{"id":125240,"date":"2024-04-07T09:38:00","date_gmt":"2024-04-07T13:38:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=125240"},"modified":"2024-04-12T10:28:20","modified_gmt":"2024-04-12T14:28:20","slug":"how-to-build-a-platform-business","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/how-to-build-a-platform-business\/","title":{"rendered":"How to Build a Platform Business: 3 Design Fundamentals"},"content":{"rendered":"\n

How do you build a platform business? What type of participants are important for platforms?<\/p>\n\n\n\n

Platform business models are game-changers, and you might be inspired to start your own platform business. Geoffrey G. Parker, Marshall W. Van Alstyne, and Sangeet Paul Choudary cover three design fundamentals to consider as you get started.<\/p>\n\n\n\n

Below we’ll look at how to build a platform business using the three design fundamentals.<\/p>\n\n\n\n\n\n\n\n

1. Find Your Platform\u2019s Purpose<\/strong><\/h2>\n\n\n\n

If you want to know how to build a platform business, the authors recommend you start by defining its central purpose: the connection that users come to the platform for.<\/strong> Every connection can be broken down into three steps: First, the platform applies a software tool to create appropriate connections between producer and consumer (for example, a search tool that ensures someone looking for a dog sitter isn\u2019t connected with a cat sitter.) Once the connection is made, the consumer can see what the producer has to offer. Finally, based on that information, the producer and consumer can choose whether to proceed further with a transaction. Usually, but not always, the transaction involves the consumer paying money for the producer\u2019s offerings.<\/p>\n\n\n\n

Parker, Van Alstyne, and Choudary stress the importance of highlighting your platform\u2019s central purpose <\/em>and sidelining additional features <\/em>when you design your platform\u2019s software. <\/em>They explain that as your platform grows, users\u2019 needs may evolve, and your platform should develop additional features to meet those needs. However, you should use software tools to make your central purpose visually dominant and easy to find (for example, by putting it on users\u2019 homepages) while making additional features accessible through a navigation menu. This ensures that your central purpose doesn\u2019t get lost or overshadowed and clarifies the value your platform offers to users.<\/p>\n\n\n\n

To illustrate, consider the design of X. When you open the app, you see tweets from people you follow and recommended tweets\u2014this makes sense since the platform\u2019s central purpose is to connect users via tweets. If you want to take advantage of other features, like X spaces<\/a>, you can navigate to them using the menu. This design allows users to access additional features without adding distracting clutter to the main feed.<\/p>\n\n\n\n

2. Choose Your Participants<\/strong><\/h2>\n\n\n\n

As you design your platform, you must make choices about which participants you want to invite to your platform and what they\u2019ll be allowed to do. Parker, Van Alstyne, and Choudary primarily focus on two types of participants: users and external developers.<\/p>\n\n\n\n

Attracting Users to Your Platform<\/h3>\n\n\n\n

Parker, Van Alstyne, and Choudary stress that to attract users to your platform, you must ensure your platform has obvious inherent value. One way to accomplish this is by ensuring that users can use your platform to make valuable connections in a straightforward, pleasant way\u2014if it\u2019s a hassle, users will lose interest. The authors list three strategies to attract users: First, promote easy access to your platform (for example, don\u2019t charge a fee or require an ID for users to join) to increase your user base<\/a>. Second, balance easy access with selectivity<\/em>\u2014don\u2019t let low-quality users enter or remain on your platform. Third, utilize user data, like reports of abuse and activity patterns, to inform your decisions about selectivity and recommend high-quality connections.<\/p>\n\n\n\n

New platforms also face a unique challenge\u2014determining how to attract producers when there are no consumers yet, or vice versa, since the platform is only valuable if both types of users are active. The authors discuss several strategies you can use to address this challenge encouraging you to mix and match strategies to find the best approach for your platform:<\/p>\n\n\n\n

Strategy #1: Piggyback on a pipeline<\/strong>. If you build a platform that has obvious value because it\u2019s comparable to pipeline businesses in the same market, it\u2019ll be easier to convince users to sign up. For example, Uber has obvious value as an alternative to traditional taxi companies<\/a>.<\/p>\n\n\n\n

