Platform Business Design

by Marco Cigaina

A Structured Approach to Identify, Analyze, and Design Platform Business Models.

About the Author

Marco Cigaina leads foresight at SAP Intelligent Enterprise Institute, focusing on rethinking innovation management and digital business models. His engineering degree with a concentration in enterprise information systems from Politecnico di Milano University has enabled his technology and business intelligence consulting, enterprise architecture experience, and strategic initiatives management. He wrote Innovation Management Framework: Enabling and Fostering Innovation in Your Company (Epistemy Press, 2013) and co-authored Digital Business Modeling: A Structural Approach Toward Digital Transformation (SAP white paper).

An increasing number of successful platform businesses have emerged across different industries. To optimize and take full advantage of opportunities of this new “platform economy,” companies are more interested than ever in understanding the dynamics and exploring the potential of platform business models.

This white paper proposes a structured approach to systematically identify platform business opportunities and design the most critical elements for a successful platform business.

1. Introduction to Platform Business Models

Platform businesses are increasingly important for their ability to out scale traditional linear value chains and enable companies to go beyond industry boundaries. This document recaps the key characteristics of platform business and proposes a structured concept (canvas and patterns) to systematically represent, analyze, and design platform business models.

The paper follows this organization:

• Section 2 introduces the definition and key characteristics of platform business.
• Section 3 proposes a template to represent, analyze, and design platform businesses in collaborative sessions.
• Section 4 provides a guided method to model a platform business step by step, following the template previously introduced.
• Section 5 provides a set of recurring and re-usable elements as patterns for platform business design.
• Section 6 discusses additional concepts that deal with the lifecycle of platform business beyond the design stage.
• Section 7 puts the topic of platform business in context of the digital economy at large and suggests lines of additional research as an outlook.

2. Definition and Characteristics

You can define platform business as a type of business model based on the idea of enabling interactions between external value providers and value consumers. The platform provides an infrastructure to facilitate their interactions and match consumers’ needs with providers’ offerings. This business model contrasts with the simple linear value chain of traditional business, yet real-world businesses can span the range and combinations of linear and networked business models.

See examples of platform businesses in many different industries in Figure 1.

Based on the definition and the analysis of examples, here is a common schema of platform businesses:

In this schema presented in Figure 2, providers like room hosts or car drivers deliver value, respectively, as an accommodation service or a taxi ride to consumers, guests, or riders, and receive value in immediate payment for the service. Likewise, the platform business, facilitating matches and interactions of users, provides value both to providers and consumers, similar to exposure of hosts’ rooms to travelers or electronic payment for taxi rides. These value flows motivate users to join and stay on the platform and give back value, such as a percentage of each service transaction fee. The platform business may enhance the value it provides by leveraging partners, similar to insurance companies for an accommodation platform or electronic payment for a room rental platform.

The schema also suggests analyzing the business environment around the platform:

· Stakeholders

· Trends

· Regulations

· Local specificities and requirements

· Competition

In addition, consumers and providers represent roles rather than entities. For example, an Airbnb guest in a certain context can become a host in another context. The above schema depicts a two-sided platform structure, yet in the most general case may comprise multiple groups of providers and multiple groups of consumers depicting multisided platforms.

Foundation for platform business design

Key factors enable platform business to significantly scale (as in Figure 3):

· Shift of internal coordination overhead to the external network can lead to increased speed, broader offerings, lower costs, and better business scalability. Think of inventory managers in traditional individual malls versus Amazon’s ability to orchestrate a global marketplace of vendors and consumers.

• Virtualization of resources, such as ownership of assets moving from a company to external providers, can lead to reduced capital intensity, broader offerings, lower costs, and business scalability. Think of hotel properties versus. Airbnb rooms.
• Continuous feedback loop can lead to improved adaptability and quality assurance. Think of Encyclopedia Britannica versus Wikipedia, or TV station versus YouTube ratings.
• Network effects driven by attractiveness of a platform as a function of its size can lead to positive virtuous cycles across the different sides of the platforms. Think of an e-commerce platform where more consumers attract more providers and vice versa.

