#67-How to Build a Platform Company or a platform business model?
Digital platforms are highly dynamic web portals and mobile apps with a huge user base of suppliers and buyers to enable a business transaction efficiently. They are the most efficient models to connect a consumer with a business, generate and harvest data, expand into partner ecosystems, newer markets and execute a seamless transaction.
I write extensively on super-apps, platforms, and digital ecosystems. You can read the full series here:
Why platforms matter?
All industries will have a platform company that acts as an orchestrator of an ecosystem within a particular geography. There is a significant commercial opportunity for platform-driven value creation in every industry and region. The highest returns will be realized by the company that controls the platform and the access to the end customer. There are just one or two (definitely not more than 3–4 if the business has to stay profitable)opportunities in every industry to orchestrate a platform in any given region. The role of the platform orchestrator is like the role of a business running as a near-monopoly or duopoly.
The Rise of the Platform Companies
Platforms are the present and the future of most business models. They are usually the technology companies that build a mobile or web infrastructure that allows customers to interact and transact with the sellers through a mobile app or a web-portal. A new generation of multinational enterprises is rising fast on the world’s business scene. These new-age tech companies grow at pathbreaking speed, effortlessly crossing borders into markets that have been a challenge for more established multinationals. These digital-first companies are ideally suited for a global economy that is being rapidly interconnected by digital technologies and data flows. These platforms have already disrupted the global telecom, retail, transportation, entertainment, hospitality, gaming, and media industries. They are beginning to disrupt financial services, logistics, food delivery, health care, and consumer electronics, and no sectors will be left untouched.
How to Build a Platform?
Every website or mobile app is not a platform. However, it can potentially evolve into one by the shift of the business model and creating a significant user and supplier base.
- Interaction layer: This is the layer of core value, interaction, transaction. What are the buyers and suppliers meeting to exchange-content, product, or service?
- Technology layer: The technology layer refers to the entire digital infrastructure that is needed to run a platform. A technology-stack is a set of tools to construct and power a mobile or web-based application. It comprises software applications, frameworks, and programming languages that realize some aspects of the program. Structure-wise, the tech stack consists of two equal elements- frontend or client-side; and the server-side or backend. Combined, they create a stack that can support mobile platforms, web-platform, or both. Data analytics and cybersecurity are also essential parts of the tech layer.
- Governance layer: The governance layer refers to the rules and processes that govern the behavior of all the parties transacting on the platforms. If the governance structure is not in place, then the platform transactions will lead to disputes, a negative feedback loop, and ultimate breakdown.
Platform-based companies differ from traditional multinational companies in several fundamental ways. Conventional value chains, for example, begin with product development, followed by production, marketing, sales, and distribution. Digital marketplaces, by contrast, create value by connecting supply and demand and consummating deals among diverse sets of players across a virtual value chain.
Is there another way to look at platforms?
Platform definition is highly complex and contextual. However, if I were to simplify things for you, they could be categorized as content platforms, functional platforms, and go-to-market platforms.
- Content Platforms: Content platforms are where the users research, discuss, and previews your offerings. Search engines, social networks, and even pre-transaction search on e-commerce companies about your brand fall under this category. They are also expanding into social commerce to cannibalize e-commerce companies. Advertising is the major source of revenue for these platforms.
- Functional or infrastructure platforms: They help in engagement, and upselling to the user. Special add-on features get unlocked by paying a premium fee. Upselling and cross-selling to maximize returns from the free users on these platforms. The iTunes, IOS, Android, and the windows platform that allow developers to sell and transact through their applications. License fees, service fees, or commission fees are the major source of revenues.
- GTM (Go to market) platforms: Platforms that help you sell into new markets and new categories. Ecommerce platforms facilitate the digitization of sales. Even social and content platforms are trying to evolve in this category. Advertisement and e-commerce sales commission (a pre-agreed %), are the sources of revenues.
The Network effects is the key differentiator
The platforms outperform traditional companies because of the network-effects. A network effect may sound like business jargon, but it merely means that every additional user of goods or services has an incremental impact on the value of that product to others.
In a network effect, the value of a product or service increases according to the number of users.
- One-sided network effects: Some examples of a one-sided network effect are WhatsApp, Google Duo, and Signal.
- A two-sided network effect- This takes place in marketplace platform businesses — for example, Amazon, Uber, Airbnb, and eBay. More supply means more demand, which leads to more supply. As the user and the supplier base grows, the FOMO (fear of missing out) factor also kicks in, and hence little or no marketing expenditure is needed. Customers and suppliers both flock to the platform to buy and sell products or services, respectively.
Future Transformation Roadmap: Top Imperatives for the CXO’s
- Is there a platform orchestration opportunity that exists in your industry
- What kind of platform suits your industry the most- freemium, subscription-based, online marketplace?
- How to launch a beta version of the platform before rolling it out for all the customers, partners?
- How can you partner with the most relevant platform in your industry or geography?
- How can you launch a platform that makes competition dependent on your business to reach out to customers or for technology?
Best regards,
Sidhartha Sharma — Director and Digital Strategy Expert (views are personal)
