5 Key Elements of Platform Business

Platform Definition

A platform originally refers to a place where passengers board a train or subway. In the platform economy, platforms also serve as ‘stepping stones’ that connect one group with another group or service. Platforms like Facebook connect users with users, and companies like YouTube connect users with content.

A key concept to understand in the platform economy is the ‘two-sided market’. It refers to a market in which two different groups interact through a space called a platform and create a certain value for each other. In other words, different markets are tied together on both sides of the platform in the middle. In a two-sided market, if one side does not exist, the meaning of the other side’s existence is also lost.

In a two-sided market, it is largely divided into the paying side (money side) and the receiving side (subsidy side). Taking Google as an example, users who use Google for free are the subsidy side, and advertisers who place ads on Google are the money side. As the subsidy side increases, the money side also increases, and the larger the counterparty market, the mutually beneficial. Therefore, the platform should not be biased towards one side, and the balance of the two should be well balanced.

5 Key Elements of Platform Business

According to the Harvard Business Review, the platform economy requires good management of these five network key elements to be successful. The key elements are:
1. Network Effects, 2. Network Clustering, 3. Management of Disintermediation, 4. Multi-homing Risk Management, and 5. Network Bridging.

1. Network Effects refers to a phenomenon in which the more users of a platform, the more useful the platform becomes, and the more users are introduced. Taking the phone platform as an example, the more people who have a phone, the more people can make calls, which increases the utility and value of the platform and makes more people use the phone.

2. Network Clustering means that the more users the platform connects to one area, the more disadvantageous it is to the platform, and the more advantageous it is to secure a wider user base. To take the comparison of Uber Airbnb as an example, Uber drivers in Boston are not interested in passengers in San Francisco. Because the scale of the user pool is small, it is easy for competitors such as Lyft to enter the market. By comparison, Airbnb is more competitive because it connects accommodation providers and guests from around the world, and it makes it difficult for competitors to enter the market.

3. Management of Disintermediation means that it is necessary to prevent two groups of two-sided markets from directly transacting without going through the platform. The two groups connected through the platform will be able to directly establish a transaction without using the platform, which is a threat to the meaning of the platform’s existence. In the case of Airbnb, the exact location and contact details of the accommodation are not provided until the guest pays to prevent direct transactions between the guest and the accommodation company.

4. Multi-homing refers to the phenomenon in which users use similar platforms at the same time. One example is that people usually use Lyft instead of just Uber. Amazon, which monopolizes the US e-commerce market, offers competitive prices through a multi-selling strategy, and can prevent multi-homing and achieve single-homing with differentiated services such as shortened delivery period, free shipping, easy returns, and establishment of a review system. there was.

5. Network Bridging refers to using data obtained from one network of the platform to expand another network. In the case of KakaoTalk, for example, it started as a messenger app, but has now become a comprehensive platform company that provides services in various fields such as remittance, map, search, game, delivery, shopping, etc. by using user data accumulated through messenger service. can be heard