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Platform Business Models or: The New Marketplaces

Without the rise of the Internet, platform business models would not have been able to walk the path they have been taking over the past years.
Unlike ‘traditional’ business models, platforms do not produce products or services and then sell them to consumers, but they provide a stage for users to create and both consume value. Hence, users can create value using a platform for other users to consume.

This immense shift in business structure becomes apparent when comparing a classical push model, with a platform i.e. TV Channels vs. YouTube. TV Channels first create content and then push and sell it to the consumer. Using YouTube, users can create value for others using the platform model.

Platform business models are not new. A marketplace or bazaar could be seen as the most basic form of a platform. As spots are leased to sellers to set up their stalls, and customers come and browse the market, buying goods. The marketplace facilitates these exchanges by bringing together consumers and producers, essentially functioning as a platform.

Based on the connected technology of today, platforms can now facilitate the exchange of value produced by decentralized networks of individuals. Resulting in platforms facilitating exchanges at an unprecedented scale.

Seeing how loosely the term platform is actually laid out, one might ask:

What actually IS a platform?

With the goal to appoint a definition for the word ‘platform’, Sangeet Paul Choudary documented to following train of thoughts on his blog platformthinkinglabs.com:

“A platform is a plug-and-play business model that allows multiple participants (producers and consumers) to connect to it, interact with each other and create and exchange value.”

He bases this definition on the statements that a platform’s goal is to enable interactions between producers and consumers and it achieves this by architecting incentives that repeatedly pull these participants to the platform, providing a central infrastructure on which participants create and exchange value, and matching participants with each other and with content/goods/services created on the platform.

So, at its base, a platforms nature is very generic, which is also its most powerful aspect: the potential for new ways of usage built on top of the platform, or even combined with other platforms. Like toy blocks with the ability to communicate and benefit one another.

This requires a system of participants to work together. Hence, the creation of holistic solutions is heavily dependent on data-driven feedback from users. When users choose different products and services, and use them in combination, a platform provider can better understand the unique combinations of products and services that work best and the gaps that exist in provisioning a comprehensive solution.

And finally, offering a comprehensive solution has many benefits, but it can lead to additional complexity of the provided platform. Not only technologically but in terms of governance of the multiple partners coming together to enable a holistic solution.

User experience and usability can suffer under the economic rule and the balance of many aspects determines how successful such solutions end up being.