What is a platform business, creating a marketplace platform for the industry. Business Model Platform

20 min readMar 10, 2021

Platform Revolution

Platforms know everyone: Google, Uber, Facebook, AirBnb. These companies do not create content, do not have their own huge fleet of vehicles, do not own hotel chains around the world. But for some reason, they are leaders in their markets.

Google and Facebook are the best advertising platforms, although they do not have their own billboard space and do not have their own TV channel.

Uber can keep taxi prices as low as possible and serve people all over the planet.

AirBnb has the largest choice for rental housing, while not having a single hotel in its ownership.

What is going on? Why did some upstarts take over the market without having major resources in the form of real estate, equipment, or human resources?

There was a platform revolution that changed the world. In this article, we will analyze this phenomenon and think about how you can use it for yourself.

There is a great book Platform Revolution, which will allow you to delve deeper into the concept of a Platform and its advantages and differences from the classic business.

Platform Business

The essence of the platform is to ensure interaction in a certain market. The platform does not directly sell services or goods. It provides interaction between market participants.

AirBnb organizes interaction with property owners with those who want to rent a house, apartment or room.

Facebook allows users to create their own pages for free and easily publish content, as well as receive content from others. And they get their money from advertisers who pay for accurate user targeting.

The main value of Facebook is in the content created and interaction with other users. But Facebook doesn’t create the content itself, the content is created by users. People come to the social network for content, and this attracts advertisers.

Classic business works differently. It creates value in its own pipeline and sells it to customers. Toyota creates its own cars and sells them through a network of dealers. The amount of revenue for Toyota directly depends on the number of cars produced.

In the case of Uber and other business platforms, the amount of code written is not directly correlated with the revenue from the platform site.

What is the platform

A platform as a business is a combination of two or more active parties to organize interaction in order to achieve a certain value for each group.

Each group of users comes to the site with a specific purpose.

AirBnb visitors want to find suitable accommodation for their conditions.

Property owners want to make money on their property, but do not know how to attract the consumer. So they go to AirBnb, add a description of their home, and just wait for requests through the site. For this, they are ready to share part of their profits with the platform.

Everyone participates in the site on their own initiative. You don’t have to force anyone. There must be a value for which he will come to the site.

The key difference from a classic business is that the platform does not produce value itself. The value is produced by other participants in the system. The platform ensures their interaction.

The value of the platform directly depends on the number of participants. In general, the more participants there are, the more variations there are for other visitors to meet their needs.

But there may also be the opposite cases — with an increase in the number of participants, the quality of interaction suffers. Some participants may cause a negative reaction on the site and this will cause the opposite effect — an outflow from the site.

Where did business platforms come from?

The platform business has been around for a long time.

The simplest and oldest format is the market. The market itself does not sell anything, it creates conditions for traders to work in the market, and also invites buyers. Of course, you can trade alone, but the market provides additional value — ensuring security, checking the reliability of sellers, the breadth of choice in the market, convenient conditions for making purchases.

The seller pays the owner of the market a certain fee for the opportunity to have his place in the market.

In a sense, the state is also a platform. The state provides many different services for its citizens and for business. These are security, education, medicine, social assistance, etc.

At the same time, the state collects taxes from its citizens. These taxes go to the vital activity of the state.

As you can see, platforms have existed for a long time, but in previous centuries there were some restrictions for the growth of platforms as a type of business.

Why are business platforms actively growing now?

It’s all about the technological shift and the development of the Internet. Major technological innovations generate a whole fan of innovations in other areas.

Take Google as a search engine. Google gives you free access to a lot of information.

Google does not own this information. He is just a dispatcher who directs you to the right site.

Every year, Internet access is simplified — tariffs are reduced, access speeds are increased, and new areas are covered.

With the advent of smartphones and unlimited Internet, you can be online around the clock.

Through the internet, more and more people can access Google Search, where they can find anything.

And this is not only the United States, but also the whole world. Could Google of the 16th century have achieved this? No, only now technology has allowed you to access the company’s service simultaneously from many points of the planet.

