Platforms – what are they, and why should you be interested?
Platforms 101 – Cutting Through the Jargon
One of the joys of my role at Rezare is the conversations I get to have. Week-to-week, I chat with founders of small start-ups, back-yard inventors through to Product Managers, Business Analysts and senior executives at large corporates.
Throughout these conversations, I’ve noticed the word “Platform” coming up a lot. Everybody wants to design and be the next platform. From big to small – there’s a desire to platform-ise their offering and create value within this new model.
However, I’m beginning to wonder if the concept of “Platform” is falling victim to the curse of business-jargon. There are two common symptoms when a word becomes jargonised:
- The word becomes a catch-all for an ever-increasing array of concepts;
- The concept is explained as if it is a remarkably easy process to implement.
The truth is – creating a platform is not the same as creating a discussion hub or forum on your website. Neither is it creating customer accounts or specialised CRM segments. For most of us, your application itself is not a platform either (though it may be built on a technology platform from another vendor).
And the even more pressing truth is – designing and launching a platform business is a challenging process, which very few organisations get right.
At Rezare Systems, I’ve worked with client businesses on developing what we hope will become platforms. I’ve also read some of the best resources around platform philosophy and practice (I highly recommend Platform Revolution by Geoffrey Parker, Marshall Van Alstyne and Sangeet Choudary).
So, I thought it beneficial to share what I’ve been learning and implementing, so you can start thinking how building a platform may fit within your business.
What is a Platform?
The simplest way to understand a platform is to think of a farmer’s market. You have producers and consumers, meeting in one place to exchange value. One side is giving up what they produce, and the other is exchanging money to gain this food.
A platform is just that – a business grounded on allowing value-adding engagements between producers and consumers. The platform itself provides the infrastructure for these open interactions – and also arranges the conditions which makes for a fair exchange.
In short – a platform is a space which matches users and oversees the exchange of goods, services and currency.
The big examples of platforms are easy to spot and explain. Airbnb is a platform, as it provides a space for producers (people with a spare couch, bedroom or home) and consumers (people needing a place to sleep). It governs their interactions (through the UI and their tools) and offers an infrastructure for the exchange – money for accommodation.
Similarly, TradeMe, Udemy, Uber, Apple’s App Store, Amazon’s Web Services, LinkedIn – and of course, Facebook, YouTube and Instagram – all feature as platforms. They may be monolithic examples, but each of these businesses is focused on creating a space for producers and consumers to interact and exchange value.
Digging deeper, The Platform Revolution provides a helpful overview of the three types of exchange all successful platforms involve.
- Exchange of product
This is the simplest level of exchange – with some form of good or service being shared from producer to consumer. This may be as simple as a photo or post (as in Facebook), completed work (as in Upwork), or travel (as in Uber). It may be that the product is exchanged within the platform (such as in LinkedIn), or it may be that the exchange is external to the platform (such as Airbnb).
- Exchange of information
Every platform interaction begins with information, not product. The information is critical to allow both the producer and consumer decide if they’re going to engage in an exchange.
In New Zealand, Bookabach provides the information of the holiday homes available, the location, the rate and details about the owner. In return, the potential renter provides information about themselves, other guests, ideal dates. This information exchange is critical – and the best platforms work to make the information exchange as seamless as possible – linking producer and consumer effortlessly.
- Exchange of currency
Now, the typical exchange in a marketplace is simple. You give me the goods, and I give you money. Many platforms function in this way – and the business model for generating revenue is fairly simple.
However, the digital economy is introducing other methods of currency. TripAdvisor, for example, operates in the currency of reputation. If I have a great experience with a restaurant in person – the platform allows me to exchange the value of the information about this restaurant, with a positive review of the restaurant.
YouTube is a platform that functions with the currency of views and attention. Facebook models this with likes. Google models this with impressions and CTR.
The real value of the platform comes from the platform owner’s ability to utilise all the information – information about the producers, consumers, exchanges, interactions – to make meaningful matches.
You know this – when you’re on LinkedIn, for example – you want information in your feed that is relevant and interesting to you. Similarly, when you produce content on LinkedIn – in the form of a post, article or link – you want this to go to people who will find this interesting and relevant.
LinkedIn’s algorithms are what make this possible – and they are the key value of the platform. They allow your content to cut through the noise and allow you to receive the information you will likely want to interact with.
So, you’ve got the basics of what a platform is. But why is this important? What are the advantages a platform offers over a traditional pipeline business model?
- The most obvious and significant advantage is the ease of scalability.
In a traditional pipeline business model, growth is limited by your business’ ability to produce. In a platform, however, growth is created by the interaction of consumers and producers on your platform. Each additional producer increases the supply possibility of your market, and each additional consumer on the platform increases the demand.
This growth is not linear, but convex – as each new producer can interact with each consumer. To put this simply – if you have one producer and one consumer, there’s only one possible connection. If you have 50 producers and 50 consumers – there’s 4950 potential connections.
- Platforms also unlock new sources of value and supply.
Traditionally, the selling of second-hand goods occurred at second-hand stores, or garage sales. Now, with TradeMe and Facebook Marketplace, goods are exchanged constantly – with almost every New Zealander functioning as a producer of second-hand goods.
We’re starting to see similar functionality appear in dedicated agricultural equipment marketplaces too – especially in the rental space where the platform’s currency component looks after payment and insurance. This is a step on from listings that leave the transaction to occur outside the market.
Airbnb has led to many previously empty spaces becoming sources of accommodation, and Uber has led to everyday cars becoming taxis.
This is the disruptive power of platforms, which can unlock new value and supply out of pre-existing assets. A platform creates new value and supply for not only the business that owns the platform, but also for the producers who engage with the platform.
- Platforms provide real-time feedback loops, allowing for rapid changes and response to opportunities.Traditional pipeline models have a significant lag in their feedback – relying on controllers (supervisors, editors, researchers) to determine the effectiveness of the product or service, and make decisions to alter the model.
A platform, on the other hand, provides a constant stream of data from each interaction. This data – including price-points, engagement times, search queries, geographical location – can all be used to feedback into the business, allowing for more value creation and a better experience for all.
Uber, for example, provides a regular flow of data so consumers know their wait time and cost of journey. Drivers utilise the same data to optimise their routes and maximise their hourly rate. Uber – the platform owner – can use this same data to alter their price point to maximise their revenue, based on real-time supply and demand.
If you’re not a fan of Uber (or have questions about their long-term profitability) – the same is true of any successful platform. Facebook utilise this data to help buyers and sellers interact (both through Facebook Marketplace – a platform-within-a-platform – and within Facebook advertising). Amazon utilises this to help producers and customers identify the best price point.
This constant flow of data allows the business to optimise in real-time, taking on board market feedback and creating more valuable exchanges.
As you can see from this brief primer, developing a platform offers several advantages to the traditional pipelines model – but it is also not an easy undertaking! We’ll explore in the future the critical elements of a successful platform – and how you can begin designing a platform within your business model.
In the meantime, feel free to send me your comments and questions around platforms – especially within the agricultural industry – and I’ll endeavour to respond.