limited communication channels to promote their product/service and find new markets. Building a platform, especially after a decade of buzzworthy attempts and a few huge successes (Amazon, eBay, Uber, Airbnb), is really, really hard. This is where search cost reducing platforms come in. Which transaction and search cost improvements can you deliver? They started with getting users onboard. Both combined feature a staggering 350 million storefronts (more than the US population). This has made Alibaba an end-to-end B2B2C platform. For some platforms, reduction of search costs can be the main driver (though there will always be the element of reducing transaction costs as well). But if you study how these platforms came about, the clear impression is that their inventors did not even remotely anticipate the magnitude of their idea. I so often find that many people, because they’ve got a product mentality, think about features. Earn your MBA and SM in engineering with this transformative two-year program. Beepi, a platform for used car purchases founded by an MIT Sloan alumnus, also connected users in a new way. It seems much more difficult in industries where there has been a lot of consolidation. These days, Groupon is the go-to point for all people seeking deals. Being a platform or not is more of a range than a set point.”. Plus example Airbnb, How to create a Sharing Economy App and its business model. In construction, a platform is something that lifts you up and on which others can stand. Tucker points to Axon as an example of a company reinventing itself as a platform leader with a unique value proposition. – Program Management Professional (PgMP) Uber – has reduced search costs for both sides drivers and passenger significantly. A full-time MBA program for mid-career leaders eager to dedicate one year of discovery for a lifetime of impact. No more going it alone. Platform Business Model [part 5]: how to get started (1) Generate demand by reducing search cost. And who knows what would have happened if they had decided to fully focus on apps. Based on this, I see five ways how you can get started: Search costs are everywhere and can come in a lot of different forms. Sign up for my future articles which will contain similarly valuable innovation knowledge. But you can still get started if you don’t know exactly what the endgame looks like. In return, the company gets 30 percent of all app store purchases. Which of the approaches above is the best starting point for your ideas? Car sellers and car buyers could complete a transaction without meeting and without a test drive. It generates benefits for those restaurants that obtain good ratings and reviews. Ebay and Amazon are examples in the West. The previous approach was different in that it does not rely on existing supply. Alibaba is great at connecting small sellers to other markets (local and global). Create adaptable technology platforms that move with your business strategy. In the early days, they attracted also a lot of traffic with games (remember “Farmville”?). During the last decade, platform businesses such as Uber, Airbnb, Amazon and eBay have been taking over the world. Just be sure you retain control of your data, Tucker says. Airbnb rewards property owners for building up good reviews and posting accurate photos of their properties. This is why I opt for the more straightforward view of 2 sides. Sign up for Tuesday insights. A solid platform strategy will answer two key questions: How will you attract customers? Now we are taking it a step further. If it was not for the table management features, this most likely would not have happened. This is where search cost reducing platforms come in. A rigorous, hands-on program that prepares adaptive problem solvers for premier finance careers. If you liked this article, please share. Both point out the success of Alibaba which was grounded in the fact that they unified a large number of small vendors. She is chair of the MIT Sloan PhD program. Limitations to form relationships beyond their local market. Google, Facebook, Alibaba, Uber, Airbnb, Paypal and many other of the most successful startups are built on it. With the supply side boycotting the platform, the platforms could never achieve critical mass. In fact, many of the sellers on Taobao and Tmall source their supplies from Alibaba’s B2B platform. follow us on LinkedIn where we share new articles and resources: Dr Murat Uenlue, PgMP, PMP They don’t need to interact with the supply side in order to get going. Facebook has started as a network connecting students on the Harvard campus. Alibaba does this in China. There are countless ways to flub this. The platform business model uses technology to connect people, organizations, and resources in an interactive ecosystem. At the time, eBay saw itself as a matchmaker, not responsible for the quality of the products or the transactions. OpenTable managed to sell their system to plenty restaurants. “And it needs to be decided very early on.”