All this has created enormous value. A lot of people are looking for information. And you can sell them something. Especially what they’re looking for right now. If I am looking for a new car, then any car dealership would like me to see its offer. This creates a place for Google’s huge profits. Each person can “slip” their personalized offer from the advertiser. And not just one, but a bunch of offers that will fight for this buyer.

And that’s only half the equation. The second half is the automatic processing of sites on the network. You need to find them, analyze them, and write the site data to your index. All this requires huge computing power and data storage systems. It’s also a stumbling block for Google from the 16th century.

New technological capabilities give an impetus to the ability to process a large array of data and simultaneously serve thousands of users on one site.

Can an ordinary clothing market accommodate hundreds of thousands of sellers? No. And Amazon, Alibaba can. There is no limit on the number. This is an extremely important factor for the development of platform-type companies.

What does the platform offer?

Each participant of the platform receives the value for which he came to the platform

The consumer usually gets a lot of things that they can’t get from a regular conveyor company:

a large selection of suppliers on the site. A wide range of products makes it possible to choose more attractive conditions.
a variety of search tools. Various filters, selections, etc.
risk reduction due to the work of the site in terms of checking the reputation of suppliers. It is advantageous for the site to have only reliable suppliers working on it. Any negative feedback from the vendor also affects the platform.
free elements — due to the fact that the site earns money on other services. Google searches for information for free. Facebook gives you the opportunity to communicate for free. AliExpress gives you the opportunity to quickly pick up the right product from a trusted supplier for free without having to go somewhere.

What does the business get from the platform

The business gets access to narrow segments of consumers who have a formed need. Customers come with their own requests. The platform needs to properly redirect this interest to suppliers that can meet this demand.

Business does not need to spend money on marketing and promotion of products. This is done by the platform’s services. The business must place its products and services, and the task of the marketplace is to lead the consumer to these services.

Businesses can get additional digital services for their work. For example, it can be a CRM for accounting for booking time when registering for services. Or it can be a calculator of complex services.

The business can reduce the risks when working with the client. The platform guarantees the business that it will receive money in the performance of its duties.

The platform itself gets a lot of advantages over competitors of the classic type:

Low resource costs for the provision of services.
AirBnb does not need to buy hotels, does not need to invest in repairs. They simply invite property owners to their site.
The expansion of the site costs almost nothing for the site itself.

What is Uber you need to connect another city? Create a couple of records in the database, run an ad, and solve the organizational issues.

What if it’s a taxi service? We need to hire people, buy cars in the new city. Quite a global project with large investments.

Opportunity for rapid growth

A platform business can grow quickly — the cost of growth is relatively low. At the same time, there are great opportunities for experimentation — it is easier to change the site interface than to redo the building. The digital world is a more malleable material than the real world.

At the same time, any action on the site leaves a trace that can be analyzed. This allows you to make and test many growth hypotheses.

Risk diversification

There are many sellers on the site from different segments. If one of them fails, it will not affect the site in any way. The stability of the site depends on the stability of the entire market.

An additional positive point for the site is that it does not incur large costs for physical infrastructure. Take AirBnb during the 2020 pandemic. Yes, their profits are probably down. But the site itself does not bear the cost of maintaining a large number of hotels or houses. These are the risks of the owners. They are the ones who are suffering from the pandemic. For AirBnb, this is a less painful moment.

The ability to study information on the interaction of market participants and make decisions to optimize these interactions

This information allows you to sell even more effectively than a single seller. The site knows exactly what is popular and what is not, what are the trends in the behavior of customers.

The ability to provide a more complete service to the consumer

It is easier for the site to build a whole line of services for the buyer, which will cover the range of needs.

If you are a seller of car tires, then the marketplace in the field of cars can sell wheels, tire repair services, repair in service stations, car washes, car tuning and much more. All other things being equal (price, quality of service, convenience) will choose a more complete offer.

Platform Business Model

The monetization of the platform business depends on the market participants.

By and large, they determine the business model of the platform-what they are willing to pay for and on what terms.

Platform participants come to the site for value. For some, it is a direct value in the form of content and information. For others-the value in the presence of other participants (customers).

The task of the platform is to determine which of them will share their value with the platform. Who is willing to pay a small percentage for the value received on the platform?

