Effective Platform Product Management E-Book

Tabassum Memon

• Herausgeber: Packt Publishing
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 389

Veröffentlichungsjahr: 2021

Beschreibung

Scaling a platform is a lot different than scaling a product. This is why product managers developing or transitioning to a platform model are often facing completely new challenges – both technical and strategic. But if you want to build the next Amazon, Netflix, Spotify, or a completely new type of platform, then you need to adopt a platform-first approach to change how you invent, develop, and market solutions. This is where Effective Product Platform Management comes in.
This book addresses product management as a critical pillar of platform development. It'll help you understand the difference between traditional and modern product management for platforms and even decide whether the platform business model is the way to go for you.
As you progress, you’ll be able to build the right platform strategy, define the MVP, and focus on ongoing backlog prioritization for successful platforms. This book will also walk you through the practical steps and guidelines that can ease your organization’s transition from linear products to platforms.
By the end of this platform product management book, you’ll have learned the essential aspects of product management for building successful and scalable platforms. You’ll also have a clear understanding of the next steps you need to take to perfect and execute your new platform strategy – and take on the world.

Leseprobe

Effective Platform Product Management

An effortless strategy and execution guide for product managers who want to scale their platform business model and grow their customer base

Tabassum Memon

BIRMINGHAM—MUMBAI

Effective Platform Product Management

Copyright © 2021 Packt Publishing

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Packt Publishing has endeavored to provide trademark information about all of the companies and products mentioned in this book by the appropriate use of capitals. However, Packt Publishing cannot guarantee the accuracy of this information.

Group Product Manager: Aaron Lazar

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First published: October 2021

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To my mother; you were the strongest person I have ever met in my life. Thanks for all the sacrifices you made for me and for teaching me the importance of hard work. This book will always have bittersweet memories for me. I lost you the day I started working on its proposal. I hope you will be proud as you look down on me.

– Tabassum Memon

Contributors

About the author

Tabassum Memon is an expert product strategist who believes in lean product development and the platform-first approach. Currently, she is working as a CPO for Classroom Hunt, a company she founded. She has helped a lot of companies transform from product to platform thinking. During her 14-year product management and consulting career, she has worked with senior product leaders and executives of large enterprises in migrating from product to platform, defining product and platform strategies.

Acknowledgments

Rome was not built in a day, and neither was this book. This book is the result of the hard work and collaboration of a lot of people. Some of them were directly involved, while some have supported me in my journey, and I would like to thank each one of them.

Thanks to everyone on the Packt team who helped me so much. Special thanks to Rosal, Ruvika, Deeksha, and Kushal for editing and coordinating the publishing of this book.

I would also like to thank Pramod Sadalage and Sunil Mundra for helping me with the book's proposal.

To my technical reviewer, Mangalam Nandakumar, who thoroughly reviewed the book and caught things that I would have never imagined and thought about. Thanks for all the valuable feedback that improved the book.

I wish to thank Ananad Vishwanath and Kalyanasis Banerjee for helping and guiding me in different parts of my career and trusting me to take the responsibilities that helped me to learn and grow professionally.

A very special thanks to Max Griffiths for always motivating and encouraging me, and especially for having those intriguing discussions about platforms that triggered my interest in this area.

Finally, I would like to thank Ryan Murray for taking my interest in platforms to the next level, and for always guiding and mentoring me. Thanks a lot for believing in me, inspiring me, and supporting me in my journey. This book wouldn't have been possible without you; thank you so much.

About the reviewer

Mangalam Nandakumar has over 17 years of experience in product management and software delivery. She is an entrepreneur and has founded two start-ups. She started her career as a programmer and soon transitioned to business analysis and product management.

She co-founded her start-up, AIDAIO, in 2014, to enable businesses to enhance their customer engagement strategies. AIDAIO was shortlisted as one of the Top 10 Promising Start-Ups by CII in 2015. She was instrumental in establishing organization-level initiatives to coach and guide women to speak at conferences. She ran an art school and has conducted art workshops as well as exhibited and sold her artwork. She lives in Bengaluru, India, and enjoys playing and watching movies with her son.

Table of Contents

Preface

Section 1: Building the Right Strategy for the Platform Business Model

Chapter 1: Fundamentals of Platform Business Models

What is a platform?

