Building a platform that scales

Spending the last five years building a platform marketplace, the book Platform Scale by Sangeet Paul Chaudary has been my bible that I still return to. Here are my notes from the book:

Scaling from user interactions

The fastest scaling business models allow external producers and consumers to plug in and create and exchange value with each other directly.

Value lies NOT in owning resources but in managing the exchange of services in an ecosystem.

Value creation

The value is not created by the platform itself, but by the interactions on top of the platform.

The platform business model is to capture a part of the value that is created in the meetings between users.

Not only money is a currency

The values exchanged on the platform is not only money but also social currency as exposure, followers, likes, rating, sharing.

Thus, businesses should be measured not just in terms of dollars absorbed, but in DATA absorbed from users.

Trust and quality supply

Platforms must invest in trust mechanisms that differentiate good from bad.

Access and quality control must be done, either manually (screening, background checks) or by aggregating social signals from the community.

Balance supply and demand

The two sides of the platform must be balanced to keep both producers and consumers on the platform.

Make sure that both user groups receives value. Scale production and consumption simultaneously, and repeat so that each reinforces the other.

Network effects

Make the volume of users a benefit for other users. This is called network effects, and it is what makes the platform scale.

The platform becomes more valuable as more value is created and exchanged by the users.

Stickyness

To ensure participation from the users, the platform owner must invest in behavior design to create new habits, that makes the users want to stay engaged on the platform.

The platform business model

Is NOT a software building business. Is NOT a product/service selling business. But a business of mediating and enabling interactions.

Hockey stick growth

Successful platforms can get a hockey stick growth curve. Not because of superficial growth hacks, but by understanding the real drivers of platform scale: activity in the ecosystem That is achieved by the right business design and architectural decisions.

The one metric

The most important metric that platforms should be judged on is the rate at which value is created on the platform. Not the technology or the rate of user adoption.

The center starting point

Platform design should start with a center, not with features.Center on the goal of value creation enabled. This determines how the users will interact.

The closer one aligns each feature around a center the more intuitive the platform’s usage is.

The core value unit

This core value unit is the minimum standalone unit of value created on the platform, and:

- is required to spark interactions

- is not controlled by the platform

- is the scaling variable

The more units and the higher the quality, the more valuable the platform will be.

Filters

Ensure that consumers are served only the goods, services, and content that are most relevant.

Filters may be point-in-time or based on past behavior.

Filters may be active (search query) or passive (newsfeed).

Filters can be collaborative: “others also purchased this”.

The core interaction

The core interaction consists of these actions (four C’s):

- Creation: Producers that creates value (the core value unit)

- Curation: Rating of the producers

- Customization: Filters to create a relevant experience for the customer

- Consumption: Consumers consumes value

Avoid distractions

Features, functionalities and initiatives that do not directly affect the core interaction, may distract the team from more important execution.

Platform strategy

1. Pull: Producers and consumers must be pulled to the platform and engaged on an ongoing basis.

2. Facilitate: Ensure that the tools and services enables users to interact in a desirable way.

3. Match: Use data to serve relevant items to consumers.

Value caption on platform

Platforms can capture value in several ways, from:

- Money transactions

- Charging one side to access the other

- Advertising from a third party

- Premium tools and services

- Charging consumers for access to high-quality, curated providers

- Charging producers for an ability to signal high-quality

Expect emergence

A well-designed platform should encourage and allow the users to take the platform in new directions that the owner never expected.

Make changes to enable the users to move in that direction. This is one the most common way for platforms to pivot.

Best of luck in building your platform!