The term platform is frequently cited in technological circles but often misunderstood. Google, Facebook and Amazon are the giants of the 21st century platform, but what exactly is a platform and should your company build one? Like most questions, the answer is "It depends", but if you want to expand your user base, build closer relationships with your suppliers and make it harder for competitors to conquer market share, you should at least consider a platform strategy. .
When designed and executed properly, a platform can be a cost-effective way to grow your business and create a sustainable and profitable business. As Accenture recently pointed out, the 15 largest publicly traded platform companies have a market capitalization of $ 2.6 trillion.
1. Enjoy network effects
One of the main reasons why platforms such as Google, Facebook, Amazon and eBay have been so successful is that they have exploited the phenomenon often described by network effects economists. At the base level, network effects explain how the value of a network or service becomes disproportionately greater for its users, plus there are users.
For example, a social network offers more value to new users and current users as new people sign up and increases the potential number of connections available. Few people wanted a fax machine while there were few fax machines to send and receive messages, but as the user base increased the value of a fax machine. If you can get network effects from your side by building a platform that can exploit them, you'll create a powerful and positive steering wheel effect.
2. Make the task harder for your competitors
A two-sided platform that brings buyers and suppliers together can be a powerful way to keep your competitors out of your market or, at the very least, make it more difficult for them to succeed. Uber has been able to do this in many big cities. Although the company has competitors, Lyft for example, it would be very difficult for a new entrant to double them in places where they are well established. A defensible market reduces the need to consistently spend significant amounts of money on marketing because higher barriers to entry may be more effective than expensive advertising campaigns.
The disadvantage of this situation for society in general is the tendency of some platform companies to be too successful and become de facto monopolies. US Senator Elizabeth Warren's recent call for the dissolution of Amazon, Google and Facebook shows that platform strategies can draw unwanted attention if they become too big.
3. Profitable value creation
In the end, businesses aim to provide value to customers and receive a return payment. On a double-sided platform such as Facebook, this payment can be a consumer attention and attention and an advertising of corporate dollars. The key point is that both sides of these platforms are valued, the owner of the platform playing the role of intermediary.
Digital businesses lend themselves to this type of business model because they can be launched with relatively little investment and evolve effectively as demand grows. From the point of view of the platform owner, this proposal is attractive because it can exploit these inputs at low cost. eBay, Uber and Airbnb have been able to grow so quickly because they do not need to stock inventory or invest in infrastructure beyond what is needed to build the platform. The fundamental value they add is the trust, both from the suppliers they will be paid and the users, that the service or product will be provided by the supplier. Review systems and repayment guarantees build trust in the platform.
4. Keep your customers close
The principle of locking customers has been established for a long time. Gillette invented it with razor blades; Once a customer has purchased a Gillette razor handle, he is forced to buy the blades from the company, unless he passes to a competitor's product. This also applies to the economy of applications. Showing your app on the user's home screen dramatically increases retention rates and reduces the churn rate.
Apple has successfully created an ecosystem of hardware and software around the iPhone that, the longer a user is withheld, the harder it is for him to leave. When your photos and files are backed up to iCloud and your playlists are all on Apple Music, the less time you put into migrating to Android and transferring your files to that platform. As long as your platform brings value to users, your user base is secure, with all the benefits that platform owners bring to the cost of customer acquisition.
The economic benefits of being able to execute a platform strategy as part of your business model are clear. Investors are more likely to be attracted to a start-up that promises to create a platform from which future innovations can be launched. However, platforms are not just for startups; Established companies need to determine whether a platform strategy could be a good way to scale up existing product and service lines. Microsoft does this very well with its Office software and Azure platform. Maybe you should think about it too.
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