Understanding platform business models

Characteristics of a platform business model

Types of platforms

Platform revenue models

Benefits of a platform business model

Building the right digital platform for a platform business model

Factors to consider while building a digital platform

Components of a digital platform

Summary

Chapter 2: Differences between Linear Products and Platforms

Linear product versus digital platform

Entity versus mediator

No ownership of products or content

Users on both sides

Accumulation of producers

Traditional product management and platform product management

Pre-introduction

Introduction

Growth

Maturity

Case study

Standalone linear product

Digital platform

Conclusion

Summary

Chapter 3: Research and Validation

Defining the problem

Identifying pairs of producers and consumers

Creating an empathy map

Drafting problem statements

Combining producer and consumer problems

Identifying the solution

Validating the concept

Concept validation steps

Case study

Making an empathy map for our case study

Designing problems

Creating a holistic problem statement

Identifying a solution

Validation

Summary

Chapter 4: Building a Platform Strategy

What is platform strategy?

Defining the business vision

Steps for defining the business vision

Defining the business strategy

Defining the platform strategy

Types of platform strategy

Components of a platform strategy

Case study

Business vision

Business strategy

Platform strategy

Summary

Section 2: Building the Platform

Chapter 5: Defining the MVP and Creating a Platform Roadmap

Understanding the roadmap

The elements of a roadmap

Linear product roadmap versus platform roadmap

Defining platform capabilities

Mapping an end-to-end user journey

Extracting capabilities from the user journey

Defining the platform MVP

Prioritizing capabilities

Ranking touchpoints and experiences

Mapping the end-to-end MVP

Creating the platform roadmap

Defining milestones

Organizing capabilities against milestones

Case study

Escola user journey map

Escola capabilities

Capabilities and experience prioritization

Mapping the end-to-end Escola MVP

Creating a roadmap for Escola

Summary

Chapter 6: Launching the Platform

Executing the launch strategy

Elements of the launch

Exploring the marketing plan

Pre-launch activities

Launch activities

Post-launch activities

Creating a marketing plan visualization

Factors impacting launch timing

Case study

Escola launch plan

Summary

Chapter 7: Creating a Platform Operating Model

What is an operating model?

The components of an operating model

The differences between platform and linear product operating models

Platform team structure

Digital teams

Business and other operations teams

Platform governance model

Platform Ways of Working

Culture

Skills and knowledge development

Roles and responsibilities

Case study

Escola team structure and governance model

Summary

Section 3: Measuring the Performance of the Platform

Chapter 8: Metrics to Measure the Platform Outcome

Measuring platform outcome

Defining goals

Identifying metrics

Defining targets

Analyzing results

Case study

Defining goals for Escola

Identifying metrics to measure goals for Escola

Defining targets for the metrics

Summary

Chapter 9:Ongoing Backlog Prioritization

What is platform backlog prioritization?

Difference between linear product and platform prioritization

Factors to know before platform backlog prioritization

Metrics-driven prioritization

Accumulation

Connection

Interaction

Prioritization framework

Challenges of platform backlog prioritization

Mistakes to avoid during platform backlog prioritization

Case study

Summary

Chapter 10: Moving from Linear Products to Platforms

The need for transformation

Validating the viability of the platform model

Prerequisites to start the transition

Starting the transition

Running a hybrid model

The platform transition at different layers

Case study

Summary

Other Books You May Enjoy

Preface

In the last few years, platform business models have revolutionized various industries, such as retail, media, and travel. With the rise of platforms and increased use of technology, consumers nowadays want multiple options available digitally. They like to search, explore, compare, and choose between different options within a single uninterrupted user experience. Providing such an experience is difficult and indeed almost impossible using linear models. Hence, more and more businesses will have to adapt the platform-first approach. There is a shift needed at all levels and in every function of an organization. Right from strategy to execution, everyone will have to adopt the platform way of thinking.

Some organizations have already started moving in this direction. Executives have begun realizing the need and benefits of the platform. However, the challenge is building the right platform strategy and the execution of that strategy. One function of the organization that is most important in creating this strategy and helping in its execution is product management. Ironically, this is one function that is far from grasping the importance of platforms and of building the right strategy for them. Product managers still think in terms of linear products and forget to build the strategy and roadmaps that cater to the platform's needs.

This book will address this critical pillar of platform development, that is, product management. It will cover the difference between traditional product management and product management for platforms while explaining the importance and benefits of the platform. It will help and guide business executives and product managers in building the right platform strategy, defining the MVP, and ongoing prioritization. This book will also cover the steps and guidelines for organizations and especially product managers when transitioning from linear products to platforms. It will help them in the journey of this transformation. This book will answer all the essential questions of product management for building successful and scalable platforms.

