What are the benefits and challenges of adopting a platform business model in a competitive market?

Let's not forget the flip side. While platforms can be a goldmine, they're not a guaranteed ticket to success. One of the big challenges is the "chicken and egg" problem. You need users to attract more users, but how do you get those initial users in the first place? It's a hurdle that many platforms struggle to overcome.

When platforms are done right, the sum of its components is always greater than the platform itself. Platform businesses provide customer a better selection of products and services, and allow producers to reach customers at scale.

A platform business model can have interesting advantages in competitive markets. By connecting buyers and sellers, platforms can rapidly scale and dominate a sector. Network effects are a key benefit, where the platform becomes more valuable as more users join. Managed well, this creates a virtuous cycle of growth. Platforms also can have low marginal costs and high efficiency, as they don't need to own inventory or assets. Data generated by the platform provides valuable insights for optimisation and new revenue streams. Successful examples include Amazon's marketplace, which has overtaken its traditional retail business, and Apple's App Store, which has enabled a thriving ecosystem of developers.

Many existing businesses looking to adopt a platform business model aren't technology companies themselves. They're retailers, manufacturers, brokers, etc. In order to compete with startup platform businesses, these existing companies are having to invest insane amounts of money in technology and essentially become tech companies themselves even though that isn't their core expertise. There are companies out there, like @Nautical Commerce, helping businesses join the platform revolution without having to become a technology company to compete.

Creating a flywheel effect on a platform is one of the hardest challenges of the platform businesses. Since the platform requires both the consumers and producers to participate on a platform in a balanced way, each party is always waiting for another one to join first. That's why finding the right ways to create platform adoption on both sides of the platform is very important, but also the hardest part of the platform.

While I've worked on some very compelling global platforms, adopting a platform model does come with challenges. The well-known "chicken and egg" problem, for example - of attracting enough buyers and sellers initially to make the platform viable. Overcoming this often requires significant upfront investment. Platforms must also establish trust and safety measures to ensure a high-quality user experience, combat fraud, and handle disputes. As platforms scale, moderation becomes harder. Regulatory challenges can arise, as seen with Airbnb and Uber. Platforms can lose control as third parties start to imitate and commoditise them. Finally, managing the often-conflicting needs of different sides of the platform requires good governance.

In a competitive market, other players might try to replicate or improve upon your platform's model, necessitating constant innovation and differentiation to stay ahead.

To attract initial users, platforms can offer incentives, subsidies, or exclusive content. For example Airbnb offered professional photography to hosts to jumpstart supply. Focusing on a niche and later expanding can help. To build trust, platforms should verify users, provide insurance, and create resolution centres. Airbnb's host guarantee helped overcome safety concerns. Platforms must work proactively with regulators to find solutions, as Uber did by offering insurance and driver checks. To avoid commoditisation, platforms should offer value-added services that are hard to replicate. Building a strong brand that users identify with is also key, as with Apple's premium image.

Succeeding with a platform model requires a shift in mindset from traditional "pipeline" businesses. Platforms must think in terms of ecosystems and understand that they create value primarily by enabling interactions between third parties. Harnessing network effects requires achieving critical mass, so aggressive growth tactics like viral marketing are important. Continual experimentation and innovation are necessary to stay ahead. Flexibility is also important, as the most successful platforms evolve over time as user behaviours change. Finally, be prepared to cannibalise your own pipeline business if necessary a good example: Netflix, in shifting from DVD rentals to streaming.

Before deciding to adopt a platform model, do lots of research. See if there are existing platforms that you can white label (use their platform with your branding so it looks like yours). Talk to companies who help people launch a platform business. Assess your staff and make sure you have the right people to support this type of business. Talk to marketing teams that have successfully launched platform businesses and consider engaging one to create a buzz and deliver a strong launch. Finally, make sure your systems are set up to handle the traffic (load on the system) because a crash or a slow system can kill a launch.