What is an example of a platform business?

What is a platform model?

Uber, AirBnb, Lyft – platform business companies are springing up everywhere – but what exactly is a platform business model?

Platform is as a term is used for both technology and business model. 

According to Accenture in its “Technology Vision 2016” report, “unparalleled growth of the digital economy has put it on course to account for 25% of the world’s entire economy by 2020. 

“What we’re seeing is that the platform business model is a huge piece of how a lot of big companies are planning their futures,” said Michael Biltz, managing director of Accenture Technology Labs in San Jose, California, who advises firms on platform development. “Not all companies will create platforms themselves, but most firms are looking to carve out a nice meaty role within some of these new ecosystems that are just starting to be developed.”

What is a platform business model?

So what is the difference between traditional and platform business model?  A traditional, linear business takes in raw materials/components, creates products or services and sells them to its customers. A linear business owns its own inventory.

In contrast, a platform business facilitates value exchanges between two or more interdependent groups, usually consumers and providers. Platform businesses can be both physical and virtual (AliBaba, eBay). Platform businesses are a valid in B2B, B2c and public and private sectors.

In platform businesses, providers both get value from and give value to the platform, and consumers do the same. Platforms can have many more than two sides. For example, Facebook has at least four: it connects users, third-party application developers, advertisers and third-party websites.

Platform businesses exist in a platform ecosystem. The ecosystem consist of the value exchanges that are taking place; the space for conducting platform business; the players who participate; the rules by which platform business is conducted; and the tools which are available to those players. Businesses and individuals participating in a platform ecosystem benefit from network effects where the value of the platform goes up the more participants use it. Platform business ecosystems are most valuable in a market where there are lots of players.

Three archetypal platform business models

1. Exchanges. Value emphasis = filtering and matching. These enable buyers and sellers to meet. Dating agencies and online auctions are good examples. The value that is provided by the platform is the bringing together of the parties, helping them find each other, establishing the ground rules of exchange.
2. Transaction platforms. Value emphasis = removing friction and de-risking. These are similar to exchanges but focus mainly on providing the mechanics for transactions to take place. In a very rudimentary sense, cash itself is a transaction platform; credit cards are perhaps a clearer example.
3. Component and tool-rich platforms such as software platforms. Value emphasis = faster and higher-quality product creation. These platforms use standards to make sure everything fits together, and building blocks that can be used to quickly create a solution. Microsoft Windows was very helpful to developers when it came along because they didn’t have to create their own methods of displaying windows, managing mouse movements and so on. It was also very helpful to PC users, because it meant that anything written to work with Microsoft Windows would work on their Windows PCs.

The platform business model is particularly compelling because it converts traditional, linear value chains into multi-dimensional value networks and ecosystems. Platforms are flexible and scalable: it’s a more streamlined approach, not only do businesses save on time, they also reduce the possibility of errors.

Platforms also allow a seamless exchange of data. That data can be aggregated and mined for insights and innovation and to generate incremental revenue streams. By collecting data sets around consumer and industry trends, the platform allows users to analyze and ultimately predict and plan for new products.

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In my Blog you can find my curated series of Platform Business News that covers timely how platforms are having an impact in different industries and how the latest technologies are enabling business model innovation.

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In the Insights section of Platformbusinessmodel.com, I will dig deep into various aspects of platform business.

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On FAQ-page you can find a listing of the most frequently asked questions on platform business model.

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