Who this book is for

If you're a product manager, product owner, product director, or a business executive working on a platform strategy and its day-to-day execution, then this book is for you. It will also be useful for change managers and program managers tasked with transitioning from products to platforms. You won't need any prior knowledge of platform strategy or platform transitioning before you get started, since the book covers all the basics – but taking notes to reflect on your journey as you work through the practical examples in this book is recommended.

What this book covers

Chapter 1, Fundamentals of Platform Business Models, covers what a platform is in general and how that concept applies to digital platforms and the platform business model. It will cover the fundamentals of the platform business model by explaining the characteristics and components of a digital platform that are needed to support the platform model. This chapter will also describe all the benefits of the platform model. At the end of this chapter, you will have a good understanding of what a platform business model is, why it is important, and how it can be supported by the right digital platform.

Chapter 2, Differences between Linear Products and Platforms, explains why you have to adopt different techniques and mindsets for platform product management. The chapter will start by explaining how platforms are different from linear products and then explain how product managers should think differently in terms of the different methods that need to be applied when building platforms. This chapter will cover a real-world use case to explain the difference between a linear product and a platform. This chapter covers the breadth of the product life cycle, while each of the following chapters explores the depth of each step of that life cycle.

Chapter 3, Research and Validation, covers how to gather user insights and validate the platform use case. Doing research and gathering data for the concept validation of a platform is different from the process for a traditional product. Hence, this chapter will explain to you how to do the initial research and collect the right data. This chapter will include a case study on validating the concept of a platform.

Chapter 4, Building a Platform Strategy, explains how the business vision defines the business strategy and the business strategy defines the platform strategy. You will learn how important it is to have the right platform strategy to meet your business vision. This chapter will cover different types of platform strategies and the components of a good platform strategy. This chapter will continue the case study to build the platform strategy after the concept is validated.

Chapter 5, Defining the MVP and Creating a Platform Roadmap, explains how to translate a platform strategy to a long-term platform roadmap. In this chapter, you will learn how to create an end-to-end user journey for the platform and define the platform capabilities. You will learn how to carve out the MVP by prioritizing and ranking those capabilities. The case study will continue with creating the platform roadmap and defining the platform MVP.

Chapter 6, Launching the Platform, explains how to launch a platform, the factors that need to be considered before launching a platform, the elements of a successful launch, and what strategies must be implemented for the successful launch of a platform. By the end of this chapter, you will know how to create an effective marketing plan before the launch of a platform and how to execute the launch strategy successfully and enable its growth. The case study will continue with the launch of the platform.

Chapter 7, Creating a Platform Operating Model, covers how to create an operating model for the platform that can translate a platform strategy to successful execution. This chapter will explain what the most efficient team structure is, where the accountability and responsibilities lie, the ways of working, and how to govern the platform execution. The case study will cover efficient team structure and a successful governance model for platforms.

Chapter 8, Metrics to Measure the Platform Outcome, teaches you how to measure the outcome of a platform after it is launched and the governance structure is in place. This chapter will cover different metrics that should be collected to measure the success or failure of a platform. This chapter will also cover how to analyze the results after metrics data collection.

Chapter 9, Ongoing Backlog Prioritization, looks at how to keep backlog prioritization going. This chapter will cover how platform backlog prioritization is different from traditional product backlog prioritization, along with the challenges to face and mistakes to avoid during prioritization. The case study will further expand to cover ongoing platform backlog prioritization.

Chapter 10, Moving from Linear Products to Platforms, explains the transition from products to platforms. You will learn how to validate the viability of the platform business model for existing linear businesses. You will see what factors are to be considered before transitioning and how to start the transition. In this chapter, you will see the different phases of the transition of a linear enterprise product to a platform in the form of a case study.

To get the most out of this book

Some familiarity with basic product management concepts such as the product life cycle, MVP, feature prioritization, and product metrics will be useful.

Download the color images

We also provide a PDF file that has color images of the screenshots and diagrams used in this book. You can download it here: https://static.packt-cdn.com/downloads/9781801811354_ColorImages.pdf.

Conventions used

There are a number of text conventions used throughout this book.

Bold: Indicates a new term, an important word, or words that you see onscreen. For instance, words in menus or dialog boxes appear in bold. Here is an example: “As we discussed, during the initial startup phase, we should not have a separate Governance team, and executives should take up the responsibilities of the Governance team.”

Tips or important notes

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Section 1: Building the Right Strategy for the Platform Business Model

In this section, we'll make sure that you understand the difference between the traditional linear business model and the platform business model, along with looking at the fundamentals of a digital platform. You will learn how product management aspects and techniques are executed differently for traditional linear products versus digital platforms. You will also learn how to validate the viability of the platform business model by applying the appropriate research. Finally, you will learn how to build a robust platform strategy for a successful sustainable platform.

