Commerce as we know it today is in the beginning phases of a paradigm shift. The traditional pipeline business model, where producers have provided a product or service and pushed it through a channel down to consumers, is being replaced. A new business model known as the multi-sided platform is gaining traction in the market. The multi-sided platforms are directly connecting the mass of buyers and sellers in a single electronic marketplace.
Amazon is strangling traditional retail stores. Uber is decimating the taxi industry. Airbnb is keeping hotel chains on the edge of their seats. Most companies recognize the new economic trend, but awareness is only the first step in a long and complicated process to shift the traditional pipeline model toward utilizing platforms effectively. Traditional companies do not know all it takes to successfully implement platform technology. The companies are throwing more money into projects that do not produce the desired results. The lack of understanding of how multi-sided platforms work and create value is causing failures and delays.
What Is a Multi-sided Platform?
According to “Platform Revolution” by Parker, Van Alstyne and Choudary, a platform is defined as a business model which brings together producers and consumers to facilitate the exchange of information, currency, and goods or services. The platform marketplace generates value by connecting communities using technology. The connection reduces friction by enabling mutually beneficial transactions to take place between two or more parties without a middleman.
Another key element of many successful platforms is the use of crowdsourcing. Crowdsourcing is the method of gathering either funding or resources from outside the company, usually through various channels on the internet. By leveraging third-party resources, platforms can remain nimble and scalable while keeping fixed costs low. Platforms have virtually rewritten the book on valuation by de-linking assets from value. This unique approach has allowed companies such as Uber and Airbnb to receive appraisals in the tens of billions of dollars without owning a single car or home, respectively. Combine crowdsourcing with the concept of positive network effects—the idea that the more people use the platform, the more valuable it becomes—and we begin to understand how multi-sided platforms are achieving unprecedented levels of growth and success.
Where Do We Start?
One of the biggest misconceptions about successful platform technology is that you must completely rewrite your business plan, hire expensive software engineers, and move your company to Silicon Valley. This misconception is simply untrue. Many companies in traditional industry segments leverage platform technology to increase efficiencies and reduce friction without changing their overall strategy. Moreover, new platforms are popping up across the country.
Below are five tips for building the right multi-sided platform for your business:
1. Understand the user journey
Many projects nosedive from the start due to failure to focus on the most important aspect of any multi-sided platform: the user journey. Before development begins, a platform must clearly articulate the specific type of end-users it is targeting and the overall experience it wants to deliver. The definition can be achieved by creating two crucial items: user personas and journey maps.
- User personas: Creating a series of user personas will clearly define the type of people the company envisions will be using the platform. For example, one persona for Uber might be Jeff, a 21-year-old biology student who needs a ride home after he’s had one too many at the bar. Another persona could be Sharon, a 30-year-old project manager who lives in Chicago without a car and needs to get to and from work every day. By understanding their customers, developers and marketers can better tailor technology to the demographic target market.
- Journey maps: Journey mapping is the process of visualizing and understanding a user’s journey toward accomplishing a goal while using the platform. Journey maps are like process flows but with more emphasis on the user experience. Journey maps are used to identify user needs, emotions, and pain points before development begins.
2. Develop wireframes
First impressions and creating a clean, inviting interface is important. In many cases, user interface is more important than the actual functionality of the platform application. Wireframes are skeletal outlines of a website or application that depict exactly how every screen and step in the process should look once the final product is up and running. Wireframes are an essential piece of the planning phase because they communicate the overall aesthetic and usability to developers, marketers, and potential investors. Wireframing often requires the enlistment of graphic artists to ensure high quality.
3. Scope the MVP appropriately
Minimum Viable Product (MVP) is the first functional version of a new piece of technology. While you may have grandiose plans for how your platform will ultimately work, a trimmed down version allows a company to start with something small instead of spending years trying to build the perfect application. An MVP is essentially a skeleton of the product. It is just functional enough to communicate your message and experience given a very limited budget. Don’t get caught trying to boil the ocean here, or your platform will never make it off the ground. The purpose of the MVP is to gain feedback along the way to understand what users desire in the application. Only after you have wooed your intended audience and listened to their feedback, you can start adding the user-desired bells and whistles.
4. Define test markets
The initial test markets for your platform must be properly identified. Test markets are small, specified groups used to test the viability of a platform before its official launch. Test markets are most commonly siloed to a certain geographical region, such as a city or specific demographic of test users. The test markets must include a sample of users you anticipate will be using the platform going forward. Otherwise, your test marketing data will be unreliable and will not coincide with how your user base will react when the platform is launched. Third party firms that specialize in this type of testing are often hired at this stage in the development process. Accurate test marketing is critical because it allows for last second tweaks if any key issues are exposed.
5. Prepare for failure
No one likes to dwell on the potential of failing, yet the sobering truth is many platform launches are unsuccessful. At least some aspect of every platform endeavor will fall short of expectations. The key is to be realistic when setting goals and to remain motivated even when parts of the plan don’t come together perfectly. It’s wise to face the threat of failure head-on by creating a backup strategy in case your platform is ever at risk of falling on its face. The backup strategy might be other uses for the platform or something as simple as changing the target market for the platform. Favor started out as a burritos and beer delivery service and is now connecting delivery drivers who can deliver anything from food to school supplies.
Whether your goal is to transform the company into the next tech unicorn or simply create more efficiencies within your own walls, these five tips apply. At Trenegy, we have developed a comprehensive Multi-sided Platform Development Checklist that helps companies ensure they don’t miss a step. Contact email@example.com for your complimentary copy today.