Do you remember how Apple’s iPhone exploded onto the mobile-phone view and commenced eating up all the market share by using the platform power and leveraging the fresh platform rules of the plan? With Platform businesses come great consumers and producers and unite in hefty value exchanges. Data and synergies bring up value and competing benefits. Apple created value by providing benefits to developers with app users.
We can refer to this as a middle aspect of platform strategy. Apple has built a platform business within its firm and delivered various lessons to learn for companies over industries. Our main purpose here is to explain what exactly platform and pipeline businesses are. Platforms are booming now and knowing well what turns them to succeed this high can assist entrepreneurs of business to catalyze growth.
What is a Platform Business?
We saw the platform business models with the arrival of the internet. Pipes make and throw the stuff out but platforms are not meant for this. They basically permit users to make and get value. It’s in the hands of the developers to extend platform functionality with APIs. If we look at the business layer, users can build some value on the platform only for other users to enjoy. This is a hefty transfer from any business form we are familiar with in our industrial hangover. TV channels have always preferred the pipeline model while YouTube is working on a platform model. The classrooms in the school are working on a pipeline model while Skillshare and Udemy are shifting towards a platform model for educational purposes.
Platform Business Model
A platform is a business model that makes some value by running exchanges within two or more interdependent
A platform is a business model that creates value by groups, mainly producers and consumers. So, to let these exchanges happen, platforms offer and build hefty and scalable networks of resources and users that can be obtained when needed. Besides, platforms design markets and communities with network effects that permit various users to transact and interact.
PLATFORM BUSINESS MODEL DEFINITION: a business model which brings value by running exchanges within two or more interdependent clubs, mainly producers and consumers.
Such as Uber, Facebook, or Alibaba, don’t directly build and manage inventory through a supply chain the way linear businesses work. Platform businesses are known for creating the means of connection, not production. Successful platforms run their exchanges by deducting transaction costs and by starting outside creativity. With technology, these ecosystems help various platforms to rescale in different ways that conventional businesses cannot.
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Platform Business Model Examples
Want to know how platforms work in everyday life? Astonishingly, you are well-versed with platforms than you can realize. So, let’s dive more into some platform business model examples that will assist you better in learning.
When you get confused about where to go for a vacation, the initial thing that should come up to your head is to open the Airbnb application. You can search over a variety of websites such as Hotels.com or Google well to look for places to stay, but preferable is Airbnb nowadays. Want to know why? Not only it helps you live like a local wherever you go, but it is very affordable and gives you a great variety of lodging.
Airbnb has transformed the lodging and hospitality industry from the core. It does not own any property, but it has now become the most famous hotel chain in the industry. Airbnb is now successful due to the great work of its suppliers who are just people like us. Besides, Airbnb buyers who are guests get lured with Airbnb suppliers, hence promoting an ecosystem that profits both Airbnb and its users.
You are now aware of Airbnb, Uber works similarly as it does not have its cars. Let us explain why. It is way too cheaper however offers a much more safer and modern experience. You can pay in a digital model, or share the rides with others, or track your ride and share your live tracking data with anyone you wish to. Uber drivers also get a variety of benefits and they run their driving schedule, have complete access to several bonuses, and can look for passengers wherever they are located, and they don’t have to wait in a crowded place as it all depends on them. The Uber platform has supported us all and by controlling all the ratings, payments, and dispute resolutions, Uber turns its simple to be both a rider and a driver.
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Currently, Amazon is selling around 12 million products to around 2000 million website visitors monthly. What could be more interesting? Amazon doesn’t own the massive variety of products it has displayed on its platform. But, it owns a warehouse space, a bunch of product lines, advertising space, and now transportation fleets. It mainly sells the inventory of other companies and helps in managing transactions between sellers and buyers. Furthermore, Amazon brings a lot of amount through its advertising, prime membership subscriptions, and seller fees.
What is pipeline business?
You have known pipes for so long as you have been in the industry. They have dominated the models of business. Firms are responsible for creating something, then push it out and sell them to their customers. They produce value that is upstream and used downstream. The flow is linear and it’s just like water flowing via a pipe.
We are used to pipes and the good that we use mainly comes to us in the form of a pipe only. The manufacturing completely works on a pipe-based model. Radio and television are pipes that lead the flow of content for us. Our entire education is a pipe where teachers are imparting knowledge towards us. So, basically, most of the service industry ran on the pipe model also. This model came to the web as well. E-commerce stores like Zappos, blogs run on a pipeline business model. However, single-user SAAS works on this specific model where the software is made by the business and offered on a pay-as-you-use business model to the ultimate consumer.
Certainly, a business pipeline is the flow of data or basic products, just like a flow of goods from manufacturing, created by demand and supply forces. It has a link between factory-retail store-and customer. Besides, this makes your workflow whenever a product is developed, to a retailer bringing it to the table for the consumers to buy that is a business pipeline. The business pipeline flows and offers all the businesses to all three in various directions, that is why it is called a pipeline.