Some business characteristics significantly influence the potential and the dynamics of platform business (see also Parker et al., 2016), namely:

· Intensity and distribution of information and knowledge: Think of media companies in which content drives business, or healthcare companies, in which doctors and patients have very different information and knowledge of diseases and treatments). A platform can facilitate information management and exchange.

• Geographical fragmentation: A platform can provide a unified view and connection. Think of local businesses exposed in a platform.
• Efforts and costs of quality assurance: Think of inventory managers in retail.
• Exclusive access to capital-intensive resources: Think of oil-field access contracts.
• Regulatory controls: Think of the education or healthcare industry. A platform business might be hindered by regulations created for the simple linear value chains of the past.

After reviewing the definition and key characteristics of platform business, the question becomes how can you represent, analyze, and design — that is, model — a platform business?

3. Platform Business Design Canvas

The following canvas (in Figure 4) can portray in collaborative sessions for platform business design.

The structure of this canvas derives from the previously discussed schema (see Figure 3), highlighting primarily all the value exchanges. These include the value flows between providers and consumers and those between the platform business in focus and the related providers, consumers, and partners.

The following enhanced version of the canvas (in Figure 5) highlights selected key elements to accurately analyze and design to achieve a successful platform business.

For both consumers and providers, the above template suggests looking at both:

• Their “job-to-be-done,” their fundamental tasks and needs the platform business needs to serve
• The experience they are expected to go through while interacting with the platform

For the providers’ component of the model, in addition, the template suggests indicating the resources that providers own or directly coordinate, such as the cars belonging to Uber drivers.

Regarding the platform business itself, the canvas suggests representing six key elements of platform business. Three of those elements are typical of any business model: cost structure, revenue streams and related pricing model, resources. Resources belonging to the platform can be, for example, data on providers and consumers, or assets that a company sponsoring the platform owns (e.g., a connected, smart product of a manufacturer).

The other three key elements are critical and more specific for platform businesses:

• The first element is the ownership model, the way a platform business is sponsored and managed.
• The second element is the set of interfaces and channels that define what users can do and not do with the platform, as well as the way to interact with the platform.
• The third element deals with quality assurance, the way a platform business can ensure the maintenance of the desired level of quality in the key value exchange between value providers and value-consumers.
• In addition, the canvas indicates stakeholders and regulations as key elements of the business environment for platform business and competitive strategies as key element to be defined, having analyzed and mapped the competition.

Section 5 elaborates these elements in further detail, providing typical options to address these topics.

To make the usage of the canvas clearer and more concrete, some examples follow of specific platform business represented by means of the platform business design canvas.

Example 1: Room rental platform business

A platform connects travelers and hosts. Figure 6 shows this platform business using the proposed canvas.

Example 2: Innovation crowdsourcing

A platform connects companies (seekers) looking for scientific or technical challenges to be solved. Scientists, engineers, and innovators (solvers) can try to find innovative solutions. Figure 7 shows this platform business using the proposed canvas.

Example 3: Loan platform business

A platform connects borrowers and investors. Figure 8 shows this platform business using the proposed canvas.

Example 4: Payment platform business

A platform uses a platform that connects payers and payees. Figure 9 shows this platform business using the proposed canvas.

Example 5: E-commerce platform business

A platform connects small merchants offering handmade products made by artisans (sellers) and buyers. Figure 10 shows this platform business using the proposed canvas.

Example 6: Smart home platform business

A platform business provides a home automation producer of programmable, self-learning, sensor-driven, Wi-Fi-enabled thermostats, smoke detectors, and other security systems. This platform business connects homeowners and producers of smart devices and apps that can access what sensors detect. Figure 11 shows this platform business using the proposed canvas.

4. Platform Business Design Method

How do you fill the platform business design canvas? The following table shows a recommended sequence of analysis and design throughout the different components of the canvas.

Although the sequence of steps indicated above is a typical one and can become a standard way to go through the canvas components in most cases, other possibilities exist. Different sequences of the same steps are possible, depending on the specific platform business in the scope of analysis.