This section comprises the following chapters:

Chapter 1, Fundamentals of Platform Business ModelsChapter 2, Differences between Linear Products and PlatformsChapter 3, Research and ValidationChapter 4, Building a Platform Strategy

Chapter 1: Fundamentals of Platform Business Models

In the last decade or so, platform business models have revolutionized various industries, such as retail, entertainment, media, and travel. Companies such as Amazon, Spotify, and Airbnb have changed how businesses reach out to their consumers and how consumers use the products. One thing all these companies have in common is a platform business model that allows multiple producers to connect to their consumers. This multidimensional model is the biggest differentiator for these companies, giving them an edge over traditional linear business models catering to limited consumer segments or demographics. So, because of the rise of such platforms, more and more businesses are adapting to a platform-first approach.

But before we dive deeper into platform business models, it is essential to understand what the term platform means in general and how that concept applies to digital businesses. Hence, in this chapter, we will cover the following topics:

What is a platform?Understanding platform business modelsTypes of platformsPlatform revenue modelsBenefits of a platform business modelBuilding the right digital platform for a platform business model

What is a platform?

As per Encyclopedia.com's definition, the literal meaning of the word platform is a raised level surface on which people or things can stand (https://www.encyclopedia.com/science-and-technology/computers-and-electrical-engineering/computers-and-computing/platform). It makes sense as a broader concept that a platform is an avenue for people or things to carry out crucial tasks. The word platform has different meanings in different industries and fields—for example, in the railway industry, construction, public speaking, and so on.

But one common thing in all the definitions of a platform is that a platform enables some core activities to occur. This brings me to the most precise and simple definition I have read of a platform: a platform is something that allows something else to happen. A platform is something that is foundational, enables people to undertake core activities, and helps connect different entities together. In terms of a platform in a public speaking context, a speaker can connect to the audience through a platform. Similarly, a train can connect to passengers via a platform, and a construction worker undertakes their core activities through a platform.

This analogy can also be applied to digital businesses, whereby a platform enables the core activities of the business and connects different entities; for example, in e-commerce platforms, sellers and consumers connect with each other, and the platform enables them to accomplish the core activity of selling and consuming goods. Similarly, in an audio-streaming platform, artists and listeners come together to share and listen to music. Similarly, in a payment-processing platform, banks or credit card companies connect with vendors to enable seamless money transfer.

A critical feature of a platform is that it allows a web of multiple channels to connect and perform core activities, not just two parties that connect linearly. For example, once a platform is built in an auditorium, all the speakers using the auditorium can address the crowd from one platform; we do not have to build a different stage (platform) for every speaker.

Another example here is a railway platform that, once built, is used by all the trains and passengers traveling to and from that station. The same is true for the digital world; multiple sellers can sell on an e-commerce platform, and many artists can upload their music on an audio-streaming platform. We will explore this multidimensional approach and a platform's network effect in more detail while discussing the characteristics of a platform business model.

Understanding platform business models

As mentioned earlier in this chapter, we have seen a tremendous shift and disruption in various industries in the last few decades. Traditionally, huge brick-and-mortar stores were synonymous with retail business, but today, the world's second-largest retailer does not have a single physical store. Companies such as Amazon, Spotify, Netflix, and so on have changed the business landscape. These companies took the very traditional concept of a platform and translated it into the digital world.

For example, Amazon is no different from the older-style marketplace where sellers display their products and buyers come to browse and buy products they are interested in. Netflix is no different from a video library where you bring home any video media with a small subscription fee. The traditional platform concept aided by technology is the secret sauce for the success of today's businesses. Imagine a marketplace where a buyer from Australia can buy goods from sellers in the US or a user from China can rent a movie from a video library in Europe.

This broader reach is possible because of platforms. It could be argued here that producers creating their own digital presence in the form of websites can still get a global reach. This is true, but this model is neither scalable nor cost-effective.

Let's look at an example here of a new designer who wants to launch their new line of clothing; if they create their own online boutique rather than leveraging an existing platform, they won’t be able to optimize it or get it right as it is not their core capability. Secondly, they will divert from their competency of designing clothes.

