Not all platforms are the same
We’ve all probably seen or heard of startups that say, “we are like the…Uber for X/Airbnb for Y/GDS for Z”, because we’re building a platform between A and B and we’re gonna have network effects and data and blah.
I always try to understand if that is really the case, because two-sided platform businesses can be great… but clearly not all platforms are the same. And when someone comes to me saying they’re the A for B when they aren’t really, I believe they’re probably going to get their business model wrong and have problems scaling ((un)fortunately, often chances are they still get an investor, and sometimes they get enough money to fix that down the road).
The platforms best at extracting value have (asides from ability to match lots of demand and supply)
1. high consumer repeats on platform, they
2. drive lots of customers to the business on the other side
3. and there is very low repeat between customer and business
Then you have power, and everyone is still (relatively) happy with you. You can’t be cut out easily. The less the end-consumer interacts with the end-business and the more they interact with you, the better.
I am not sure if this is obvious or counterintuitive (okay, I think people know, but forget), but this is not somewhere you want an arbitrary 80/20 rule to apply, not just in aggregate, but also at the individual level. Because then the business is going to start asking: why am I paying your startup when they’re clearly on your platform for me? This happens to early-stage startups more often than not. I keep hearing “businesses don’t want to pay” when they have leverage. Is it any surprise?
So is your business doomed if it doesn’t fulfill the above? No. There are so many platforms without #3 — and while they’re not Uber for Y — I’m not saying there is anything wrong with them.
Though I also love it when I can see thoughtful founders who run a platform that by nature may not necessarily demonstrate #3, but intuitively realize they can provide a service or play around with their business model to get closer to it, cement themselves and extract value.
Ideal platforms would have fragmentation/differentiation on both ends, but if your platform doesn’t have that, why not go out of your way and think how to get closer to that outcome?
Simple example — if you have very high consumer repeats at one business, maybe you could figure how to incentivize them to go somewhere else. Won’t the other business be unhappy? No, because you’re still driving a lot of customers to them.
We can see a variation of this in fitness pass models where there may be a higher credit cost on repeats or fuller classes, or caps on visits to a specific studio (yes, it is subscription).
We can see a variation of this in certain e-commerce marketplaces that have a (horrible) shopping experience where you cannot search by specific stores and have to do an addicting endless scroll of random sellers selling similar hot pink shoes.
And so forth.
Winning platforms are not necessarily those who execute first, fast and raise the most amount of money. They also have to know what kind of platform they are so they can come up with an appropriate model.
SEA startups often get accused of ripping off successful platforms from the US/China/elsewhere, but just because someone has done it first elsewhere and raised a ton of money doesn’t mean they’ve done it right. So I urge founders here, whether you’re working on a new business or improving upon someone else’s, to always be questioning context, and not simply defaulting to models we are immediately familiar with.
