How Platforms Drive Innovation

One creates b2b software, the other disrupted the taxi industry. What Shopify and Uber share in common is the status as unicorn companies while they were private. Shopify at IPO was valued around $1 Billion Dollars, with Uber being valued around $72 billion dollars.  

Shopify has had a rewarding post IPO life, with the company currently being valued at 60 billion back in February, 6000% more than the companies IPO price.

In contrast, Uber’s life as a public company has been rocky, with the company losing market value on the first day, and despite gains, still not reaching its valuation at IPO price.

What these two companies represent are two different visions of technology companies, one as a product, and one as a platform. In the public markets, the companies that have been rewarded have been those that provide platforms that allow other companies to innovative on, versus companies that provide only their own offerings.

Shopify for example, is known for being the anti-Amazon in the sense it provides e-commerce software for not only the digital aspects of a business, but also the physical from warehouses to Point-of-Sale systems.  

Much of the modern direct-to-consumer industry is managed by Shopify software. DTC startups such as Allbirds, Everlane, or Casper run their E-Commerce through Shopify. Due to the customizability of Shopify’s front-end, until one enters the payment page, the usage of Shopify by a given company is invisible.  

In contrast, while Uber pitches itself as “The Amazon of Transportation”, in practice, there is not much a platform. While one can certainly order an Uber or now order a e-scooter or e-bike, these are offerings through Uber, not an independent third party. A given third party for example, couldn’t use Uber’s software to build out a business beyond being a driver. While Uber has been adding ads to its services, it has not added ways for people to create something new from Uber’s services. It can be argued additionally that driving for Uber is essentially taking a loan against your car, which in the long-term given the costs associated with driving people around, is a loosing proposition.  

Beyond Shopify and Uber, the contrast between Platforms and products is reflected in the ratio between current to IPO valuation. Square provides square capital and other services to help the various business that use its tools. Both Okta and Twilio build tools for developers who then build tools on top of those tools.

The companies whose current valuation compares poorly to their IPO valuation, are not companies in this type of vein. Blue Apron lost $24 million dollars in the last quarter of 2019, and Groupon has been suffering from a decline in revenue for the past several years.

A flaw with the discussion of technology companies in D.C. is the conflation of these types of “technology companies.” It does not make sense that Stripe should be in the same category as WeWork, considering one created a platform to make online payments for developers easy, and the latter is a Regus with modern branding and a clean website UI. Ben Thompson provides a excellent guide on how to understand if a company is a technology company or a “technology company.”  Hopefully this lesson gets learned by policy makers before they craft regulation that makes the creation of technology companies a harder proposition.

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