as the platform models grow and compound insanely fast as they catch on.
Ok Sam, I get it, but how does this fit into what you and the team at Pinnacle Realty Advisors are doing today?
Our business model is part pipeline / part platform.
The brokerage sponsorship side of our company is more like a pipeline model due to the nature of licensing laws and services we provide agents. We offer various sponsorship plans for agents in a very simple monthly membership model, and they select what makes the most sense for their career and join our platform. For being a member on our platform, you receive back-office support, marketing services, training, networking, and other day to day support to help you run your business.
The main difference between our real estate brokerage platform and every other firm in the industry currently is that we take a PLATFORM approach to the “agent services” side of our business.
We have recently launched a product called PinnacleHQ that is our virtual office for agents. We are also building an “agent services marketplace” inside of PinnacleHQ where agents can search, read reviews, and select a vendor for their own use or for their client’s use. As this product evolves, we envision it becoming like an “app store” in a sense for real estate agents and brokers to find anything and everything they need to run their business from marketing services, admin services, hiring, home-affiliated vendor search, market research & data, training, and the list goes on and on.
The main difference between how we think about this and how others see it currently is that we will invite vendors and others to join our PinnacleHQ platform. We will not try to vertically integrate every single one of these services and vendors internally like every other firm does today. We will not force agents to use certain tools or run their business a certain way. We will give our agents the best of the best to choose from and help them select the best vendor for their specific need.
We will stay ahead of the curve naturally in this “platform” architecture model as well because whenever a new trend, piece of tech, or something as transformative as "“iBuying” emerges again in the future, we will just add these vendors to our platform for our agents to use. We won’t spend millions of dollars spinning up internal, vertically integrated services as our default way of thinking. We will focus on continuing to improve our platform and bringing more and more value to our agents, creating the “means of connection” between our agents and anything on earth they need to run their business better for themselves and their clients.
Another way to think about this future we envision for real estate agents & brokers: the “sponsorship” side of our business is like an iPhone where you get the basic items and services you come to expect from a brokerage, and the “app store” on the iPhone is where you go to customize your business for anything you need that is particular to YOU. The services and vendors populated in the “app store” will be third party services and some of our own services, but every single thing an agent needs will be right at their fingertips.
Newsworthy Links To Share
Why Business Models Fail: Pipes vs. Platforms (*Wired)
Pipelines, Platforms, and the New Rules of Strategy (HBR)
Lawsuit over commissions advances: A U.S. district court judge in Missouri denied a request for summary judgment in the ongoing court battle between NAR and a group of home sellers.
Side’s Guy Gal on trends in the team business model (Real Trends)
Newmark Invests in Boosting Single-Family Rental Sales As Demand Weakens:
Investment in Housing Niche Boomed in First Two Years of Pandemic Before Easing
NYC Casino, the billionaire battle. Steve Cohen, Jay-Z chase NYC casino license: Five of New York City’s billionaires are rolling the dice on gambling in the Big Apple.
Each is vying for what is predicted to be a single license to open a legal casino in New York City. Technically, three licenses are on offer for downstate, but it is expected that two of the licenses will go to Ghenting Resorts World at Aqueduct and MGM-Empire City Yonkers. (NY Post)Retailers Rethink In-Store Tech as Shoppers Return: Two years on, shoppers are returning. E-commerce is now 16.4% of all retail shopping, down from 18.8% at the height of the pandemic, according to the National Retail Federation. CIOs say they could risk losing their customer base to antiquated in-store technology, although cost could be a barrier to making some of these investments. (WSJ)
Building permits fell by 11.2% M/M to an annualized 1.342 million units and came in below the 1.480 million consensus. It was the lowest since May 2020. Single family permits were down 7.1% M/M (down 29.7% Y/Y) and multifamily fell by 16.4% (down 9.2% Y/Y).
Amazon Opens First Movie Theater, Plans $1B Push To Release Films In Cinemas: Amazon reopened the former ArcLight Cinemas in downtown Culver City, California.
Housing starts in November fell by 0.5% M/M to an annualized 1.427 million units, ahead of the 1.40 million consensus. Single-family starts were down 4.1% M/M (down 32.1% Y/Y) and multifamily rose 4.9% M/M (up 23.3% Y/Y).