The key point is the negative impact of these commissions on the values for different audiences on the site.

If your commission for audience A negatively affects the value provided to audience B , this is wrong. So in the end, everyone will run away from the site. If Facebook Facebook users were charged for content, for example, there wouldn’t be many advertisers on Facebook.

But if we charge money for a paid subscription to fl.ru On the other hand, this will not directly affect the value that customers want to get. Moreover, there will be more serious performers on the site who are ready to make an order (rather than random people).

Look for a monetization that does not destroy the main value for the participants of the site.

How can the platform earn money? Let’s look at the options for monetizing the site:

There is a certain value on the site, which attracts a large number of people. This flow of people attracts advertisers. The more accurately you can divide the flow of visitors, the more accurately the advertising (targeting) will work.

Google creates value by quickly selecting the pages of sites of interest on the network. This attracts a bunch of people who can quickly find the answer to any question for free. Advertisers configure their advertising messages and display conditions (for example, I want to show this to those people who typed in the search to Buy a scooter).

Paid access

Your platform can charge a certain fixed amount per month. In other words, if you want to be on the court, pay.

This model can also include a paid and free account option. A free account has limitations. A paid account has some privileges.

Example — fl.ru. The contractor can be on a free account, but then they will be subject to strict restrictions. Or he can pay for a PRO account and fully use the platform.

Additional service functions of the platform. This is similar to a paid account, but the payment is not taken periodically, but for a one-time service or opportunity on the site. An example is a single multiple of raising your ad in the search on Avito.

The service can be either fully automatic or with the involvement of the site staff. If the service involves the participation of another person, this is an excuse to close this need to another audience on the site. In other words, it is possible to attract certain contractors to meet this demand.

Commission on transactions

If the money passes through the platform, then you can take a certain percentage from each transaction. The commission is paid either by the Contractor or the Customer, or it is divided between them.

At the same time, the site must provide some additional service for the participants, otherwise there will be a great temptation to work around the site. At least one of the parties must be interested in working strictly through the site. An example is a secure transaction. The site holds the money for the order until it is executed with proper quality. In the event of a dispute, the platform arbitrates the transaction and determines to what extent the order was executed.

No one can say in advance which version of the business model of the platform will suit a particular site. There is no single exact rule. It is necessary to follow the market and push away from the feedback that users of the service give.

How to create your own business platform

From the very beginning, you need to understand that this is not just creating a website.The site is just an automation tool. The site implements the rules for the market that you have laid down.

Creating a platform business is akin to a regulator in a certain market — you set the rules and ways of interaction. If they are attractive to the market, then it will participate on your platform. If not, it will look for other ways to interact.

The first questions you should ask yourself when creating a business platform:

What market will the platform serve?

What market do you work for? Is it big enough to make money on it? If this is a barbershop market in a provincial city, then perhaps the project will not take off because of the small scale.

Is the market narrow enough? If the market is too wide (home appliances), then you will compete with large brands that have their own stores, as well as with large marketplaces (Yandex Market, Windberries).

The participants of the platform. Who are my customers and partners?

The customers are the buyers in the selected market. They bring money to the market and take the goods/services.

Partners are those who are helping you to sell in this market. They bring the goods and take the money from the market.

The more accurately you represent these people, their needs, opportunities, and motivations, the easier it will be for you to attract them to work on your site.

Creating value for the platform participants. What is the value for each participant?

This is the most important point. Without value, it makes no sense for a participant to work on the platform.

You need to test your hypotheses about the value: formulate an offer, find representatives of the target audience, and get feedback on the offer. Does this offer appeal to them? Are they ready to sign up early?

You don’t need a ready-made service to work out the value. You need a well-designed offer that has benefits for the participants.

This is not a technical job at all. This is the task of the product owner — to formulate the value for all project participants.

What is the minimum solution we can start with?

Having a good understanding of who came to the site and why, we can formulate the minimum composition of the required functions of the site.

The fewer features, the faster, cheaper and better the platform will be created.

The broad functionality of the platform will not help it to stay afloat, if they do not cover the needs of the platform participants in any way.

