Every platform business has four primary functions:
If you do these four functions well enough, your platform will be able to facilitate its core transaction (and, hopefully, a lot of it!)
Every transaction needs a producer and consumer. People are all unique and every producer or consumer user base has various personas within it. Each user group has different motivations, needs and wants. Empathizing with your users’ and understanding them enables you to figure out how to maximize the value that you can provide them.
Example: Uber provides algorithmic matching that connects consumers with drivers based on location and availability.
Solving for the chicken and egg problem is a recurring problem that every platform needs to solve at each stage of growth. There are 7 strategies that we explain for how you can overcome the problem. All of them involve some form of value subsidy. In order to get one (or both) sides of your user ecosystem to engage in your ecosystem, the platform needs to subsidize the appropriate amount of value.
There are two types of value subsidies: monetary and product subsidies. A monetary subsidy could be a referral fee for your friend to sign up for Uber or for you to refer a driver. It could also subsidize the cost of Uberx to make it more affordable for repeat use. A product subsidy would be the VIP program which provides more value to Uber’s top consumers and more business to their top drivers.
Example: OpenTable created back-end booking software and gave it to the top restaurants in San Francisco so that it could attract customers when it opened online booking to consumers.
Setting Rules & Standards
Platform businesses use technology to curate access and usage between multiple user groups with a goal of facilitating an exchange of value. The platform should think of itself as the mayor of a town who can create rules to help govern and, hopefully, incentive the right kind of growth.
Example: Twitter set a 140-character limit for Tweets.
With the major functions of the business model determined, the platform can focus on creating the right kind of value by building technology. The technology should unlock value in the right places so that enough value can be created and exchanged through the platform’s product(s). Finding the right balance of product features and what technology should be built is a function of understanding all of the four core functions holistically.
Example: Airbnb provides software that makes it easy for producers to manage booking, availability, communication and payments. It can even help you calculate your tax obligations from Airbnb income. It also provides insurance that covers hosts.
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