Platform Business Model

Massive new startups like Uber taxis, Airbnb and many more are pioneering the ‘On Demand Economy’, implementing a Cloud-based On Demand Business Framework which overlays a ‘digital mesh’ across a marketplace of vendors, such as taxi drivers or travel accommodation.

The repeatable secret sauce is the Platform Business Model, described in detail through academic literature and popular business books.

For example the MIT book ‘Platform Revolution‘ describes these hyper-scale disruptors like Netflix, Uber, Airbnb, Facebook, Twitter et al, as the book describes:

“Facebook, PayPal, Alibaba, Uber-these seemingly disparate companies have upended entire industries by harnessing a single phenomenon: the platform business model.”

The book builds on prior MIT research, such as this detailed 2007 research report on Platform Networks, this highly recommended presentation Platform Strategy and Open Business Models, and in a simpler format in this presentation, which defines:

“A “Network platform” is defined by the subset of components used in common across a suite of products (Boudreau, 2006) that also exhibit network effects. Value is exchanged among a triangular set of relationships including users, component suppliers (co-developers), and platform firms.”

Throughout these materials they provide an anatomy of these business models, exploring dynamics such as “multi-sided pricing“.

Platforms are marketplace models, ranging from the people-centric services like Uber taxis and Airbnb accommodation, through to electronic distribution channels like Apple and X-Box. MIT examines the different permutations and shares those best practice insights.

The Platform Manifesto

The ‘Platform Manifesto‘ describes APIs as one of the key building blocks of a Platform Business Model. Digital leaders like Pearson have pioneered them to underpin their platform strategies.

MIT describes it as a transition to a multi-sided market model, which they capture eloquently in this presentation, via one scenario that describes the shift as ‘From Warehouse-Powered Store (with a goal of liquidating inventory) to Ecosystem-Powered Marketplace (with a goal of governing ecosystem interactions)”. (Slide 26).