On the other hand, a fashion retail platform already has all the foundations in place. They are an expert in customer acquisition, Search Engine Optimization (SEO), and other digital aspects that will take years for the new designer to build, and even then, they might not get it right. This model is a win-win for all parties, in the following ways:

Designers: Designers can reach out to consumers worldwide without spending a lot of time and effort on doing this. They can focus on creativity and design to provide more options for consumers to choose from. Fashion retail platform: The platform can showcase and sell the work of different creative designers. They don't have to worry about designing, manufacturing, or producing. Their job is to connect the designers to consumers. Their success depends on how well they can scale and how many designers and consumers they can connect. The more consumers they can connect to the designers, the more revenue they generate for themselves and for the designers.Consumers: Consumers get access to designs from multiple designers across the globe. They can search, explore, compare, and choose between different options within a single uninterrupted User Experience (UX). Getting access to a variety of options in a single uninterrupted UX is not possible in the linear business world.

This example describes how a platform business model is beneficial to all the players involved. The majority of platforms have three primary parties: producers, consumers, and the platform owner, but there are few platforms—such as payment-processing platforms—where you will find additional entities such as a bank or credit card processor, which are referred to as intermediaries.

Characteristics of a platform business model

So far, we have seen the general definition of a platform and how it applies to platform businesses in the digital world. As we go further into understanding platform business models and digital platforms, let's look at some of the characteristics that define these models. There are, for sure, lots and lots of different features and characteristics of a platform, but in my opinion, the following three are the key characteristics or the essential elements of any platform business:

MultidimensionalNetwork effectPlug-and-play mechanism

Multidimensional

We briefly looked at the characteristics of a platform business earlier in this chapter: the platform does not just let two entities connect linearly but allows a web of multiple entities to create and deliver value.

In a traditional linear business model, there is only one producer who delivers value to a handful of consumers. At the same time, a platform model allows multiple producers to serve and provide value to multiple consumers—for example, an author of a book has their own website selling their own books versus Amazon selling books from multiple authors. The following diagram shows the one-dimensional flow in a linear product model as compared to the multidimensional flow in a platform model:

Figure 1.1 – Linear product and multidimensional platform

The preceding diagram depicts how consumers can choose to buy from any producer on the platform, whereas the consumer is restricted to only one producer in the linear product model. In the platform model, the flow of products is coming from multiple directions.

This nonlinear and multidimensional approach is what made companies such as Amazon, Netflix, and Spotify so different and set them apart from the competition. Amazon doesn't sell products from just one manufacturer, but it allows any seller to use its platform to sell. Similarly, Netflix streams content from hundreds of production houses from dozens of countries. Spotify is not restricted to just one artist but gives listeners access to multiple artists. Creating this multidimensional connection between producers and consumers is a crucial aspect of a platform business model.

Network effect

If we extend the multidimensional characteristic of a platform business, we get something called a network effect. The ability to connect multiple producers to consumers creates a network between all the entities of the platform. A network effect is something that increases the value of one entity as the number of participants increases in another entity.

For example, when a new seller joins a marketplace, all the buyers benefit from the new seller; similarly, when a new buyer enters the marketplace, all the sellers enjoy the benefit of this. Also, the higher number of participants in one group attracts more participants from another group. For example, as the Spotify user base keeps growing, more and more artists join Spotify to provide various music choices, which in effect attracts more users. The network effect is thus the cycle that is created by the platform business model. The platform is at the center of these entities, facilitating their connection and growth, as depicted in the diagram here:

Figure 1.2 – Platform network effect

The network effect is the most crucial aspect in the success of a platform business. Platform business models cannot sustain and grow with just one entity. For example, there is no use in increasing the number of buyers when there are limited sellers on an e-commerce platform; the buyers will start dropping as they are not getting a big enough choice of products.

Similarly, if there are fewer buyers on the platform, this will not be profitable for the sellers, and hence they will move out of the platform. None of the entities can exist without the other. Growth and increase in one entity will lead to the development and growth of another, leading to the platform's growth. Therefore, a strong network effect is key in the success of any platform business.

Plug-and-play mechanism

As we saw earlier, a platform's success depends on how well it can connect and not on how well it can sell. One thing that facilitates the seamless connection between producers and consumers at a massive scale is the plug-and-play nature of platforms. The success of a platform depends on how easy it is for producers and consumers to join the platform. A linear business focuses on making consumer onboarding easier, but in the case of a platform, it is equally—or maybe more—essential to make producer onboarding easier and seamless so that they can launch and test their ideas or products quickly. The easier and quicker it is for producers to join, the more and more they will be attracted to the platform, bringing in more consumers and creating a strong network effect.

