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Arguably the most important distinguishing criteria of a unique platform strategy is how you position yourself from your competitors. Many up-and-coming startups use analogies like ‘’Air BnB for [insert product name here]…’’ while promoting their business model. The problem is that such an approach only ensures that your company will be characterized as another ‘’me too’’ startup and not something truly innovative.
It goes without saying that the value of your platform is governed by how easily users can benefit from it. Chances are that some sort of platform already exist in the industry you operate in so that you do not have to reinvent the wheel. Whether acting as a review site for aggregating business technology softwares like G2 Crowd to indexes and directories that facilitate information exchange, platform businesses may be of very different types. This is true both in terms of the person or company behind it and the purpose that they serve. Here’s a brief discussion of some main types (others can be found here).
These platforms operate by providing a service usually free of charge. They are not governed by network effects (where the worth of a product or service increases depending on how many people are using it). Users hold the main power because their presence brings in more businesses on that platform. Some examples are:
Advertisements – Platforms such as Kayak, Google search, Facebook, LinkedIn and Twitter attract millions of users everyday who can be reached via targeted ads.
Information – Content marketing is becoming the major channel for customer acquisition. Platforms such as YouTube and Medium connect content producers with consumers, allowing you to build an audience of potential customers.
These platforms connect market with users (and so are two-sided i-e linking buyers with sellers). In these platforms, the-more-the-merrier concept holds true in terms of variety so that the more services and products there are available, the more powerful the marketplace becomes. It usually starts with a small number of sellers offering limited products or services to a niche audience and then expands from there once there is a large number of sellers available on the platform. Some examples are:
E-commerce – Amazon and ebay are very famous examples of this.
Hiring- Upwork, Fiverr, Freelancer and PeoplePerHour (PPH) are some examples of this type of marketplace.
It is possible to leverage the vast resources of a platform to build your own set of products. Companies such as Facebook have partner programs which allow you to build applications on top of the Facebook platform, leveraging their data and established user base through what are known as API’s. Companies, and even industries have been founded on top of platforms such as this, with examples being the wildly popular Farmville. Other development platforms such as Google Play and the Apple Store allow you build and publish your own general use applications, with a set of tools contributed by the community to help you along.
Let’s say you are considering launching your own platform . Typically, platforms that are already established and have reached a point of liquidity will be hard to displace due to network effects. However, there may still be potential to become a key player if you are able to add unique value or disintermediate current platforms using the blockchain.
The process involved in building a platform business is different from a non-platform business. As there is a winner-takes-all trend prevalent in platform business , it is even more critical to make the right strategic decisions. Factors to take into consideration are:
Existing platforms – With non-platform products it is possible to penetrate the market with a slightly better value offering or pricing. This isn’t true for platforms as people are less likely to switch if all the users are in one place. Their reputations and networks are already established and it will take a lot of convincing for them to uproot that.
Problems to solve – A platform isn’t a solution to every industry. Sometimes, the need may not be strong enough from either sides of the market to warrant them using your platform. With platforms, there is a stronger risk of a solution looking for a problem than traditional products.
As mentioned previously, the monetization of a platform depends on how easily users can benefit from it and whether the number of people actively using that platform has reached critical mass. The first goal is to create market liquidity, which is the ultimate value you can provide as a platform. Unless you are creating a completely new market from scratch, you need to use new technologies or processes to facilitate and enhance the efficiency of the market too.
Uber is an excellent example of this. They use technology to allow you to track exactly where your driver is in real time, with a time estimate so you can plan accordingly. The driver already knows your name, what you look like and where you want to go without you saying. To top it off, you can pay through the app so you don’t have to worry about cash – providing the ultimate taxi concierge service.
Once you have your platform opportunity identified, you need to think about how you will seed both sides of the market. Typically, it is the demand side – those who are willing to hand over money – that is harder to get. Where there is demand there is usually always vendors who are willing to supply. But this isn’t always the case, as seen with online dating where the inverse is true. Depending on your market, you will first have to decide which part of the network is most important to start with.
It isn’t always the case that you will need to completely seed one side before the other. Instead it is more of a balancing act – you onboard a certain amount of people for one side of the platform and then do the same for the other. But this depends on how your platform operates. For instance, an on demand carer platform would have to start in a specific geographic location first otherwise they won’t be able to match supply and demand due to geographic constraints. Finding this balance in your specific market can make or break your platform endeavours.
When your platform starts growing, you will need to implement methods of quality control to ensure that users are gaining the most amount of value from other participants. What companies like Twitter do is usually a combination of in house curation, algorithms and community curation. As a content platform, they have algorithms that automatically block certain behaviours such as hateful language or indecent images. But sometimes things slip through the cracks which is where human moderators come into place. For the most part however, due to the large amount of content being produced, it is up to the users to flag inappropriate content to be removed.
For service or vendor platforms, review and reputation systems are the most prominent way that quality is controlled. People are able to learn about other people’s experiences and decide whether they want to interact with that vendor given their preceding reputation. In the case of disputes, these platforms also provide mediation when a conflict can’t be resolved.
When you build out your platform, a significant amount of the value you provide will be in how you organize and deploy both information and data.
Information – Platforms are about providing transparent market information so that buyers and vendors can make informed decisions. This transparency helps with competitive pricing, buyers finding the right products for their needs and a more trustworthy and robust marketplace.
Data – The aggregate data you gather from users related to average price points, market growth and buying trends is a hidden goldmine for both yourself and other companies. At the micro level, you can collect personalized data about individual buying habits and use this data to fuel future recommendations and match making.
The final aspect of your platform you need to consider is how you will monetize it.
Transaction fees – If you are facilitating transactions through your platform via a payment provider, the easiest way is to take a small cut or add a service charge to each transaction. This fee needs to be substantial, but not large enough to motivate users to take business off the platform.
Membership – Some platforms ask for recurring or one off fee to join the platform – e.g a monthly fee to set up shop or for advanced tools that can help to navigate the platform.
Data – There is a vast amount of data that you can collect that is of particular use to people in your industry. This data can be packaged and sold in the form of API access or databases.
Advertising – In most platforms, there are usually people that are willing to pay for greater visibility for their service or offering. Google Ads is a good example of this and integrates sponsored search results with organic search results.
Platforms represent a form of disruption and removal of gatekeepers, but they too are at risk of disruption. Platforms ultimately have replaced multiple middlemen with one, which means that there are still opportunities to completely disintermediate industries. This is where blockchain technology can be useful
Disintermediation – Blockchains enable completely decentralized platforms that provide most of the benefits of a centralized platform without the fees or potential abuses in power. As platforms become larger and more monopolistic, they tend to use this power to extract as much as they can from their users. This creates an opportunity for a new decentralized platform that can offer users cost savings and peace of mind that their business isn’t at risk from a central authority. If there are any centralized platforms in your space, see if there is a means that they could be replaced by a decentralized version.
Cryptocurrency – You can use the financial element of the blockchain as a unit of value on your platform which serves multiple purposes. The first being it can be used as a means to incentivize early adopters to your platform as they are rewarded financially for seeding the market. The second is that they have practical uses such as storing and representing data, identification and acting as positive social signals to help facilitate the automation of a decentralized platform.
The reality of platforms, including those that are decentralized, is that their rise and popularity will always result in a monopoly within a certain domain. Even with Blockchain platforms, the power will never be completely evenly distributed and there is a chance that they could become oligarchies.
Sascha Grumbach is an entrepreneur with comprehensive practical experience as a business consultant and project manager in innovation- and disruption projects.