. Your best platform strategy: Occupy an influence point. This gives us as innovators the opportunity to apply its principles to our own ideas. Tucker calls it “coring,” that is, making your platform the core of an ecosystem, the place where users meet and make connections, where commerce happens. Today, the company offers disagreement resolution, buyer protection plans, and occasionally will refund wronged users directly, earning itself a reputation of reliability. According to economic theory, this t is one important reason for their existence. Apple has strict developer guidelines for its app store. These sources describe the events as follows: “Friction is a key to understanding whether an entrepreneur even has a hope of starting a viable multisided platform business. Search by location, dates, type of accommodation. In Platform Strategy, Laure Claire Reillier and B. Tactic 1: Accelerate early supply (with subsidies) 2. There’s a great deal of enthusiasm about platform strategies these days. As we’ve defined before, a platform is a business model that facilitates the exchange of value between two or more user groups, typically a consumer and a producer. “There are a lot of non-pricing rules involved. But the approach listed in (1) starts with the demand side. And it had the benefit that you knew you are on the same network as similar people (overcoming trustworthiness issues). It is the process that turns potential connections into transactions. “It’s also how well that driver behaves on that Uber ride. By late 2001 it was a close-to-zero-dollar industry. Example: Economic theory says that, as prices fall, demand increases (and it depends on the elasticity of the demand and supply function by how much). Platforms can be effective vehicles to create new value. In almost every sector, traditional businesses are under attack from digital disrupters that are effectively harnessing the power of communities. Piggyback. Building trust can happen a number of different ways. This assumption breaks down when studying platforms, as platform participants’ participation is interdependent with the choices of other users. Thereby, they have helped create new sources of supply. “ Platform Design Toolkit helped us craft our vision and get into YCombinator with a scalable business model. Previously, they were in many cities but none achieved critical mass. It’s easy to fall for the idea that building a platform is a pathway to success — if not at Mark Zuckerberg levels, at least within your industry. During this time some of the upper-class restaurants still used their software as a table management system (rather that a booking system). This should be a great opportunity in my eyes for established companies to come up with their platform. MIT ideas every week. She has expertise in online advertising, digital health, social media, and electronic privacy. It took a gruelling 6 years and several CEOs to get to the right idea (with the founder jumping off). According to MIT Sloan Professor Catherine Tucker, a good platform strategy will help you dodge the traps, and may even send you in a different, more prosperous direction.. A platform strategy is … This is a fairly limited network. Firms such as Apple, Alibaba, Facebook, SalesForce, Uber and Yelp operate platform ecosystems that match buyers and sellers, gain value and market share from network effects, and harness their users to innovate. Add to this that Alibaba also has a huge B2B platform. Though this could be overcome through subsidies to the seller side, there was not enough friction to overcome to add enough value to the other side to pay for these subsidies (plus the platform). Many platforms started this way. When it comes to fragmented supply, i.e. But scams were abound. The underlying concept covers companies from Google to Facebook to video game platform Steam to Taser (more on that later). Arguably, your platform strategy is more critical to success than the idea behind the platform itself. But the thing is that search costs – even if often intangible and immeasurable – need to go into this equation. – PhD in System Development (“IoT”) Traditionally, large corporations (I am speaking of non-platform businesses) have internalised transaction costs and with increasing scale minimised those. Many booking & reservation platforms have started in a similar way, such as Expedia.com. More about me here, Wow – I highly recommend the @InnoTactics blog that I just stumbled across – awesome MBA-level analysis of companies like Uber, Airbnb, Tripadvisor, etc – https://t.co/UshELRoMYu, — Joe Robison (@josephrobison) January 1, 2019. But they have also added more variety to their catalogue which attracts more buyers who may buy more Amazon products. I have analysed the 3 most authoritative books on the platform business model. Partnerships. This is a curated series on trending news on platform business model: creating a platform strategy. There’s a decent chance the face on the cover is a platform company CEO. Tucker and Azoulay encourage students in their platform strategy class to think about where their company fits best within a platform ecosystem. Tactic 4: Attract high-value users (or celebrities) 5. The value of the platform increases with the number of reviews, especially those that are of quality. It allowed users to interact better than by phone or email. Incredible piece of work by ⁦@InnoTactics⁩ https://t.co/wyRD3NC2oj, Click here if you have already created an account, © InnovationTactics.com - all rights reserved Privacy --- Terms & Conditions, A Harvard Business School study published in 2011 found, A 2012 study by two Berkeley economists found that. The strategy must integrate business and IT needs and establish a collective leadership vision. The platform strategy is a growing area that has provided the business firms with multiple opportunities for generating value. If you want to compete on the