The plug-and-play mechanism is what disrupted the smartphone market a decade ago. Android and iOS were not significantly different in offering feature sets than some of their competitors, but their App Store/Play Store revolutionized the market. Any external developer can develop an app and create value using these platforms, and this plug-and-play mechanism is what differentiated them from their competitors.

The plug-and-play nature of a platform business enables its scalability and extensibility—for example, an e-commerce platform can quickly onboard new sellers and easily introduce new categories, and expand into new services. If the foundation of the platform is designed right, the possibilities are endless. If the producer onboarding to the platform is tedious and has lots of steps, or deals with complex configurations, producers might create something of their own. One of the crucial benefits of a platform for producers is to launch and test quickly. If producers cannot do that, they are unlikely to join the platform, reducing the number of choices to consumers and leading to a reduced number of consumers, hence hampering the platform's growth and sustainability.

To summarize, these three characteristics are the key to defining a platform business model's success. To be successful, a platform should connect entities in a multidimensional way to deliver value, scale to create a strong network effect, and enable easy onboarding via a plug-and-play mechanism.

Types of platforms

Different entities that a platform connects to deliver value are producers and consumers of products or services; as in our previous example, the designer launching the new clothing is a producer, and the person buying the clothes is a consumer. Hence, when building a platform strategy or creating a platform, it is essential to understand that there are two types of users: consumers and producers.

Designing a platform with both types of users in mind is necessary. However, there are specific platforms where the producers are also the consumers. The approach and design of these kinds of platforms where producers and consumers are the same will be different from that of a platform where producers and consumers have two separate personas. To understand this concept in detail, let's look at some common types of platforms, as follows:

Marketplace: This is the most common and easy-to-understand platform type. Here, buyers and sellers (producers and consumers) are two different entities and they connect using the platform. Buyers get to explore various products, compare them, and make an informed decision about the purchase. Sellers can demonstrate their products to all potential and interested buyers. Amazon, eBay, Alibaba, Walmart Marketplace, and so on are some of the well-known platforms in this space. Social media: Everyone is familiar with social media platforms nowadays. They are where people connect, share ideas, and socialize virtually. Facebook, Twitter, and LinkedIn are some examples of popular social media platforms. Social media platforms are one type of platform where producers and consumers are the same. On these platforms, a user shifts between being a producer and a consumer within the same session and in a few minutes. For example, when a user is writing a tweet, they are the producer, but they are the consumer when they are reading someone else's tweet. Search engines: When I say search engine platforms, it is not just the Googles and Bings of the world, but it could be a search engine for a very specific category. For example, Zillow is a real-estate search engine where buyers/renters can search for properties, and Indeed is a search engine where candidates search for job openings. There are two entities in the specific search-platform category—on Zillow, there are homeowners and renters, and on Indeed, there are recruiters and job seekers. But information search engines that are category-agnostic, such as Google and Bing, only have consumers; there are no specific producers of that information. Content and entertainment: For entertainment and content platforms, content creators are producers, and users streaming and watching the content are consumers. On some of these platforms, content creation is restricted to artists and experts and is controlled by the platform owners—for example, Netflix or Spotify. But there are platforms where content creation is open to everyone and anyone—for example, on YouTube, which can also be categorized as a social media platform.Knowledge and information sharing: Knowledge and information sharing platforms are similar to social media platforms in that the producers and consumers are the same. Some common examples of such knowledge and information sharing platforms are Stack Overflow, Coursera, Quora, and Yelp. When a user asks a question or replies to a question on Stack Overflow, they are a producer, but when they are browsing and reading solutions, they are a consumer. Similarly, on Yelp, when a user is adding a review, they are a producer, but when they are browsing and reading reviews, they are a consumer. Service-oriented: Service-oriented platforms are the ones where a platform enables the aggregation of Service Providers (SPs) and connects them to the consumers. SPs are the producers in this scenario. Classic examples of this type of platform are Uber, Airbnb, DoorDash, and so on. These platforms crowdsource the SPs and connect them to the right consumers. Platforms such as DoorDash have an additional layer; they connect three entities instead of two, as seen in most platform types. They connect restaurants, dashers (drivers), and consumers for the seamless completion of food delivery.Transaction and payments: All financial platforms such as PayPal fall under this category. They facilitate the completion of a transaction by processing the payment. Most of them operate at a commission or transaction fee; we will cover this in the Platform revenue models section. Similar to DoorDash, transaction platforms have three layers or connect three entities—buyers, merchants, and banks. Communication: Direct messaging and chatting platforms such as WhatsApp, Slack, Skype, and so on are popular and familiar examples of communication platforms. Producer and consumer roles and responsibilities in communication platforms are similar to those of social media platforms. The same user acts as a producer or a consumer, depending on their action.Infrastructure: Infrastructure platforms provide hardware and computing resources to organizations. Infrastructure platforms take care of hosting, storage, networking, and other essential hardware and software needed to create and deploy any application. Cloud computing platforms such as Amazon Web Services (AWS) and Azure are the most popular and dominant players in this space.Development: All the operating systems are categorized as development platforms; some are controlled and closed, such as Windows and Apple App Store, whereas some are open source, such as Android and Linux.