Strategy #2: Generate buzz with a small initial network. <\/strong>If you capture a very small percentage of potential users and gain publicity by proving your value, it\u2019ll be easier to scale up later. For example, Pinterest used an invite-only model<\/a> to create exclusivity and generate early interest before widening access. <\/p>\n\n\n\n

Strategy #3: Recruit key consumers or <\/em>producers, but not both. <\/strong>If you retain a subset of clearly valuable users, users of the other type will soon flock to your platform. For example, the celebrity video message platform Cameo started off with minor-league celebrities<\/a> to draw in the fans who wanted to hear from them.<\/p>\n\n\n\n

Strategy #4: Choreograph an exemplary product launch. <\/strong>If you accumulate exemplary offerings from key producers, consumers will be more inclined to engage with your platform from the beginning, fostering trust and loyalty. For example, Spotify started out with a limited library of streamable music<\/a> to attract consumers and then expanded its library as it grew.<\/p>\n\n\n\n

Orchestrating External Developer Relationships<\/h3>\n\n\n\n

In addition to attracting users, you must carefully orchestrate your platform\u2019s relationships with external developers<\/em>, the software engineers and data aggregators that develop extensions, applications, and advertising strategies to help users get the most value from your platform. Parker, Van Alstyne, and Choudary stress that third-party developers can siphon money from your platform if their creations are productive, so it\u2019s important to acquire companies or creations that add significant value to your platform. For example, that\u2019s why Twitter acquired TweetDeck<\/a>, a third-party application that helped users customize their experience. It\u2019s also important to manage data acquisition and sharing ethically to maintain user trust.<\/p>\n\n\n\n

You should have a plan for orchestrating these relationships in mind as you design your platform, but the authors recommend keeping an open mind<\/a>: As the market transforms over time, it may behoove you to allow external parties more or fewer permissions to work with your platform.<\/p>\n\n\n\n

3 Decide How to Turn a Profit<\/strong><\/h2>\n\n\n\n

The authors explain that profiting from your platform can be difficult because most of the obvious profit-making strategies, like charging users to join, can lower <\/em>your platform\u2019s value by impeding easy access and decreasing the size of your network. For this reason, many platform designers elect a free or \u201cfreemium\u201d (free with paid premium upgrades) model until the network is sufficiently built up. Then, they can consider implementing profit-making strategies. If you have a similar plan for your platform, note that charging for benefits that were once free\u2014like access to basic features\u2014is a surefire way to make users feel exploited, which could lead to an exodus of users. Instead, create additional value (like exclusive content or an ad-free experience) and charge for that.<\/p>\n\n\n\n

Effective profit-making strategies capitalize on user benefits\u2014like producers\u2019 and consumers\u2019 access to each other\u2014without motivating users to leave the platform or use it less frequently. This requires understanding the spending ability of each user market\u2014for example, ultra-profitable producers may have more money to work with than consumers with little disposable income.<\/p>\n\n\n\n

Effective profit-making strategies include:<\/p>\n\n\n\n

  • Upgrading selectivity services for a fee.<\/strong> For example, you might offer tiered subscriptions that give users access to higher-quality offerings.<\/li>
  • Billing users for access to each other. <\/strong>For example, you might let producers pay to find out more about consumers\u2019 desires so they can tailor their offerings.<\/li>
  • Taking a percentage of payouts. <\/strong>For example, you might impose a service fee on consumers or take a share of producers\u2019 profits for each transaction.<\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"

    How do you build a platform business? What type of participants are important for platforms? Platform business models are game-changers, and you might be inspired to start your own platform business. Geoffrey G. Parker, Marshall W. Van Alstyne, and Sangeet Paul Choudary cover three design fundamentals to consider as you get started. Below we’ll look at how to build a platform business using the three design fundamentals.<\/p>\n","protected":false},"author":14,"featured_media":125437,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45,30],"tags":[1512],"class_list":["post-125240","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-work","tag-platform-revolution","","tg-column-two"],"yoast_head":"\nHow to Build a Platform Business: 3 Design Fundamentals - Shortform Books<\/title>\n<meta name=\"description\" content=\"Every business model needs 3 things: a purpose, participants, and knowledge of how to turn a profit. 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