You could not help but feel deeply inspired when listening to Lital Marom speak at the WPO conference. She is an innovative thought leader who has an incredibly bold vision for human potential and believes that businesses were meant to thrive, not merely survive. She is an internationally recognized keynote speaker who has made a name for herself by teaching companies all about the platform business model and how it can be applied to any industry.
What is the Platform Business Model?
For those not familiar with this business model, let’s break down how a platform business operates. A traditional business takes in raw materials and supplies and creates products or services that it then sells to its customers. This business owns its own inventory. A platform business, on the other hand, facilitates value exchanges between two or more independent groups – typically consumers and providers. These types of businesses exist within their own ecosystem. These ecosystems are made up of the value exchanges that are occurring, the space in which this business is conducted, the people who participate, and the tools available to those participants. The value of a platform increases when more users engage with the network. Rather than the business being linear, a platform business can be multidimensional and have various networks within their ecosystem. For example, Facebook has four different sides to it; it connects users, allows third-party apps, allows third-party websites, and offers advertisements.
Platforms help sell products and services. The platform does not make or source the products being offered (eBay, Alibaba) or provide the services offered on its platform (Airbnb, Upwork), or make the content that is available on them (YouTube, Facebook). If the platform itself doesn’t manufacture or create any of the products or services it offers, how do they provide value to both the customer and the provider? Here are some examples of different styles of platform businesses.
Social Media Platforms
Facebook is a great example here. The content on Facebook is user generated and entirely free for people to create. Facebook then uses the content and data we submit to the platform and gives that valuable information to advertisers. So we the user provide the content, Facebook then sells the information they gain about us through that content to advertisers who then run ads to us.
Asset Sharing Platforms
Uber is an example of this type of platform. They help connect individuals with a vehicle to people who are looking for a ride. Here the platform is providing a cheaper alternative to a traditional option, a taxi, to the user and the provider is able to use an asset they already possess to make income
eBay is a great example of this. The sellers or providers are able to use eBay’s large network to connect with thousands of potential buyers and are also able to utilize their payment services, shipping calculators, and other tools provided to sellers. Buyers feel more comfortable using a service like this since they are protected from fraud and have somewhere to turn should something go wrong. Both the buyer and seller benefit from the value eBay is providing and eBay profits without ever having any of its own inventory.
While it may seem like a platform just acts like a middle man, they are so much more than that. They need to add value to both the buyer and supplier. Generally, the more users (both buyers and sellers) who utilize the platform, the better. Uber would not be beneficial if there were a ton of people wanting rides but no drivers as wait times would be very long. Similarly, if there were too many drivers and not enough people seeking rides then the value would be non-existent to the drivers. Both parties need to have their needs met for the platform to grow. Transactions need to be simple for both users and suppliers and the more tools you can offer, the better.
Traditional business models thrived when they could grow their internal resources. This required a significant investment. Platform businesses are much easier to start up because they don’t own any of the products or services that may be offered on their site. This type of business is flexible and extremely scalable. Their main goal is to bring together suppliers and buyers and provide value to both during the process.
One cool thing about this business model is that it can be used in any industry. If you can connect buyers with suppliers you can start or expand a platform business. Because of this, many traditional businesses are opting to add a platform model to their company to diversify. Walmart, for example, now offers a marketplace on their website. Customers who are shopping on Walmart’s website can now purchase products from third-party vendors. Vendors are able to list their product on Walmart’s website which generates massive traffic and buyers are able to buy more things in one place that they already trust. Value is provided to both parties and Walmart profits from facilitating the transaction.
By connecting two groups, buyers and providers, platform businesses are able to yield massive profits. Platforms facilitate transactions and provide value to both parties. Not being tied down to inventory or supply makes this an extremely attractive business model because of it’s typically lower start-up cost and ability to scale quickly. Platform businesses have proven just how valuable connections, transactions and data are. Seven of the ten most valuable companies are platform based – when will your company get in on the action?