Multi-Sided Platforms — Uber, Airbnb, and ZoomThru.
So…what exactly is a “multi-sided platform (MSP)”? Andrei Hagui of M.I.T. states that MSP’s are “technologies, services, or products that add value primarily by enabling direct interactions between two or more participating parties”. Essentially, they serve two or more customer bases and facilitate transactions between the participating parties.
Think of the “unicorns” that have dominated the startup world for the last few years. Take a look at Uber…they have dismantled the status quo (AKA the taxi industry and public transit) by creating a platform that facilitates transactions between people that own cars with people that need to get to places…It’s that simple. Take a look at Airbnb — connecting people that own homes with people that want to stay in homes. These types of transactions enable people to utilize personal assets as a means to generate extra income. That is the beauty of these platforms…they maximize the value of one’s personal assets. At ZoomThru, that’s our goal…to maximize the value of parking garages. But we will talk more about this later.
Historically, MSP’s haven’t always been about maximizing asset values. Think of the business models of Amazon and eBay. They simply connect merchants that want to sell stuff with consumers that want to buy stuff. Sometimes it’s just that simple. So what do all MSP’s have in common? Their value to one participating party is directly correlative to the levels of engagement exhibited by the other customer segments. Basically, when more people go on Airbnb to stay in people’s homes, the more worthwhile it is for an individual to rent out their home on Airbnb (and vice versa). This phenomena is called a “network effect”, sometimes also referred to as “cross-side network effects”.
My company — ZoomThru — is a MSP as well. ZoomThru serves three distinct customer bases: parking garage operators, parkers, and advertisers. How do we plan on incentivizing each party to remain on the platform? We will get into that later. For now, I intend to lay out some ground rules that we plan on utilizing as we develop our own platform.
MSP’s are valuable in the sense that the platform has access to numerous potential revenue streams. But how does one decide the pricing strategy? As a general rule of thumb, it is important to charge more to the side that has much less price sensitivity. For ZoomThru, the garage has the least price sensitivity by far. This makes sense when you consider the fact that the garages will yield the greatest benefit from our platform.
As another general rule of thumb, it is critical to charge more to the side that stands to extract most value from the other sides participation. An example that Mr. Hagui uses is OpenTable — a company that charges restaurants to enable reservation bookings on the platform. If you take a look at the example, it is clear why the platform charges the restaurant and not the customer. The platform enables restaurants to fil up their restaurant. Therefore, they charge the restaurant. If they were to charge the customer, then they might be inclined to just call the restaurant itself and reserve a table off the platform. Since restaurants stand to benefit the most from the platform, they are liable for the charges incurred
It is critical for any to-be MSP to understand the rules surrounding these two questions.
a) who is allowed to join the platform?
b) how should the sides of the platform be allowed to interact?
One might think, “the more users the better, right?” Not so fast. Let’s take a look at our example of Uber. When you or I order a ride on Uber, all we do is hit the “request” button and wait for a driver to respond to the call. The driver, who is pinged, has the ability to accept or deny that request. Therefore, the platform enables the drivers to choose whether or not they want to continue providing transportation. Continuing with the Uber example, not everyone is allowed to be an Uber driver. Uber does an extensive background check to see if the potential driver has ever been convicted of a felony or DUI. If they have? Sorry buddy, no access. Let’s take a look at the example of eHarmony. As one of the largest online dating sites in the world, they are surprisingly picky about who can access the platform. A prospective member has to answer a survey of 250 or so questions. The answers are then reviewed to determine whether the prospective member qualifies (and not everyone qualifies). Once the qualifications are met, eHarmony uses an algorithm to match you with a few compatable members. They then regulate customer interaction by allowing members to interact ONLY with people eHarmony has matched them with. You can see why governance over the platform is crucial to building your platform’s indentity.
3. Incentives, and their effect on # of customer bases on the platform
It is critical to incentivize every side to maintain platform viability. This means having a unique value proposition for all participating parties. As we have already discussed, one side of the platform will ultimately derive the most value fro the platform. However, this does not mean there shouldn’t be any value prop for the other side. If there wasn’t, then the platform would fail. That’s why I always advocate for listing three distinct value propositions for each side. If you cannot think of three distinct value-adds, then maybe you should consider removing that side altogether. At the end of the day, the platform’s success is dependent on equal (or close to equal) participation from all sides. If one side stops participation, it will dramatically decentivize participation from the other sides…and that is no bueno.
How does this relate to ZoomThru? As mentioned earlier, ZoomThru is a MSP with three distinct sides: Parking garage operators, parkers (the end users), and advertisers. Our platform provides garage operators with transparency through data while enabling the most frictionless customer experience in the industry to date (causing something this industry has not seen before…customer loyalty). Not to mention, we enable the asset optimization that has made platforms such as Uber and Airbnb so successful in this day and age. The end user enjoys seamless entry and exit into garages while removing the headache involved with ticket kiosks. Our advertisers stand to benefit from extremely targeted advertising. They have access to the mobile devices of people that park in the garages near their establishment. Not to toot our own horns, but this is a breakthrough for small business marketing. The targeted advertising we provide is estimated to be 3x-5x more effective than conventional advertising tactics (like social media campaigns, flyers, or signs).
To sum up, MSP’s are a high-risk/high-reward endeavor. They present massive barriers to entry. If you can climb that barrier, it’s all green pastures and blue skies. But that is no easy task. MSP’s are very defensible businesses, especially if there are value propositions evident for every side. But success as an MSP is the exception, not the rule. As mentioned earlier, if you are able to buck the trend by climbing that barrier, then you have something truly beautiful.
One more comment I would like to make before we end. There is an irony inherent in successful MSP’s. They enable asset optimization without being forced to own any physical asset crucial to operations. Unless, of course, you claim the network effects created by the platform to be an intangible asset.
Thank you for reading! I encourage everybody to follow ZoomThru’s progress as we get closer to our beta. www.zoomthru.co for more information.