playing field with the most successful companies of today, then you might need to consider a platform strategy. His general research interests lie at the intersection of technical change, labor, health, and organizational economics. The platform is solely focused on building and facilitating a … I appreciate it. But Azoulay, who teaches competitive strategy and innovation strategy, among other courses, reminds students not to get starry-eyed. Here 8 tactics that have helped some of the most successful platforms to get to critical mass: 1. One of the most successful platforms in this field is Alibaba. This is true. Depending on the industry, different types of transaction costs play a role. OpenTable, the restaurant reservation system, was in a classic chicken-or-egg situation. – Project Management Professional (PMP) If not, list it … Personally, I believe there are tremendous opportunities even in those fields where large platforms have already emerged. Experience Design and Product Capability. But its new focus begins with body cameras and includes data storage and collaboration tools. Your team will likely need industry insiders who understand platform business models and the unique nuances of digital businesses. But that doesn’t mean to leave your ideas to chance (or never get started at all). They also state that some of the B2B platforms argued that they would get the best price for buyers which however happens to be the worst price for the sellers. ... (2) Generate new, competitive supply by reducing transaction costs. In any case, building on a limited, under-served network is another strategy to get started. They generate incremental aggregate demand. This is why the formulation of a platform strategy requires somewhat distinct tools to help platform entrepreneurs and managers tackle the challenges of value creation and value capture. Like many platforms, Facebook didn’t know what their monetisation strategy will be. Notice: JavaScript is required for this content. Grab a copy of Forbes, Entrepreneur, or Inc. from the past five years. He teaches courses on strategy and technology strategy. Murat Uenlue, PhD ("IoT"), Program Management Professional (PgMP), Project Management Professional (PMP). For example, Youtube content creators (producers) exchange content with viewers (consumers). “For it to go well, it’s not how well the Uber app works or how beautiful its interface is,” Tucker says. Article by Dr Murat Uenlue / Platform business model, Platform business model fundamentals, Strategy. relatively small operations to invest heavily into marketing. #28 Platform Business Model – Fintech is taking over Banks #27 Platform Business Model – Platform Business Strategy and Leadership #26 Platform Business Model – Platform Economy for Banking #25 Platform Business Model – Future of Mobility #24 Platform Business Model – Luxury Platform Business Cusumano, Gawer, and Yoffie address how a small number of companies have come to exert extraordinary influence over every dimension of our personal, professional, and political lives. Here is from the last article: If you already have assets serving a single side, this can be a great starting point to add another side. “You’re right to be platform-curious, but you shouldn’t necessarily be platform-envious,” he says. – Founder-owner Innovationtactics.com Generally speaking, platforms create new connections and new opportunities for trade. This course teaches you how to convert products to platforms and how to innovate in a platform environment. A doctoral program that produces outstanding scholars who are leading in their fields of research. TMall specialises in branded and often more upscale products. Most of the over 1500 start-ups went bust in the dot-com boom-bust cycle. Platform strategy, explained. platform business model: A platform business model is a plan for creating revenue by allowing registered members to create content that can be consumed by a specific user group or general audience. “In a really connected world what a platform business does is to optimize supply and demand between the producers of certain goods and services and consumers. I believe this approach can be well suited to Software-as-a-Service (SaaS) companies. Co-platforming is the next generation of platform strategy. Tactic 7: … Professor Parker sees Google, Amazon, Facebook and iTunes as accidental platforms. Some companies will develop a platform business model that encompasses providers, consumers and employees to create or exchange goods, … Earn your master’s degree in engineering and management. opened their retail platform to other sellers, thereby creating competition to themselves on their own sales pages. Over the past two decades, some of the most profitable and successful firms are those that have adopted a digital platform model—a strategy whereby the company allows two or more disparate groups to interact over a platform to co-create value; for example, website developers and users on Akamai, recruiters and employees … The digital platform strategy will vary from company to company. Platform Strategy is the clearest, most comprehensive and most practical book about platform businesses available today - what they … Who can join, what kind of information you get to have on what’s happening on the other side, how open the data that’s generated by your platform is to others, how easy it is for others to play with that data.”, “All of that needs to be decided,” Azoulay says.