Creating a platform business always leads to one key discussion: how to earn money with the platform?
When I teach platform business to clients or at the University I try to ensure that the audience understands two key elements. First: the platform flow. Second: the 4 major types of business models.
Let’s start with the first one: Platform flow.
Your platform should generate a positive value to all peers by making it easier to them compared to no available platform or any alternative. Therefore your platform should take care of all 3 major “flows”. The product or service, like amazon or UBER. The information like demand, supply, transaction, etc. And of course, the money stream.
Why should you take care of all three? Because otherwise you could not control and monetize them. For example: if the payment of the goods happens outside of your platform, you could not ask for a fee which is based on the finale price of the transaction (like ebay).
So, the first rule should be: Ensure as many of the flows go through the platform.
The basic four business models
The graph above gives you an overview of the four major business models and how you could monetize the platform flows.
Transaction cut: This is the basic basic model. Just simply take a fee of the transaction between the consumer and producer. Depending on the need from the peers, you could charge the producer, the consumer or both.
Attention: The main value of the platform is the network effect – the more peers you have the better it is for your partners. Therefore you could charge them to get the attention of your platform growd. Like Youtube is doing with the advertisers. To get your add shown upfront of any video, you have to pay.
Pay for Access: Here again, the main value is the sitze of your platform user base. Consumers or Producers are looking at your platform as a lead generation machine. Therefore you should charge the side, that needs the other side more. E.g. the restaurants need visitors (Opentable), or recruiters need the registered users (Linkedin)
Pay for Tools: Kind of a freemium model. The basic features are for free or cost less then the higher grade features. So the basic usage of the platform is for free, but if you want to do more with it, you have to pay. Like the messaging feature of Linkedin.
In our workshops we take the basic four models as a starting point going into the ideation phase. This helps the participants to understand monetization principles and to generate great concepts.
If you also want to build your own platform, please have a look at our advisory services. Most of our clients use a 3-day workshop to design a platform concept and to create an implementation strategy.