Designing a platform business

Successful platform design requires a focus on interactions, a clear set of incentives for producers and effective filters for consumers. Starting a platform business means solving the chicken-or-the-egg problem. All platforms grapple with jump-starting their communities and ensuring long-term value creation. Carefully designing and monitoring interactions to ensure benefit for both sides, participation, effective matching and curation, and measurable ways to build audiences over the long term are key tasks for platform developers.

Platform Scale by Sangeet Paul Choudary

The Platform Canvas

The one thing that ties together all aspects of the platform architecture is the plug-and-play nature of a platform business. At its very heart, a plug-and-play business is a participatory business, and it must be designed in a manner that encourages desirable and relevant participation.

Choudary identifies the elements of a platform business model as the interaction which creates the fundamental platform value, the platform itself, and the mechanism for value capture.

Choudary’s Platform Canvas begins with the unit of value, the producer, the consumer and the platform itself (tools and services).  The unit of value is what is created by the producer. The platform enables the creation and transfer of the unit of value. The producer and consumer engage with the platform and create and exchange value.

Next, Channels are added to the Platform Canvas to identify how producers and consumers can interact with the platform.

For producers, there must be some kind of access control which governs which producers are permitted to create value on the platform and which ones aren’t. Likewise, the platform needs filters which serve up appropriate content to consumers.

The plug-and-play nature of the platform is supported by channels which enable the consumers and producers to interact with the platform and access controls and filters which regulate the interactions and flow of value.

The platform itself must provide tools and services for creation, curation and customization, and consumption. Producers plug into the platform through their channels which are governed by access control and supported by creation tools and services. Consumers plug into the platform by engaging with channels which include access content filters and are enabled by consumption tools and services.

Underlying all this is the platform currency and value capture method. The consumer pays the producer in some type of currency during every interaction. As consumers and producers interact on the platform, the platform needs to capture value by taking a percentage of each transaction or by charging the participants in various ways. One side can be charged to access the other, or a third party can be brought in and charged for advertising. Both consumers and producers may be induced to pay for premium tools and services. Using data that it collects, the platform may charge consumers for access the high-quality producers or charge those producers for the ability to expose themselves as high quality to consumers.

Platform owners must look at how their tools and services can be used to pull producers and consumers to the platform, facilitate their interactions, and match them effectively to one another.

Emergence

…one may be forgiven for believing that platforms can be carefully designed and architected. However…users tend to take platforms in vastly different directions from the founder and creators ever imagined.

Choudary says that platform developers need to identify the jobs to be done for both producers and consumers  and be aware are new use cases, behaviors and scenarios emerge. Choudary’s model has at its core tools and rules surrounded by interactions and experience. The platform owner provides the inner core, but the give-and-take between platform participants and the owner are what form the outer layers that drive growth.

You know you have a platform when the users can shape their own experience–not just accept the maker’s ideas –Jeff Jarvis

Elements of platform success

Repeatable and efficient interactions hold the key to platform scale.

To be successful scaling a platform requires selecting the interaction space that producers and consumers will engage with, powerful incentives for producers, long-term value, and effective curation, filters, and relevance.

Creating an interaction space

There are many ways to drive interactions on a platform including: requiring users to connect and establish relationships (facebook, LinkedIn), centering the interaction around content production and consumption (YouTube, Medium), selecting and promoting producers based on social clout and capital (Twitter, Udemy), coordinating workflows to achieve a common goal (Wikipedia).

Some platforms, like Quora, rely on several interaction drivers–content, connection, and competition.

Effective curation

The quality of a platform’s content drives consumption as well as maintains the standards for producers. Effective curation can take many forms: algorithmic, social, and editorial.

Incentives for producers

Unlike single-use products, platforms must create pathways for producers to be successful, remove barriers, clear rules of engagement, and methods to turn consumers into producers. Because producers play such a critical role on platforms, platform owners must remove any skill, time and effort, access, and investment barriers to becoming a producer. As producer participation grows, so does the opportunity for value for consumers.

Cumulative value and lock-in

Platforms rely on return visits from consumers and continuing value delivery from producers. To fuel this cycle, platforms can create reputation systems which accrue over time, follower models, credit for participation, collections, and learning filters.

Jump-starting platform interactions

The solution to the chicken and egg problem requires a bait that can break the vicious cycle of no activity.

All platforms are challenged with initially creating a sustainable collection of producers and consumers. Sometimes the platform must attract producers first, other times the platform must first acquire consumers. Choudary outlines five strategies to break the stalemate: 1) find a compelling bait to prime the cycle; 2) reduce or eliminate any friction once the two parties meet; 3) minimize the time that it takes the platform to get to critical mass; 4) incentivize whichever role is critical to starting the virtuous cycle; and 5) stage the creation of a two-sided market by starting with an initial offering that is not a platform (or not the same platform as the final goal).

Platform Scale: How an emerging business model helps startups build large empires with minimum investment
Choudary provides theory, examples, real-world strategies, and models for understanding and designing platform businesses. This book describes how “pipe” businesses are being usurped by platforms and how to design a platform business.
Platform Scale contains an up-to-date and insightful look at platform patterns and clear strategies for how growth and scale are achieved. The models Choudary uses are presented in illustrations at the end of each chapter and build on each other to form a complete picture of platform dynamics. He gives two diagnostic and strategic views of platforms: 1) the platform components and participants; and 2) the platform stack including data, infrastructure and services. He uses these throughout the book to illustrate how to achieve scale and create value. Choudary dissects various platform businesses and specific interactions to give detailed advice for interaction design, incentives, and network effects, and virality.
After reading this, you’ll have several great models to use for analyzing your own and other platform businesses along with strategies for growth. There’s only one other book on platforms which covers more ground: Platform Ecosystems by Amrit Tiwana.