by Alan W
Platforms are businesses that connect two or more mutually dependent groups in a way that benefits all sides.
Notable examples
Some notable examples are Uber, where the platform connects riders with drivers, or eBay where their online product marketplace connects buyers with sellers. Platforms don’t create value in the traditional business sense. It simply facilitates the exchange of value. Platforms is a business model that allows consumers and producers to connect with each other through the exchange of goods or services, content, money, information and much more. The producers (sellers) and consumers (buyers) are actually both customers of the platform. The producers bring inventory to the platform and consumers are then consuming that inventory. And that is what gives a platform its value.
Linear businesses
Unlike platforms, in a linear business value only flows in one direction. Linear companies create value in the form of goods or services and then sell them to someone downstream in the supply chain. Examples are Coca Cola, Toyota, any business that produces a product or service.
Platform businesses
Let’s look at how value flows through a platform business. Platforms don’t own the means of production, they create the means of connection.The supply chain is no longer the aggregator of business value. Through their networks of consumers and producers, platforms connect businesses and individuals enabling them to exchange value amongst themselves. This multi-directional value exchange is what makes platforms work very differently from linear business.
Platforms are here to stay. Platform business models allow companies to expand at a pace unprecedented in human history.
Conclusion
When a linear business gains a new customer it adds only one new relationship.A buyer of a product or service. When a platform adds a new user that person not just adds a simple relationship but rather a potential new relationship with every other user on the platform. As more new users join the network the value of the platform increases for each other users. Platform businesses are far more cost effective than higher scale in the old linear models they are replacing.
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Illustrator: Lisa Williams (Instagram: @artist_llw)