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Pipe Thinking vs. Platform Thinking
How would you differentiate between the two models as an entrepreneur? Following is the quick crux of the ways that these business models of developing businesses are distinct from each other.
1. User acquisition:
To let your users onboard is just straightforward for pipes. You need to covert them later for conversion. Suppose you are bringing footfalls into a retail store and then converting them, online stores are highly centric on letting users in and converting them. There are several platforms frequently which have zero value when the initial few users arrive. We know that producers are there to create value for consumers and they upload pictures on platforms like Flickr and product listings on eBay that consumers obtain.
Therefore, there is no value for consumers without producers and vice versa. Besides, platforms have two main challenges that are solving the problem to get both consumers and producers on board and making sure that producers create some value. Remember without solving these two challenges, you will not be able to get traffic on your website or downloads for your application with user acquisition. Mainly, startups nowadays fail when they are developing platforms however use the pipeline model for user acquisition.
So, what is the difference between the two that you should learn?
Pipeline thinking: Control your conversion pipelines to flourish.
Platform thinking: Develop some network effects once you optimize your conversions.
2. Product design and management:
Making a pipe is completely different from building a platform for the users. You need to build up with the consumer while making the pipe structure. Suppose an online travel agent is a pipe that permits all the users to make use of airline tickets. Most of the features are created with a certain view to help the consumers to obtain and consume airline tickets.
So, a platform needs us to maintain a good relationship with producers and consumers. Building your Airbnb, YouTube, Dribble needs you to develop tools for users such as hosting the video on YouTube and for the consumers as well such as voting, viewing the video. Moreover, keeping these two distinct lenses will assist you only to build out the correct characteristics.
The pipeline used is greatly set up and the platforms mainly come through usage. For example, Twitter built several use cases with time and it began as something which permitted you to showcase yourself within all the limitations of around 140 characters, shifted to a platform for imparting and consuming content and news that made a whole fresh model for having the latest topics.
How are both different?
Pipeline thinking: The users interact with the software we make and the product is helpful itself.
Platform thinking: The users interact within themselves employing software we build and the product has no value unless it is used by the users.
Monetization is also straightforward and you can easily measure all the operating costs per unit via a pipe to the end consumer. You make sure that the price is equivalent to the cost added with the margin you have taken. Certainly, this is an easy solution to the basic art of pricing. However, it takes the fact that the consumer is mainly the one taking value made by the business.
So, on a platform business, monetization is not that straightforward as you think. When the consumers and the producers such as Etsy and Airbnb, one of both have to pay the platform a bit cost cut. When producers are engaged in making content for their consumers i.e YouTube, then the platform would monetize the attention of the consumers with advertising. However, in a few cases, platforms might license API usage. Furthermore, the economics of the platform is not direct and at least one side is subsidized to take part on the platform. Producers may also be been given incentivize to take part. While for pipes, an easy formula assists to learn monetization.
4. Customer Acquisition Cost (CAC) < Life Time Value (LTV)
The above formula runs remarkably well for subscription platforms or e-commerce shops. If we talk of platforms, several systems view demands balancing out prices and subsidies and know the traction which is required for the business model to operate.
How are they both different?
Pipe Thinking: They charge their consumers for the value they make.
Platform Thinking: They need to know who is making value and who they charge for that.
Yet, platform thinking refers to all internet businesses. If there was no internet, we would still be experiencing the pipeline model. The internet gave us a great platform and permitted any business to use their properties.
Nowadays, every business on the web is offering some platform properties just like e-commerce stores, blogs, and single-user SAAS operate on pipeline models. They are working with the internet even they already have components that turn them into a platform. E-commerce websites have reviews made by users, a wise platform model. While blogs permit discussions and comments with the main focus on the reader.
Not every business will turn into a hefty transition like Facebook or Uber, but that doesn’t refer that business owners shouldn’t put their efforts for enhancing the business efficiency. Always remember when you are implementing some lessons of the platform to your firm is that the raised change may have a hefty positive effect. If you got nothing, then just think of how platform best practices could suit your business and assist you get opportunities you may not have seen till now. In case you get stuck, we Codersera is there to help you out in any scenario.
- How can the extensibility of a platform benefit a business?
Extensibility of a platform provides companies to develop and give solutions that meets the requirements beyond the prime product. However, it also permits them to get some creativity to those similar solutions without even risking their work.
- Is Netflix a platform or pipeline?
Netflix is not a platform business as its a linear TV channel which has a modern interface. Just like HBO, it makes and licenses it own content.
- Is Amazon a pipeline or a platform business?
Amazon shifted from a pipe model to a platform based model. It happened when Amazon came up with its marketplace permitting several external merchants to sell their products through Amazon. So, amazon is a producer, but permitted others too to make and transact on the platform.