For example, consider an established company having a linear value chain business model with significant assets and resources (such as energy consumption data available to a utility company). It may make sense to consider those resources as platform resources and explore potential users and related jobs to be done that could be served by the platform business by leveraging access to those resources.

5. Platform Business Design Elements

What are the critical design elements to be carefully considered while you design a platform business? Can you re-use recurring patterns while designing a platform business by leveraging the canvas proposed in this document? The following table lists the key platform business design elements and related recurring and re-usable patterns.

5.1 Platform Business User Experience

Platform business user experience relates to the way users, both providers and consumers, perceive and interact with a platform to meet their needs and achieve their goals and the process they go through. In the following table, find patterns related to platform business user experience.

5.2 Platform Business Value Flows

Platform business value flows describe the typical types of value exchanged in a platform business model across different players, including providers, consumers, partners, and the platform business itself. In the following table, find patterns related to platform business value flows.

5.3 Platform Business Monetization

Platform business monetization refers to the different ways a platform business can be monetized to generate a sustainable profit. Pricing models are also included in this design element. In the following table, find typical monetization paths for platform business. For nonprofit organizations, monetization can be re-interpreted as achieving the overall company mission and specific objectives.

5.4 Platform Business Relevancy Features

Platform business relevancy features refer to the different measures and mechanics a platform business adopts and executes to make relevant offerings to consumers, assuming an abundance of potential value exchanges with many potential providers. This could generate an information overflow for value-consumers. In the following table, find patterns related to platform business relevancy features.

5.5 Barriers for platform business providers

The more the platform helps reduce various kinds of barriers that producers might have to generate value for consumers, the more willing providers will be to join the platform.

In the following table, find patterns related to typical barriers of providers that services and tools delivered by the platform should strive to address, to boost attracting providers. Different from other patterns, which suggest specific solution options, these patterns of analysis consist of questions that drive ideation of specific value types from the platform to the providers.

5.6 Platform Ownership Models

Ownership models refer to the way a platform business is sponsored and managed. In the following table, find patterns related to platform businesses’ ownership models.

5.7 Quality Assurance Models

Quality assurance refers to the way a platform business can ensure the maintenance of the desired level of quality in the key value exchange between value-providers and value-consumers. In the following table, find patterns related to quality assurance models that can be considered as options in designing a platform business.

5.8 Platform Channels

Platform channels refer to the touchpoints, communication, sales, and operational channels of a platform business. In the following table, find patterns related to platform channels.

5.9 Platform Interfaces

A platform ecosystem is significantly influenced by the specific interactions and activities that a platform allows or does not allow value providers, value consumers, and partners to perform. Interfaces such as software application program interfaces and codified rules determine ways to interact with the platform business. In the following table, find patterns related to platform interfaces.

5.10 Platform business environment elements

Platform business environment refers both to stakeholders and the business and regulatory context in which a platform business operates. In the following table, find patterns in the form of key questions related to the platform business environment.

5.11 Platform competitive strategies

Platform businesses might conduct multiple competitive battles with other platforms and related ecosystems, as well as with providers and partners potentially acting as competitors. In the following table, find patterns of analysis in the form of key questions related to platform competitive strategies.

All the patterns above can be represented as graphical cards to be used with the platform business canvas in the context of collaborative design sessions.

6. Platform Business Scoping Framework

Established companies that have linear value chains may want to evaluate and scope the opportunity and potential of platform business. They can either set up ancillary platform businesses around their core, or more rarely transform their linear value chains into networked, platform businesses.

The following proposed methodological steps lead from the analysis of the current business to the identification of potential platform businesses:

• Represent the current business model (for example, by means of Osterwalder and Pigneur’s business model canvas or a network view).
• Identify potential players of ecosystem.
• Identify potential value provider-consumer pairs and the type of value they would exchange.
• Confirm that in principle the identified value providers, consumers, and platform business will all gain adequate benefits, so that the value system they form is sustainable.

The following table recaps patterns and related questions that help to identify potential players of an ecosystem.

