SCALABLE PLATFORMS

BEREND-JAN HILBERTSVALERIA MECOZZIMENNO VAN DIJK

SCALABLE PLATFORMS

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Platforms are everything on which we create. They are a trade show, a website, a river, a floating city, even a skateboard. Platforms are the base upon which we all business, and what we build to exchange value by creating opportunities for all kinds of interactions. The ability to design a platform that successfully scales value creation for all participants involved is a task fit for architects.

To become scalable, the platform must exploit digital angles to offer new benefits to its users. It must create a delivery system that can be reconfigured into different contexts, and do so by creating an innovative business model.

Let’s first understand platforms.

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ROLESDIFFERENT ROLES CAN BE DISTINGUISHED ON ANY PLATFORM

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LIQUIDITYThere are no two standard platforms. It is important to understand this, as platforms come in many different forms, making them virtually impossible to replicate. The shared feature of any platform is that they create the meeting point between interactions and transactions, where key performances are designed between consumers.

Every platform distinguishes two types of roles:The first are participants: the buyers interacting with sellers, information creators and consumers, and community members. Thanks to participants interchanging their roles, digital platforms have spawned a new class of “prosumers”.

The other role, that of the provider, architects the interaction between users by becoming the arbiter of access & architect of rules, while creating an infrastructure of reliable, secure and cost-efficient access, and strong data intelligence.

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LIQUIDITYTHE KEY SUCCESS FACTOR

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Liquidity here is defined as the volume of usage, making this the key success factor of any platform. Think of it as a party: the provider needs to design the party into a compelling experience to attract many interesting guests and ensure they mingle and have fun. No guests, no party.

At the same time, positions of platforms are notoriously fickle. “Professional” (or heavy) users might switch providers, quickly taking liquidity with them. Platforms therefore need a minimum level of liquidity to get started. This typically originates from an “over-the-counter” niche market.

Consider that liquidity attracts liquidity. It is a chicken-or-egg conundrum– do you need users or providers first? If only one type of participant group is present and the other is missing, nothing will happen. To solve this, platform providers often subsidize one side.

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VALUE CREATION EXPERIENCECREATE AND TRADE VALUE

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All megacities have a platform base that provided its participants, its citizens, the chance to create and exchange value. A city comprises marketplaces, new arrivals, and constant upgrades. The same interaction yields different values for different types of users, and new forms of businesses are developed. In the online world, a platform like YouTube is rich with learning tutorials, as well as entertaining clips. How they coexist and what they generate per user becomes the value of the platform.

Another value creation it that contribution to the platform increases social status. The Huffington Post has featured thousands of articles without paying its writers – bragging rights were enough of a currency to many. Similarly, many Wikipedia editors contribute to gain professional respect. The platforms function as a transaction point, but if participants do not capture sufficient value from their contribution, liquidity dries up.

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HEAVY USERSTHE EXPERIENCES OF THEY WHO MATTER MOST

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The Zephyr Boys redefined skateboarding when they began taking advantage of abandoned pools during a mid-1970s California drought. This ingenuity turned the sport into something entirely new, taking it all the way to the Olympics in 2020. When younger users start shifting to other platforms, the older, less active generation will invariably follow.

At the same time, many digital platforms have the advantage of an accumulated value that is created through many interactions and transactions that are captured in the data. A professional user is less willing to switch to a platform that is more obscure and less relevant. Imagine importing all of your likes, posts, purchases, contacts from Facebook to a new platform to get the same value.

Thus, the experience of your heavy users matter most. As the youth start to migrate, it is worth asking: what is the next Facebook?

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ARCHITECT AND ARBITERTHE PLATFORM ITSELF PROVIDES THE BOUNDARIES

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A platform designs boundaries whose rules shape user behavior. The platform provider is also the arbiter that enforces the rules and punishes unacceptable behavior. Clearly stated rules are a non-negotiable part of your platform.

The boundaries need to be neither strict nor loose, because strictness restricts maneuvering space. Without a margin on which to operate, participants have no room to invent new interactions and transactions, killing progress. Alternatively, leniency reduces reliability and the effectiveness of the platform.

