A platform is a business model that creates value by facilitating exchanges between two or more interdependent groups, usually consumers and producers.
In order to make these exchanges happen, platforms harness and create large, scalable networks of users and resources that can be accessed on demand. Platforms create communities and markets with network effects that allow users to interact and transact.
Like Facebook, Uber, or Alibaba, these businesses don’t directly create and control inventory via a supply chain the way linear businesses do. Platforms don’t, to use a common phrase, own the means of production— instead, they create the means of connection.
DEFINITION: a business model that creates value by facilitating exchanges between two or more interdependent groups, usually consumers and producers.
Successful platforms facilitate exchanges by reducing transaction costs and/or by enabling externalized innovation. With the advent of connected technology, these ecosystems enable platforms to scale in ways that traditional businesses cannot.
It’s important to remember that a platform is a business model, not just a piece of technology. A lot of people make the mistake of conflating a platform with a mobile app or a website, but a platform isn’t just a piece of software. It’s a holistic business model that creates value by bringing together consumers and producers.
The most common misuse of the term “platform” is when it’s used to describe an integrated suite of software products. This is especially common among SaaS companies, which love to claim they have a complete “platform” for X. In such cases, the word “platform” really is just being used as a marketing term. As with all of the preceding examples, these SaaS companies are still linear businesses. They’re products, not networks, and as such, they don’t have the cost structure and underlying economics that make platform business models successful.
Remember: Platform design isn’t just about creating the underlying technology. It’s about understanding and creating the whole business and how it will create value for and build a network.
Platform business models aren’t new. In fact, they’re as old as human civilization itself – all the way back to early marketplaces, bazaars and auction houses. Think of a bazaar in ancient Rome. The bazaar owner leases booths to merchants. The merchants put products in their booths. The bazaar owner then advertises to customers to come to the bazaar. The customers consume the goods that the merchants, the producers, are offering to sell. The platform – the bazaar – facilitates these exchanges by bringing together the consumers and producers.
In the 20th century, we saw platform business models in the shopping mall and auction house. Like their predecessors, these businesses have mostly used brick-and-mortar locations to facilitate exchanges. But thanks to connected technology, platforms can now facilitate the exchange of value produced by decentralized networks of individuals. The result is that platforms can now facilitate exchanges at an unprecedented scale.
That’s why in the Connected Revolution, platform business models built on technology will create the most value.
At society’s current pace, it’ll take multiple generations to adopt platform business models. But we believe that’s far too long given the value platforms create. Bloomberg has also recognized that this future is not far off in its review of our book Modern Monopolies. So we became the world’s first full-service Platform Innovation® Company, focused on delivering upon our mission of organizing the world’s exchange of value through technology.
While all platforms share the same underlying business model, not all platforms are the same. Through our work and research, we’ve delineated the 8 different types of platform businesses, which are listed below. They are organized by the type of value that’s exchanged in the platform’s core transaction.
1. Services marketplace: a service
2. Product marketplace: a physical product
3. Payment platform: payment (P2P or B2C)
4. Investment platform: investment (money in exchange for a financial instrument, be it equity or a loan, etc.)
5. Social networks
a social network in which the core transaction is a double opt-in (friending) model of interaction
6. Communication platform: direct social communication (e.g., messaging)
7. Development platforms
Closed development platform: software built across access to data (usually via an API)
Controlled development platform: software built in a controlled, integrated development environment
Open development platform: open-source and free software
8: Content platforms
Social: a content platform in which the core transaction focuses on the discovery of and interaction with other people
Media: a content platform in which the core transaction focuses on discovery of and interaction with media
For further information on platform types, read more here.
Product and Services
Commoditized: a platform in which the good or service being exchanged has a few relevant characteristics that determine quality for consumers
Non-commoditized: a platform in which the good or service being exchanged has a large number of relevant characteristics that determine quality for consumers
For more on this distinction, read here.
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