Apart from the operating systems, platforms built to access data via Application Programming Interfaces (APIs) or platforms that enable different software development aspects are also classified as development platforms.

Platform revenue models

As we have seen, there are multiple entities involved in the platform ecosystem: producers, consumers, platform owners, and, in some cases such as payment platforms, intermediaries such as banks. The platform ecosystem must be beneficial to all parties, hence picking a suitable revenue model for the platform business is crucial.

A platform ecosystem is like a network of these entities, and it only works when all the entities are present in the ecosystem and are doing what they are supposed to do. Therefore, for any platform's success, all the entities must benefit from it, which is only possible if the platform is operating with a suitable revenue model. Hence, choosing the optimized revenue model for all the entities is key in a platform business model's success.

Types of revenue models

Understanding different revenue models is essential before deciding which is the best revenue model for enabling all the entities involved in the platform ecosystem to function at an optimal level. The following are some standard and popular revenue models for platform businesses; let's look at them in detail:

Subscription: A subscription model is where consumers pay a fixed amount of a monthly or yearly subscription fee and can access all the products and services offered by the business. This model is prevalent for content and entertainment platforms such as Netflix and Spotify. Consumers get access to all the content on the platform by paying a subscription fee. This model also works for knowledge and information sharing platforms.

Producers on these platforms are usually paid a royalty on how much their content is consumed or a fixed amount for each piece of content that they create. A subscription model works best on content platforms as the content, once created, does not incur any additional cost based on its consumption. For example, the production costs of a movie that streams on Netflix do not increase as the number of viewers keeps increasing exponentially. Hence, a subscription model is the most suitable model for content platforms, but this model is not advisable and is not suitable for marketplaces or service-oriented platforms.

Advertising: An advertising model is the reverse of a subscription model. In a subscription model, consumers pay a fee and producers get royalties, while in an advertising model, consumers do not have to pay anything but the platform charges producers to promote and provide featured placement of their content, products, and services. This model is suitable for and works best with social media and communication platforms such as Facebook, Twitter, LinkedIn, Skype, and so on. Some information-sharing platforms such as Stack Overflow also run on an advertising business model.

This model works when the content is not premium and the content creator is not charging anything—for example, people tweeting on Twitter don't get paid for tweets, or people replying to Stack Overflow questions do not charge anything. When content is free, consumers don't have to pay, but the platform's cost and the profit for the platform owner are derived by promoting and sponsoring certain content, products, and services.

Pay-as-you-go: Pay-as-you-go revenue models charge the consumer for the goods and services they are using. The price will depend on the size and cost of the goods or services consumed. A major part of the price goes to the producer, and the platform owner charges some service fee, transaction fee, or commission. These fees are sometimes a fixed amount but can also be a percentage of the total price or a combination of the two.

This revenue model is suitable for marketplaces and service-oriented platforms such as Amazon, eBay, Uber, Airbnb, and so on. Most of the development and infrastructure platforms such as AWS also follow the same model; consumers pay for the services and resources they are using. This model is suitable when the cost of goods and services varies hugely and depends on its value. For example, one consumer buying a book and another purchasing a TV set on Amazon cannot pay the same subscription fee; they will have to pay differently for different products. Similarly, an Uber ride for a 3-mile journey will have a different cost from a 15-mile trip. Hence, in a pay-as-you-go model, consumers are paying as they are consuming.

Pay-per-listing: A pay-per-listing model also charges the producers instead of consumers, as we saw with an advertising model. This model is quite prevalent on search engines, especially search engines of a specific category—for example, a job site will charge recruiters for job listings but won't charge anything to job seekers. Some search engines also offer free listings in the general search results but only charge for premium placements, such as at the top of search results or strategic locations where the listing is very prominent and users tend to click more. Some search engines extend a pay-per-listing model to a pay-per-click model, where producers are only charged when users click on their listing.Hybrid: Most platforms nowadays follow a hybrid revenue model where they combine two or three revenue models, such as advertising and subscription or advertising and pay-as-you-go. Search engines such as Google display advertisements and charge for a premium or sponsored listing. LinkedIn has a premium membership model but also earns revenue from advertisements.

