Challenges of platform business model
A sustainable platform business has 4 key challenges should be considered: governance rules, platform design, pricing structure and how many sides should be presented on the platform.
4 challenges you should consider for your platform are: governance rules, your platform design, number of supported sides and pricing structure.
Challenges of a platform business
Platform business model is hard to build, but once it’s up, then you would get huge benefits from the business.
- Firstly, the governance rules mostly aim to control the “access” to the MSP and the interactions between sides on the MSP.
- Secondly, the platform design is to balance between development cost or transaction cost to ensure the value-creation. Sometimes MSP have to be ready to drop their “direct short-term revenue” to maintain participants due to insufficient features.
- Thirdly, the number of sides, platform business is advised to keep number of side as minimal as possible to avoid conflict of interest and reduce the complexity of the platform.
- Lastly but most important, it is the pricing structure. Almost platform business has to subsidize at least one side of the platform and obtain their earning on the other side(s). Therefore, we could split sides into “Subsidy sides” and “Money sides” for easier to do pricing and incentivising. Active subsidy sides are with high volume and can be used to attract money sides. Sometimes, it is unable to decide which sides should be the subsidies when the platform doesn’t have the prowess to impose the price or so-called free-riding price.
Start with Chickens or Eggs
Above all, to be the winner, platform should have its core competency that no other platform has. It could be the pre-relationship with potential customers, the reputation of platform among other platforms or having lots of money. Pioneer is an advantage but that is not everything, followers could study mistake of first comer. They might apply new technology which bring the price lower.
There is another thing that a platform builder should consider, it is the advantage of bundled offer. In that, platform could offer a bundled package, lower their price by compiling various services or products to customer. At the end of the day, the platform then gradually swallows other overlapped networks.
K. Beckers, A. Ibrahim, P. Kumari, and A. Pretschner, “Platform Business Models,” in Digital Mobility Platforms and Ecosystems, Munich, Germany: Technical University of Munich, 2016, pp. 66–77.
Hagiu, Andrei. “Multi-Sided Platforms: From Microfoundations to Design and Expansion Strategies.” Harvard Business School Working Paper, No. 07-094, May 2007.
Andrei Hagiu, “Strategic Decisions for Multisided Platforms,” MIT Sloan Management Review, vol. 55, no. 2, Jan. 2014.
Steve Mezak, “How To Succeed With A Platform Business Model,” Forbes, 22-Jun-2016. [Online]. Available: https://www.forbes.com/sites/forbestechcouncil/2016/06/22/how-to- succeed-with-a-platform-business-model/2/#d128cec4b2cd. [Accessed: 16-May-2017].