A “platform” refers to a business model, not simply any company using technology. Many people confuse a platform with a mobile application or a website, but platforms aren’t just pieces of software. It is a holistic business model that brings together consumers and producers.
What is a platform business?
A platform business helps facilitate interactions between many participants, usually through a web-based interface. These interactions can take the form of short-term transactions such as connecting buyers and sellers, or they can involve the formation of longer-term social relationships, longer-term collaborations to achieve a shared outcome, or sustained efforts to accelerate participant’s performance improvement by helping them to learn better together. The role of the protocol layer is to provide a governance framework for interactions between participants.
In contrast, a digital business model creates value through products or services produced by taking customer needs as inputs and making products/services to fulfill those needs. The platform business model doesn’t own the means of production; it merely creates and facilitates the standards for connections.
Misuses of “platform.”
The most common misuse is when people use the word “platform” to describe an integrated suite. This is especially common amongst SaaS companies, who tend to claim they have an entire platform for the benefit they sell. For example, if someone says they use “a platform” for their business, they’re probably using a marketing term. As with all of these examples, these SaaS companies are still linear businesses. What a company owns doesn’t matter nearly as much as what it can connect.
We call these traditional companies linear businesses because they operate according to the typical linear supply chain model. In the case of SaaS companies, they’re building products, not networks. Because they don’t have the costs associated with building a platform, they don’t have any of the economics that make the platform business model successful.
A typical company creates value by selling goods or services and then sells those products to someone else.
Unlike platform businesses, which own their inventory, regardless of whether they create or license it, linear companies own their content and generate revenues from their content.
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Some well-known linear businesses include Netflix, which pays for or licenses all of its content. Even though Netflix is a tech company, it’s still a linear business. It’s about understanding the whole business and how you can create value for and build networks.
In the twenty-second century, the supply chain will not be the central aggregator of value. What a company owns does not matter as much as the resources it can connect to.
In the new model, scale results from investing in external resources. But in a networked world, scale comes from cultivating an external network built on top of your business. Platform business models are built upon the idea of creating a network effect.
Types of “platform businesses.”
Platform businesses are becoming an increasingly important part of business value creation. However, not all platforms are created equally, with some platforms having more potential than others to trigger powerful forms of increased returns that will ultimately marginalize other forms of platforms. It is vital to understand both the structure and the dynamics of various kinds of platforms. Experts have identified four different platforms that are becoming more prominent in the business world and elsewhere.
An aggregation platform brings together a broad array of related resources and helps users connect with the best resources. These platforms tend to focus on transactions or tasks. They are not designed for long-term relationships. For example, marketplace and broker platforms like eBay and Etsy are well-known examples. Aggregation platforms tend not to operate on a hub and spoke model, whereby the platform owners and organizers broker all transactions.
Social platforms are similar to each other in that they both aggregate a lot of people. Facebook and Twitter are leading examples, but instead of supporting the completion of a task or a transaction, they support engagement among like-minded people. In addition, they tend to foster networks of connections rather than hub-and-spoke interactions. People connect over time in ways that often do not involve the platform owner or organizer.
Mobilization platforms enable people to work together to achieve things they could not accomplish. They tend to foster long-term relationships rather than focusing on isolated and short-term transactions or tasks. These platforms typically bring together participants in extended business operations like supply chains or distribution operations.
Learning platforms facilitate learning by bringing participants together to share their insights over time. They tend to foster deeper, trusting relationships, as participants have an opportunity to realize more potential through working together. Business leaders who understand how to leverage these tools will likely increasingly seek such platforms.
The marketing of platforms
Platform businesses operate a different company than non-platform businesses. They enable them to scale much more quickly by creating network effects. Traditional companies use a linear process where they control entirely the value-chain end-to-end. Platforms create value by attracting, connecting, and matching diverse groups of customers to provide them with the services and products that they want.
Typically, platforms invite some customer segments and producers to co-create the product value proposition. Guests who use Airbnb experience a value proposition created by the host. When people use Uber, they experience a service designed by both Uber and its drivers. You can even use an app for your iPhone or Android phone, but you will not be able to experience apps developed using third-party developers. The final user experience depends on the strength and quality of both the platform ecosystem and its participating firms.
For example, Instagram’s early days were marked by a lack of marketing spending, but it was able to secure a top position in the app stores through its viral loop, brand ambassadors, and high ratings. Other companies such as Etsy also used the same strategy to keep their acquisition costs low, thanks to a robust viral effect, with the majority of their gross market sales generated from organically marketing channels (i. e., from users and sellers). More than 90% of Etsy’s site traffic comes from direct, organic, and email sources, with less than 10% from paid traffic. Etsy’s repeat purchase rate also illustrates the underlying strength of a large organic channel – around 80% of purchases is from repeat customers.
- Direct network effects: as more users join the network, the value of the network increases for everyone involved. They are essential for social media platforms. Same-side network effects refer to the impact of participants on one side (or both sides) of the network on other people on the same side (or both sides).
- Indirect network effects are influences of one type on another type of participant. In the case of Uber, drivers and passengers are not on the same side of the platform. With few drivers, Uber would create minimal benefits for a passenger. Long waiting times would be frustratingly tedious. The platform would be useless for drivers if there were not enough passengers. Idle time for drivers would make the platform of little value to the driver. The value of the social network increases with the number of participants who participate from different sides. Cross-side network effects are also referred to as indirect network effects.
Recruiting users onto the app is one of the essential steps to success. In contrast to traditional pipeline businesses, marketing funnels need to be different. Pull strategies are more effective and vital than push strategies. Awareness alone does not drive adoption and usage.
So, in summary:
- It would help if you created an environment where people could quickly join and learn the platform. UX / UI are critical enablers.
- Goods and services must attract customers: they become the hook and the reason to believe in the platform.
- Platform businesses must prioritize attracting end-users, content creators, streamers and sellers, and the complementors who will populate their platforms. New platforms may need to invest considerable resources in attracting complementary businesses. For example, YouTube has been reasonably successful in attracting both users and complementers across countries. In contrast, Tik Tok has seeded its platform with content creators in only a few international markets. Other platforms, such as Clash, started by giving away free access to their platform for everyone.
- Platforms may also be interested in providing substantial support to their complementor in exchange for exclusive content.