Building the right digital platform for a platform business model

As discussed earlier, a platform business model is not a new concept; traditional marketplaces, libraries with subscription fees, or art exhibitions all follow platform business models. What is new is the power of technology added to a conventional platform business model. We saw earlier how a platform business model powered by technology enables global reach—for example, a marketplace where a buyer from Australia can buy goods from sellers in the US or a user from China can rent a movie from a video library in Europe. Platforms also facilitate scale and remove the constraint of limited physical resources such as space, workforce, and so on.

For example, an art exhibition can only accommodate a limited number of artists in a gallery and a marketplace can only fit a certain number of sellers, but digital platforms eliminate this limitation. Hence, to have a successful platform business, it is crucial to build the right digital platform, which brings us to the crux of this book. This book will focus on how to build the right digital platform to run a successful platform business. Before we move on to the depth of a digital platform strategy and the day-to-day execution of that strategy, let's look at what comprises a digital platform and the critical factors that should be considered while building one.

Factors to consider while building a digital platform

Here is a list of major factors to keep in mind while building a digital platform:

• Easily scalable and expandable: To reap all the benefits of a platform model, a digital platform must be highly scalable. The platform should technically and operationally support scalability in terms of the number of participants (producers, consumers, and intermediaries), the number of products and services, the number of categories, and the number of transactions processed.

A successful digital platform should be able to quickly expand geographically and demographically. It should also be able to expand to new categories and new verticals. A good example here is Uber first expanding to multiple cities globally and then expanding to new business verticals, from ridesharing to food delivery via Uber Eats. The Uber platform's core aim was to match drivers to riders for ridesharing, which they expanded to food delivery by adding restaurants to the mix.

Now, all three entities—restaurants, drivers, and consumers—get benefits from the Uber platform. This expansion to the new vertical was only possible because Uber had a robust and highly scalable foundation of a digital platform. As we saw earlier, a successful platform business is one that can create a strong network effect, and to create a strong network effect for the platform business, a highly scalable digital platform is essential.

• Independent: A digital platform must be a separate entity. It should operate as a third party connecting different producers, consumers, and intermediaries. The platform is neither a producer nor a consumer. In some cases, platform owners can double up as one of the entities (producer or intermediary). When the platform is immensely successful or when a linear business has transformed to a platform model, this scenario becomes more common, but in these cases, the responsibility of the platform owner must be separated.

To give an example here, Amazon sells its products on Amazon Marketplace; in this case, Amazon must be treated as two different entities: a seller and a marketplace owner. Clear demarcation of ownership and responsibilities between all the parties involved is crucial so that each of them works within their areas of expertise and reduces the risk of errors.

• Flexible: We are living in a very volatile world these days. Markets are very dynamic and businesses should adapt to changing market situations, and digital platforms are no different. A flexible platform that can respond to changing market conditions and adjust to the given situation will thrive.

Netflix is a perfect example of responding to evolving markets and changing consumer behavior. They understood the market requirement and introduced their streaming service at the right time. However, they continued their original Digital Video Disc (DVD) rental service as well. Flexibility, adaptability, and responding to change are essential for any business but they are a must for digital platforms, as the foundation of their business model is to work with the volatility of the demand side (consumers) and the supply side (producers).

• Open to all: For any platform to be successful, it must create a strong network effect, and to create a strong network effect, it is essential to let as many consumers and producers as possible get onboarded on the platform. Platform owners should have checks for quality control and compliance, but apart from that, they should let all producers and intermediaries utilize the platform capabilities to offer their products and services. This also leads to making the platform onboarding easier. The higher the restrictions, the fewer the participants joining the platform. Hence, for a digital platform to succeed, it must create an inclusive and open environment for all.

Components of a digital platform

We looked at the different factors that must be considered while building a digital platform. But now, let's look at what digital platform consists of. These days, the term digital platform has become a new buzzword. Companies are wrongly using digital platform as a synonym for either their Information Technology (IT) transformation or revamping their architecture without understanding what an End-to-End (E2E) digital platform is or what comprises a digital platform.

There are mainly three components to any digital platform: customer experience, business (I also like to call it core), and infrastructure, as illustrated in the following screenshot:

Figure 1.3 – Components of a digital platform

Each of these components can have sub-components, depending on the type of platform business or its size, but every sub-component can be categorized in one of these three major components. These components play an essential role in defining the platform strategy and creating platform roadmaps, and it is thus crucial to understand them. We will discuss each of these components while discussing platform strategy and roadmaps later in the book. But before that, let's understand what these components are, as follows:

• Customer experience: Customer experience—or the interaction component—is where users can interact with the system; for example, websites, mobile apps, smart TV apps, and so on. These experiences are not just restricted to the platform's consumer side but also include interactions from the producer side—for example, an Uber app catering to both riders and drivers. The user identity will decide the specifics of the interaction and experience, but the overall layer is the same.
• Business/core: This is the heart and brain of a digital platform. This component comprises all the business or core services—for example, product catalog, promotion, fulfillment, and so on in the case of an e-commerce platform, or subscription, content, and personalization in the case of a content platform. These services perform most of the business functions and expose the end result to the customer experience layer in the form of APIs. How the interaction between these two layers happens is a technical architectural decision, but as a business or a product person, a clear understanding and deep knowledge of this layer is very important in order to define a platform strategy and create a platform roadmap.
• Infrastructure: Infrastructure components provide hardware and computing resources to the rest of the platform. We have seen that infrastructure platforms take care of hosting, storage, networking, and other essential hardware and software requirements, making them an infrastructure layer for other platforms.

For example, AWS is a platform that provides hardware, databases, Virtual Machines (VMs), and other essential deployment and development resources to other platform businesses such as Netflix, Facebook, and so on. In this example, resources provided by AWS become the infrastructure layer for platforms such as Netflix and Facebook. Their core services—such as personalization, content, and so on—become the business layer, and the mobile apps, Roku app, website, and so on become the experience layer.