Rules also remove friction and encourage interaction and growth. Gutenberg’s innovative printing press famously augmented and expanded the number of words available from 50 thousand to 1 million. Consider, then, how Twitter’s 140-character rule began changing our online language once it coined the first hashtag.

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PROVISION OF INFRASTRUCTURETHE CRITICAL FUNCTIONALITIES ARE IDENTIFICATION, CLEARING & FULFILLMENT

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Think of your infrastructure as the bridges we cross. Identification, clearing and fulfillment of purpose are its critical functionalities, so how do you –practitioner – know that your counterparty can be trusted? Or that a transaction is received and confirmed on both sides and then followed upon?

Think about how you upload photos to Flickr or post a item for sale on eBay. These are the tools and technologies needed to create content and shape interactions on the platform. We trust that our material is safe and protected, in addition agreeing to terms of use.

Infrastructure provision is about reliable, secure and-cost efficient access. Mundane if you do not get it, but a life mission if you do. Many platforms, like bridges, do this part well, but what happens when despite good intentions very little interaction is generated? Do not forget a key factor.

ARCHITECT &ARBITER

THE PLATFORM ITSELF PROVIDES

THE BOUNDARIES

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MARKET MAKERS NEEDEDPLATFORM PROVIDERS ACTIVELY “MAKE” THEIR MARKET

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Platform providers play an active role in “making” their market. They provide incentives to pull participants to actively engage with the platform. They’re shown the best way to interact meaningfully and relevantly.

Think of the unique vantage point first created by the Home Shopping Network. The users were its most active promoters. For the first time, real housewives were selling home products to other housewives. Merging genre formulas and targeting their niche audience, the network was able to work with a smaller budget, while providing big-league protection to its novices. They offered floor prices, and a platform to showcase new products. Some of its presenters even became overnight celebrities that were able to branch off into new businesses, and the products have spawned countless innovations. HSN also provided product quality assurance, with clear return policies if the product was delivered in subpar conditions.

ARCHITECT &ARBITER

THE PLATFORM ITSELF PROVIDES

THE BOUNDARIES

MARKET MAKERS NEEDED

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MARKET MAKERS NEEDEDPLATFORM PROVIDERS ACTIVELY “MAKE” THEIR MARKET

DATA AS THE OIL IN THE MACHINE THE OIL THAT KEEPS YOUR ENGINE RUNNING

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A platform spurns lots of data, which in turn drives further value creation by feeding them in smart algorithms, e.g., Amazon’s “users like you bought…”. Data is the oil that keeps your engine running.

Data reduces search costs and increases relevance: finding the perfect contact, information or deal fit for you. Matchmaking sites are exclusively data-specific and have spurned a brand new segment of dating in this digital era.

Usage data shows what is most popular, which in turn attracts more viewers or rates. Note how credible your counterpart is an Airbnb transaction. Be aware that data provision can also be too much.Full transparency can reduce trading margins or opportunity creation to a degree that exchange becomes impossible, e.g., lowest price anywhere for an e-commerce site.

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STUMBLING BLOCKS

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Creating platforms that can scale is a challenging endeavor, and stumbling blocks are abound. We’ve listed a few that are imperative to ensuring that what you’ve built won’t crack under pressure.

1. The absence of a sufficiently valuable primary product or service. Is your product 100% clear?

2. No informal trading market is forming, and users are not organically sharing or discussing the need for your product. Are you sure that you’ve tapped into an unspoken need?

3. Starting too broad instead of starting with dominating a niche of heavy special users; not focusing on niche users.

4. An insufficiently fragmented stream of supply and demand.

DATA AS THE OILIN THE MACHINE

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5. Platforms have fixed costs and allowing for them to be free is a wasted effort. Free liquidity is tempting when looking to generate more users (look at freemium), but a critical mass of users willing to pay is critical. If the platform has little value, your introduction cost is typically very low and/or free, and growth will become a struggle.

6. Starting with a clumsy, costly infrastructure platform that was never designed to handle large volume of users is a common pitfall. Here we go into software thinking, so you need to think like an architect that can handle large volume, etc. Invest in the expertise.

7. Do not forget to give your heavier users the incentives needed to continue using your product as it evolves.

DATA AS THE OILIN THE MACHINE