What will be the site’s development plan?

Various unexpected situations may occur during the project process. Ideally, you need to think through various U-turns and alternative ideas. The more ideas you can test in the project, the more likely you are to find the right one.

You can test different monetization options, try to create different values for participants, attract large or small participants, give different initial conditions, implement partner programs, create unique services on the site.

It is the search of ideas that can eventually give the right combination that will attract people to the site.

You can’t know for sure what people need. But you can come up with hypotheses and test them in practice.

Possible strategies for starting the platform

For the site, the issue of chicken and eggs is acute. Buyers need a large selection of suppliers on the site. And how to attract suppliers if there are no buyers on the site?

There are the following options:

Start from the client. You create a simple website, invest in advertising, attract customers and transfer orders to other contractors.

The contractors are not represented on the site in any way. You take a certain percentage of the transaction. Your job is to attract traffic and coordinate work on orders.

As you successfully complete orders, you gradually automate the work of contractors:

create cabinets for them on the site;
publish information about performers on the site;
create an account for the customer, where he can directly interact with the contractor.

Start with the contractor. You create an offer for contractors in the form of a presentation. Find these contractors manually and convince them to participate in the work of the platform.

Then you create a platform, upload the contractor’s data to it, and start attracting customers immediately as a platform with contractors.

From CRM to the platform. Start as the main contractor.

You fulfill all orders on your own exchange. Then gradually connect other partners: your competitors and related performers as the number of orders increases.

You can first create your own CRM system for working with clients. Then add the Customer’s personal account to it. When external performers appear in business processes, you can also create a personal account for them.

At first, you can be an order manager yourself in the form of a closed exchange, and at a later stage allow customers/contractors to choose each other. And your CRM will turn into a platform.

Creating a platform for your orders. If you are a large company, you can attract contractors to your site and make orders from them. Gradually, you can allow other companies to also participate on your platform to place orders with your contractors.
The market service that is associated with your product. If you have a large product that needs to be serviced, then there is a small market around this product: someone wants to buy it and get customization services, and someone can independently provide these services.

A company can create a platform around these services. It can quite easily attract its customers to such a platform, and contractors will come to the orders that arise.

Don’t start with a large geographic region or a broad industry right away. Try on a small volume.

The smaller the volume, the easier it will be to compete, the less investment in marketing, the less financial losses will be due to mistakes.

Achieve stable, low-volume work and gradually expand the product-connect new industries, add the necessary services, attract a new target audience.

The all-at-once approach will lead to high risks, long launch times, and separation from market realities.

The technical part of the platform is the development of the marketplace

We are the developers of the Falcon Space web platform.

We have several ready-made solutions for creating a platform:

Each solution can be developed and modified. This is a mandatory option for any developing platform.

In projects, we perform a strictly technical role — the creation of the platform and the further development of its functionality. We are not engaged in the promotion, content and development of the commercial part of the startup.

This article describes how we work as part of a web development project

Narrow points at the start of creating a platform business

What is the added value (and USP for partners)?

If there is no value, then everything else will fail. No matter how well you make the site, no matter how beautiful the design you implement — it will not help if the participant is not interested in being on the site. Find the value and test it on future users of the site.

The primary composition of loyal suppliers and buyers

The first users can offer valuable tips on the convenience of the site, can attract other users, as well as give feedback on your business model. The sooner you have a core of initial users, the better.

There is no need to be afraid that users will steal your idea. If you’re afraid that someone might steal your idea, you probably don’t use search well. Most of the ideas are not unique, and the differences between the sites are almost invisible to the inexperienced user.

Where to get traffic from

This is the main question for a startup after value. It is on the traffic that most projects shut up-due to a lack of money and a good promotion team.

I highly recommend that you become a promotion specialist yourself, at least at a basic level. This will reduce the likelihood of fraud on the part of the promotion contractors. And this is a very common phenomenon for promotion. Long feedback of influence on the search results, there are no guarantees of the result — a fruitful ground for deception.

Learn the basics of promotion and demand a transparent action plan from the promotion contractors.

For what to take money from the participants of the system?

Start probing your partners at the very beginning-offer different conditions and track the reaction.

