Platforms as a Business
What is a Platform?
Before deep diving into Platform as a Business, let’s look at what a Platform is.
A platform, in general, can be defined as a hardware or software architecture that acts as a basic structure upon which applications, processes, and technologies are developed and run to enable business or work outcomes.
While developing an application is one end of being the platform, the other end of the platform ecosystem is the business value driven from technology. The value of platforms comes from linking them to a specific business strategy and having a holistic understanding of how all its elements work together.
Looking at it from a business standpoint,
Platform is a business model that creates value by facilitating exchanges between two or more interdependent groups, usually consumers and producers.
I would stress the importance of the same in the below sections.
Platform as a Business
To understand this better, consider an app developer building a fitness app (eg: Healthifyme) on iOS or Android Mobile Platforms which is further used by millions of fitness enthusiasts. In this case app developer is the producer and fitness enthusiast is the consumer which is facilitated by the platforms to make these connections, hence creating a network of interactions which drives the business strategy.
Platform businesses are not new but with the advent of technology and the interactions that are facilitated today are unprecedented, leading to a dramatic transformation in the way modern digital businesses are running today. Many brick and mortar businesses are transforming their businesses at a breakneck pace in order to be not left behind in this technological adventure.
There are two major systems which need to be accounted for in Platform Design.
- Core Transaction of a Platform Business
- Functions of Platform Business.
Core Transaction in a Platform Business
For a platform business to generate and consume value, there needs to be a core transaction. The core transaction is the platform’s “factory” — the way it manufactures value for its users.
It is the process which turns connections into transactions.There are four prime actions that constitute the core transaction — create, connect, consume and compensate.
Let’s consider the example of Healthifyme on Android Platform to understand how these four actions facilitate the exchange between producer ( Healthifyme app developer) and consumer ( fitness enthusiasts).
While above actions complete a core transaction on the Platform, it’s the repeatability of above actions over and over again that makes a Platform business successful. While the above actions may not always follow a linear path, what matters is that consumers and producers continue to generate and exchange value repeatedly.
Functions of Platform Business Model
For facilitating the core transaction in a Platform business, it would have to execute these four functions well so that producers and consumers can create and exchange value on the Platform.
Let’s understand these functions by taking Facebook’s example.
- MatchMaking : Attract users to join the Platform
Facebook attracted users to its Platform by projecting itself as a way to connect and share memories with family and friends even when people are remote and not together physically.
- Audience Building : Aiding them by matching them together
Once users are already on Facebook, it employs algorithm on its Platform to encourage audience building by prompting matching profiles to connect using their location, education, work history etc.
- Tools & Services : Providing the technology to facilitate the transaction
Once users are already on the platform, for them to stay there to ensure repeatability of the core transaction , it has various user friendly functions such as posting messages, sharing videos/photos, connecting via chat/video to friends/group of friends etc. so that they would want to stay on the platform to remain connected
- Rules & Standards : Establishing the rules that govern the network in order to build trust and maintain quality
As Facebook creates and exchanges value between external audiences on which they would have very little control, they also have a set of rules violating which users may be disbarred or inappropriate content is removed from the platform.
Type of Platform Business
While Platform businesses follow similar business models, there are different types of platform business categorisation.
Broadly, two fundamental types of platform businesses exist.
- Exchange Platforms create value by enabling direct exchange between consumers and producers.
e.g. : Uber, Amazon, Airbnb, Whatsapp, Skype
- Maker Platforms create value by enabling producers to make content and broadcast it to large audiences.
e.g. : Facebook, Twitter, youtube , LinkedIn, Android, iOS
Within exchange and maker platforms, there is further separation amongst Platforms by Platform types. For more information, you may refer here.
Eventually a platform needs to create a repeatable process which will repeatedly create value. To build this value, platforms rely on a core transaction which basically turns connections to transactions on the Platform facilitated by the four core functions of the platform.
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