The following picture depicts the idea of identifying potential players of the ecosystem along the value chain of your own and adjacent industries, by considering the job to be done and the resources of a company.

The previous questions help to generate a set of potential players of an ecosystem. The subsequent logical step is to identify potential providers-consumers’ pairs and their value exchange. To do so conceptually, you can use the schema presented in figure 13.

To confirm the opportunity to design a platform business, you should check that the identified provider-consumer pairs will lead to a value system, that is sustainable, because it gives the following expected benefits (see also Tiwana, 2013) to participants, at least some for each category.

For platform owners:

• Innovate faster and cheaper around core business than rivals
• Reach potential untapped market segments
• Focus more deeply on core competencies

For value providers:

• Set a scalable foundation to leverage their expertise
• Reach a much-expanded market

For value consumers:

• Innovate faster
• Increased customization
• Lower search and transaction costs.

The identified key value exchange and value provider-consumer pair defines the initial scope for the platform design described in the previous sections.

7. Platform Business Lifecycle

Defining the scope, analyzing, and designing a platform business model is just the start of a game plan to launch, grow, innovate, and optimize a platform business. Figure 14 presents a simple template to create such an overall plan, where the Define stage includes scoping, analysis, and design. Note that a lean start-up approach is recommended before the platform business can grow, executing an ideate-build-learn cycle regarding a minimal viable platform business, and thus, set the foundation to launch and grow the platform business.

Two elements deserve special attention: a strategy for launching the platform and some key metrics for success along the lifecycle of the platform business.

The following table recaps patterns of platform launch strategies (see also Choudary, 2015).

The following table recaps patterns of success metrics along the lifecycle (see also Parker et al., 2016).

8. Outlook and Conclusion

This white paper has introduced a pragmatic approach to model platform businesses. However, you should consider platform business design also in a broader context. In fact:

• You can look at economy as a network of connected, intelligent agents (people, businesses, and to some extent increasingly moving forward, artificial intelligence agents) that bring their own needs, goals, resources, and competencies.
• The gap between agents’ goals and agents’ own competencies and resources triggers jobs to be done: whenever an agent cannot directly meet goals, it generates a potential job to be done by other agents.
• Those jobs to be done can be addressed by other agents through their competencies and resources.
• In this perspective, information plays a key role, both as a means to represent agents and their environment and as a means to trigger sophisticated interaction between agents.

Digital technologies enable the information flow associated with this economy network of agents, supporting them to discover, evaluate, and use solutions that fulfill complex sets of interrelated jobs to be done. In other terms, digital technologies enable a highly dynamic economy based on value and information exchanges among increasingly informed and intelligent agents.

In this context, platform businesses, with their ability to coordinate resources beyond industry boundaries and orchestrate connected intelligent agents, represent a key business model pattern of today’s economy. With that in mind, further research is required to define frameworks that can help represent, analyze, design, and orchestrate increasingly powerful networks of value and information flows.

Learn More

In the context of company-specific digital transformations, the goal of digitizing linear value chains can expand into exploring the potential of platform business. Research suggests (see Tiwana, 2013) a strong relationship between platform business governance and architecture. One of the implications, conceptually speaking, is the need to consider simultaneous design of aspects of platform business models together with aspects of the concrete architecture and implementation. The structured approach for platform business design (PBD) presented in this document can become a significant concept supporting this endeavor.

References

Gawer, A. and Cusumano, M. A. 2002. Platform Leadership: How Intel, Microsoft, and Cisco Drive Industry Innovation. Harvard Business Review Press.

Tiwana, A. 2013. Platform Ecosystems. Morgan Kaufmann.

Choudary, S.P. 2015. Platform scale. Platform Thinking Labs.

Parker, G. G. and Van Alstyne, M.W., Choudary, S. G. 2016. Platform Revolution: How Networked Markets Are Transforming the Economy — And How to Make Them Work for You. W. W. Norton & Company.

Evans, D. S. 2016. Matchmakers: The New Economics of Multisided Platforms. Harvard Business Review. Press.