Here it is important to find a solution that REALLY suits you. No need to push or coax. This will only hurt further conversion.

The main task is to find out what the consumer is willing to pay for and under what conditions.

Which technical solution to choose — ready-made or developed for yourself?

If you have enough features of a ready-made solution, then take a ready-made solution. It is faster, cheaper, more reliable and more functional than a long custom development.

But there is one important condition — the solution can be developed. Without the possibility of customization, the site will not live long. Also consider the cost of changes. The solution may cost a small amount of money, but any revision can cost as much as an airplane. This should be taken into account before purchasing the solution.

If your project is completely atypical and you have special requirements for performance and reliability, it may make sense to make your solution from scratch to order. Custom development from scratch is very muddy waters with a bunch of bugs, complex web development processes, and management by a team of specialists. This approach makes sense to apply if other solutions are not suitable for solving your problem at all.

How many specialists are needed for the project?

Any startup has a period of time during which it will either prove that it has the right to live, or will close due to lack of funding.

The more you spend in the project, the smaller this segment is. If you spend little, you have less risk of closing down due to lack of funds.

The fewer people in the project, the lower the financial burden.

In a sphere of web development, we have come to the conclusion that the ideal number of developers on a project is 2:

The minimum number of interactions on the project (time for conversations is also money).
The platform and ready-made solutions allow us to create functionality faster than the customer will work out the tasks from their side.
One person can get sick or quit. In this case, the technical knowledge of the project may be partially lost (documentation is good, but does not solve all the issues).
We don’t do design, promotion, or texts. We focus only on the technical part.
All the people on the project have the same understanding of business logic, and there is no need to spread the knowledge across a large team.
There is no blurring of responsibility. In a large project, responsibility is smeared somewhere between the participants due to the complexities of interaction. Formally, one person is to blame, but in fact he always has a serious reason why he could not complete his task. Familiar?

Remove all unnecessary elements from your project. The fewer details, people, functions, ideas, layouts, designs at the initial stage — the faster it can be put into operation, the cheaper it will cost, the more likely it is to have time to find your target audience and business model.

First steps to create a business platform

Identify the consumer and the value for each group of consumers. Create a simple presentation for each segment of the target audience.
Get feedback. Improve your offer, generate new value ideas, and get a positive response to your offer.
Determine the MVP-the minimum solution that should be put into operation. This is the first version of the platform. Determine which cabinets will be in the system, the pages of the cabinets and the opportunities for users, which integrations will be required. In other words, create a project concept. Here you can find project concept template.
Implement your solution with minimal resources. Launch as soon as possible to get feedback from consumers.
Work with traffic-write articles, make video reviews, invest in advertising, organize PR campaigns, etc.
Adjust your development plan. You will have the new information in the course of becoming your platform. Adapt to changing realities. Polish your platform, collect feedback, try to implement various hypotheses.

Conclusion

I would like to warn people who want to try their luck in this gold rush called “marketplace”.

Creating a marketplace is a long and complex process. It requires a lot of investment. Primarily in the traffic and technical development of the product.

There are a lot of requests to us with the idea of creating a marketplace, while people hardly understand what a site is, how it works and where to get traffic from (and what is traffic?).

My goal in communicating with such people is to dissuade them from the idea of creating a marketplace. They’ll just lose money. First, on creating the engine. Then for promotion (SEO, advertising). As soon as the budget runs out, they just quietly wind down the project.

The key mistakes of these people:

complete ignorance of the elements of site building and promotion;
there is no value for the platform participants;
there is a strong belief that they have come up with something unique. Now we will do it, open the site — and how they will trample!

Do the project only with a full understanding of each step. If you have some white spots somewhere-work through them, look for material, ask the right questions.

Think of this article not as a guide to action, but as a set of useful ideas that will improve and complement your vision for creating a platform.

The platform revolution has already happened. It remains to find out only one question — are you a user of the platforms or the creator of one of them?

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Originally published at https://falconspace.site/blog/chto-takoe-platformenny-biznes--sozdanie-platformy-marketpleysa-dlya-otrasli--biznes-model-platforma