Five things you should know about Platform business model

"It's not that we use Technology, We Live Technology"
- Godfrey Reggio
5 Things you should know about Platform business by businessgamut | | businessgamut
5 Things you should know about Platform business

This is the era of technology and we have seen so many tech-based businesses coming into the market and creating disruptions. Unarguably, most of the disruptions are done by the tech-based platform business. Let's know five things about platform business models. The fifth one will surprise you for sure.

1. What is a platform

A platform connects two or more interdependent user groups by playing intermediation or a matchmaking role. The platforms decide the Rules of the game and provide the infrastructure for carrying out the business. Example: 

  • Airbnb connects Hosts and Renters
  • eBay connects sellers and buyers
  • Uber connects drivers and travellers
The platform is not an App or a website but the complete business model which facilitates smooth transactions between the different sides on the platform
two sided platform business model by business, gamut, businessgamut
2 Sided Platform

Few more platforms: YouTube, Dare2Compete, Facebook, Swiggy, Google App store, Twitter, LinkedIn, Operating Systems like Windows, Linux etc.

2. The Network Effect

Network Effect

  • The network effect is the incremental benefit accrued to an existing user when a new user joins the other side of the platform
  • The platforms are only successful when it has users on it, not only on one side but on both sides of the platform
  • eBay needs Sellers as well as buyers on the platform. Only having a few sellers on the platform will limit the choices for the buyers. Having too many sellers but very few buyers on eBay will demotivate the sellers on the platform
  • The bigger the network gets, the value of the network also increases
  • For example, when PlayStation became popular, more gamers started to play on the Playstation platform and Game developers invested more in developing the games for Playstation rather than developing games for other platforms. This resulted in better games on PlayStation hence more gamers joined in.

3. The subsidised side

Remember when OLA or Zomato and Swiggy started their operations in your city for the first time?

Did they give you a hell lot of discounts? Probably yes! because they wanted you to join their platforms. 

As there are two sides on the platform, every time there is one side on which the users are more price sensitive. 
Like in your case, you were price sensitive. You checked the price or discounts on both OLA and UBER before you booked the cab. In such cases, the buyers are incentivised heavily to use the platform.
Subsidised and Money Side of the platform by, business gamut, businessgamut
Subsidised and Money Side of the platform

There are a few cases where the sellers are incentivised to join and use the platform.

Also, sometimes a new platform comes in the market, for onboarding maximum people on both sides, they incentivise both the sides. Like OLA gave discounts to riders as well as used to give a bonus to the driver.

4. Zero Marginal cost of adding a new user on the platform

If you think about this, what will it cost to Uber to add new cars to the platform?
Uber doesn't need to buy cars. Instead, they need to add a few new drivers on the platform which really doesn't cost them anything.

Same is the case with almost every technologically-driven platform.

5. All platform businesses are not online businesses

Yes! You read it right.
Platforms can be offline or can be a combination of online and offline solution.
Few of the offline and old platforms are:
  • Credit Cards: Connects shoppers and merchants
  • NewsPapers: Connects Advertisers and Readers
  • DVD became the standard platform for producers to connect with the media consumer 
This is it guys, we hope now you have a better understanding of the platform business models. 

Business Gamut has written a few blogs on several platforms, we would like you to have a look at those blogs and we are sure you would gain some insights from our mini-blogs.

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