Amazon operates with a majority of or almost all revenue models; for example, it offers Prime membership at a subscription fee, earns a commission/fee on every purchase, offers sponsored products, and displays other advertisements and promotions. In most hybrid revenue models, the advertising model is usually combined with one other model. It does not directly impact the consumer but provides an additional revenue stream for platform owners from producers who are ready to pay a little extra.

We looked at the different types of platforms and the role of different entities such as producers, consumers, and platform owners in each of those platform types. We also looked at the different revenue models. This combination of platform types and various revenue models will help us understand how to choose a suitable model for any platform business.

Choosing the right revenue model

Selecting the right revenue model depends on two key factors, as outlined here:

Direct cost of product/service/content: While deciding on a platform revenue model, it is essential to understand the cost structure of the product/service or content that the platform is offering. Is the cost of production one-time, irrespective of quantities consumed, or does it multiply with the number of quantities? When the production cost is one-time and does not increase exponentially with the consumption, a subscription revenue model is best suited. For example, songs produced once can be streamed millions of times on Spotify without incurring additional cost, or the cost of content created for Netflix does not increase with the number of times it is streamed. Hence, charging a subscription fee in exchange for access to the content is feasible for the platform owner. Consumers get unlimited access to the content on the platform for a fixed fee irrespective of how many hours' worth of content they are streaming.

Imagine a pay-as-you-go model here, where consumers had to pay for every video they watched. They would be very selective on what they watched, which would create very stiff competition between content creators. Netflix would have been even more selective in choosing the content they provided, but with a subscription model, Netflix can take a risk and give a chance to new content creators. Today, Netflix can afford to have a few average shows in their pile.

Similarly, when the cost of the goods or service or content increases exponentially with the quantity consumed, a pay-as-you-go model is most sustainable. For example, there is a cost associated with every ride on Uber, and there is a cost price for each Stock-Keeping Unit (SKU) of every product sold on Amazon. Hence, to cover the cost and generate profit for the producer and the platform owner, a subscription business model would not be feasible or sustainable in the long run. The price will depend on the goods or services that consumers are buying. The price will cover the product's cost, profit for the producer, and a fee for the platform owner. There are different options for platform owners to charge a fee such as a fixed amount per transaction, percentage of the transaction amount, or a combination of the two.

Charge from the producer: Another factor to consider while deciding a platform's revenue model is how much the producer of the goods or services is charging. If the producer provides the goods or services or content for free, it is advisable to offer them for free to consumers. The cost of running the platform and the platform owner's profit can be generated through advertisement revenue.

Most platforms falling into this category are social media or knowledge and information sharing platforms. If a producer provides content for free or at a meager cost, such as Stack Overflow or Twitter, platform owners do not charge the consumers but earn their revenue from advertisement. But if the content provider is charging a fee, the content becomes premium and a subscription model is best suited for such platforms, such as LinkedIn Learning.

Apart from the two critical factors mentioned here, there are few other things such as access cost of the goods and service, market demand, the operating cost of the platform, and so on that will play a minor role in selecting the platform's revenue model, but most of these factors are more relevant in choosing a price point rather than the revenue model itself. These factors will decide how much to charge rather than what structure should be used to charge.

The following table summarizes the preceding discussion on revenue-model selection:

Important note:

Please note that a hybrid revenue model is not mentioned in the preceding table as a combination of any two or more models will be applicable for some of the platforms. Combining an advertising model with any other model is particularly common and widespread.

Benefits of a platform business model

We have discussed the different types of platforms and their revenue models, but why we should have a platform business or move from a linear business to a platform model is an important point to address.

Here are some benefits having a platform business model brings to consumers, producers, and platform owners, which will help you understand why platform businesses are disrupting the market and why small businesses want to leverage the platforms to grow their businesses. These benefits explain how a platform business model is advantageous for all the parties involved:

Reduced cost: A platform business model benefits from economies of scale. Imagine a scenario where each seller is creating their own website and building an e-commerce foundation; the cost of everything will multiply. But that is not the case for platforms. Even with an increase in the number of sellers on the platform, the cost to build the foundation remains the same, distributing and reducing the overall cost of the products or services. Whereas, in a case where each seller has their own e-commerce presence, the cost of building and maintaining the website increases the overall cost of the product or service that they are offering.Increased customer base: It is easy for