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Discussions on Platform business models

~ with Alan W

Alan, will you kick this off with some clarity, what is a platform anyway, in the business sense?

Alan W:

Platform businesses are businesses that connect two or more groups and this connection is mutually beneficial. Examples include Uber where the platform connects riders with drivers or eBay where the online product marketplace connects buyers and sellers. Other examples include Airbnb, Linkedin and…..DNA-Business. Platforms don’t create value in a traditional business sense. They simply facilitate the exchange of value.

Platforms as a business model allows consumers (the buyers) and the producers (the sellers) to connect with each other to exchange goods or services, content, money, information, and much more. The consumers and producers (the buyers and sellers) are actually BOTH customers of the platform. Sellers bring the inventory and buyers consume that inventory. Important to note is that the value, the asset (the inventory) does not sit on the platform’s balance sheet. The platform helps to exchange that value provided to it by the sellers. THAT is actually the asset of a platform. The platform merely facilitates the transaction between the buyer and the seller. It provides the tools for a transaction.

A platform is a BUSINESS MODEL. It’s not merely an online portal or online shop or anything like that. It is not a traditional linear business. With a linear business model, value only flows one way. Example: my factory produces olive oil, I then sell the olive oil to someone downstream in the supply chain, maybe a retail store or the end consumer. Even designers or accountants or software developers (and many others) are linear businesses. With a platform, businesses do not own the means of production, it creates the means of CONNECTION. The supply change is no longer the central aggregator of business value. With their network of sellers and buyers, platforms connect businesses and individuals (it can be B2C or B2B or both) enabling them to exchange value amongst themselves. It is this multi-directional exchanging of value that makes platform businesses work very differently from linear businesses. The most important asset of a platform is its relationship with its buyers and sellers. The beauty in this is also that buyers can be sellers and sellers can be buyers. Thus increasing the value the platform presents. Think of Airbnb as an example: I can rent out my house AND I can stay in someone else’s house.

How did you even come across this topic of platforms, what’s the backstory to you and platforms?

Alan W:

Platforms and marketplaces have actually been around for a very long time. An example: your local fresh produce market that you go to on a Saturday morning - that model has been around for a long time. The seller presents their olive oil or free range eggs or organic veggies. The buyers buy what is for sale. The owner of the market uses the platform business model to provide a marketplace where value can be exchanged. Many modern Saturday morning markets work via a ticketing system where no cash is exchanged, thus enabling the marketplace, that platform business, to take control of the transaction.

I actually had a promotional clothing business a long time ago where I had no assets, no t-shirts or caps or whatever. Buyers would buy for example tshirts from me, the sellers have the shirts - i merely facilitated the transaction. This was during the infancy of the internet. Technology has evolved and has made it so much easier for us to make use of this beautiful business model.

Is a platform as a business model something that CE’s should be considering?

Alan W:

Yes, if you want to step away from your craft (e.g. being an accountant or a lawyer or a designer or whatever). The reason being you will now have the task of running this marketplace and no longer execute your craft. I think every CE should at least be PART of an online marketplace to sell their services and also to buy services for challenges they might face with their business, e.g. accounting services, legal services, business advisory, design, and so on.

What are the benefits of going with this type of business model?

Alan W:

There are many challenges with creating an online marketplace or platform. However, benefits include all that isn’t a linear business model, e.g. no inventory, no physical building, no online website (for ecommerce), and many of the challenges that linear businesses face. Cost can be less or at least the risk of expenses can be less. Although there can be quite a bit of an investment building the marketplace - this platform. Because costs of running online platforms or marketplaces over the long run are much lower than that of linear businesses, growth is in a different league. Another advantage is that it can also lead to a passive income generator. But make sure you have both audiences, the buyers of the products/services and the sellers of the products/services. THAT remains the number one challenge.

What are the questions I should be asking myself, if this is something I should pursue for my business?

Alan W:

Is this something I'd want to do? Managing this online platform? Stepping away from my current craft? The work now is in creating value for both sides, the buyers and the sellers. The work is in providing tools to attract buyers and sellers and to make it easy for them to come to the platform and to stay with the platform and to use the platform. Many creatives prefer to focus on their craft, with a platform your craft is no longer applicable, your experience in your field might be of value.

Final pearls of wisdom to share on this topic?

Alan W:

Creating and running a platform is difficult especially when you start off, there is so much to take care of in addition to the usual running of a business. You are continually trying to create value for the buyers and the sellers. I’d suggest to at first rather be PART of a platform and present your products and services on that marketplace. And then learn from that experience. Running a platform business can be exciting though. I LOVE the concept of a platform business model, having operated in the linear space for most of my life as a business owner. The platform business model is still evolving as we learn about it. Platform businesses are here to stay, it is the future.

~ From the podcast, "PLATFORMS AS A BUSINESS MODEL", take a listen over here

Work with Alan W


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