The current economic trend entails the disruption of major business segments by small start-up businesses. For example, Uber is a taxi company that has taken over the taxi business without owning even a single car. Additionally, Alibaba is slowly becoming the largest bazaar worldwide without having a single inventory in stock.
This is what is known as the “platform” business model. This model takes advantage of technology to create a connection between people, resources and organizations in the ecosystem to exchange ideas, services, and goods. Numerous companies have joined their market using this model plan. They include Facebook, Pinterest, Upwork, eBay, YouTube, and even Amazon.
The beauty of this model is the fact that it unlocks new supply and demand loops, eliminates gatekeepers, and creates loops for community feedback. For example, Uber has a matching service that works with a virtuous circle. This means that the drivers within an area are matched up with customers who request their services, on a rotational basis. This gives more drivers the chance to make money and encourages more customers to sign up for them and request for their services. This model has changed the economic phenomenon.
Traditionally, monopolies gained their status due to their supplying power to economies of scale. However, in this era of the platform business model, the current monopolies exist due to the demand created in economies of scale. They make use of the available technological improvements to increase their networks and form relationships with valuable users. The platform grows their income through cutting their exchanges, thus they are built to scale.
Tips for Building a Platform Company
Traditional companies are looking for ways of building platform to increase their network and client base. In fact, some people refer to these traditional companies as “pipelines” because they create a service or goo, create a channel, a send it to their clients. This creates a pipeline system. Nevertheless, even pipelines could transform into platforms. Apple is a good example of a company that is both a pipeline and a platform. The following are some of the points to consider in order creating a successful platform company.
- Enable an interaction- As you begin, aim at enabling an interaction between the main participants in the transactions, which are the consumer and the producer. Users access the platform because of the supported exchange of value. Thus, the platform has to secure a value unit for this purpose. This will create an exchange basis. For example, Airbnb has secure service information listing, which is its value unit. The seller creates it and serves the buyers with respect to the previous interests or search queries of the customer. The platform needs t have an algorithmic tool software that provides filters. These filters help the users receive the most valuable and relevant information as they access the platform.
- Attract and encourage interaction- The platforms are designed to create interaction, which aims at attracting more customers. For a company to attract an increase the volume of their valuable interaction, then they have to perform three functions. The function includes:
- Pull- In order to perform this function, the platform needs to formulate a solution to the chicken-or-egg problem. This is in the following form: a platform acquires its value form the presence of its users, and the users access a platform that has already secured its value. The “feedback loop” is one of the most powerful tools that encourage users to participate in the platform. At the same time, platforms need to put in some extra effort to please the already acquired customers. A good example is Facebook’s input in their platform. Once they realized the above function, they shifted their user platform efforts. Thus, instead of focusing on here an initial plan of recruiting members, they shifted their focus to helping their users find new friends, and this increased their interaction and attracted more users.
- Facilitate- The platform needs to roll out a wide range of creative tools. These tools will help make the interaction easier. Instead of having a limited number of tools that will force the user to access, other tools to supplement their service or product.
- Match- This is the most important factor out of the three. Platforms use their available information to create matches. They use value units, consumers, and producers. Additionally, they use the value of the exchange of services and goods. He uses their algorithms and the available data to make the interaction more effective.
All the aforementioned functions supplement each other to create the most perfect and effective platform
- Layer up interactions- Platforms need to layer up interactions with the already available core interactions. For example, both Lyft and Uber have supplemented their services by incorporating new ride-sharing services. These services complement their core models. The ride-sharing service entails customers finding each other and agreeing to share a ride in order to cut down on the cost and increase the river’s fare. Both parties win in this situation. In addition to this, Uber is helping their drivers finance their vehicle purchases by being the intermediary who guarantees the car loans for the drivers.
As you improve and increase your functionality and features to increase the usefulness and popularity of your platform, make sure that the simplicity of your platform is not compromised. Some platforms tend to forget that increasing and making feature improvements could affect the complexity of the platform. Manage this by slowly making changes; this will give you enough time to gauge the complexity that certain functionality brings to the platform. The functionalities specific to certain customers are limited to the periphery.
This what Amazon has done to its platform model. It has been deemed the most successful cloud-based storage platform. It has optimized its basic operation and has restricted the AWS customers to the periphery. Pay attention to all the tips mentioned above in order to have a successful platform. One cannot plan an entire platform since the users of the platform are the ones who control it. Thus, closely monitoring the behavior of users could help in creating better functionalities for the platform.