The Platform Recipe: How Platforms Like AirBnB Click It All Together From Strategic Partnerships To Identity Verification, Payment Gateway and Web App Templates
The unparalelled growth of the digital economy accounts for 25% of the global economy and Multi sided platforms represent an increasing proportion of the overall total.
The top 15 public platform companies represent $2.5 trillion in market cap worldwide.
This alone should be good enough reason to become familiar with the mechanics of the business model.
So let’s dig in…
The recipe is equal parts consumers and producers with a touch of technology sprinkled in to bind them.
To keep it simple we’ll dissect AirBnB as a classic example.
How To Recreate AirBnB
- Use a multi sided platform AirBnB Template such as this one from Apphitect
- Use an identity verification service like Jumio to collect drivers license and credit card by photo
- Hold funds and offer customer service to die for with a service like Helpware
So that’s the easy part… unfortunately, if you build it, they will not come.
Would you use AirBnB if there was no property available to rent on it?
The biggest challenge with launching a platform is what is commonly called the Chicken Egg problem. One side of the marketplace will not show up without the other side already there. It’s a stale mate.
So you have to hack this part…
The pull strategy with virality is more important than conventional marketing.
The 8 proven strategies successful platforms use to solve the Chicken Egg problem
From the book “Platform Revolution: How Networked Markets Are Transforming the Economy – and How to Make Them Work for You”
Written by: Geoffrey G. Parker , Marshall W. Van Alstyne , Sangeet Paul Choudary
- The Follow The Rabbit Strategy.
- The Piggy Back Strategy.
- The Seeding Strategy.
- The Marque Strategy.
- The Single Side Strategy.
- The Producer Evangelism Strategy.
- The Big Bang Adoption Strategy.
- The Micro Market Strategy.
- The Follow The Rabbit Strategy:
Start as a non-platform business model the way that Amazon did, selling your product or service outright to the public. Then convert to a platform by allowing other users to contribute to your platform. They benefit by selling to your traffic and you benefit by taking a commission from each sale they make. Open Table also did this by first creating software for restaurants seating arrangements. Once there a was a significant amount of restaurants using the system, they opened the other side of the market place, alerting consumers when a table was ready and selling that as a lead to the restaurant. Becoming a pure 2 sided marketplace was the goal all along.
- The Piggy Back Strategy:
Piggy backing on another platform’s larger user base to launch your own platform. Creating something useful for users of another platform that can scale outside of that platform. Paypal did this by buying tons of products from Ebay and insisting that the seller accept their money from Paypal. Youtube launched off the back of Myspace bands by making their videos easy to embed on their band page.
- The Seeding Strategy:
This could also be called ‘fake it till you make it’. You seed one side of the marketplace yourself. Creating what they call “value units”. A dating app would do this by creating fake profiles that were exactly what they wanted users to emulate. Uber did this by hiring a fleet of car drivers to act as Uber drivers when they had no drivers. The first real driver to sign up on the app had no idea he was the first ‘real’ driver. Act as the first producer and create a culture of high quality contributions. If you wanted to recreate Etsy with this strategy, you might create a ton of profiles selling exactly what you hope to see people emulating and you pose as different sellers until eral sellers joined. Google did this by incentivizing developers to create the best apps for the android with a $5 million prize purse. Winners were paid but they also became leaders in the app marketplace. Reddit seeded thier forum with fake profiles posting links to the kind of content that they hoped people would post. Quara asked and answered their own questions to simulate what they hoped users would do. You get the idea…
- The marque strategy:
Incentivize one side by bribing the most important side onto your platform. Pay them to be there. Give them deals they can’t refuse. They will seed it for you. Paypal bribed users into using them by planting $10 in their account for joining. They had to spend that money which would attract more users that need to accept that money. A bar might even do this by letting ladies drink free which attracts the men. Provide incentives to attract key users (consumers or producers) whose participation can make or break the success of your platform.
- The single-side strategy:
This one is a slow method. You basically start the business as though you’re only going to have one side. Once you’ve built up the users on that side, you open the other side. Take OpenTable as an example. To work as a platform, they needed both a large base of participating restaurants (to attract the patrons), and a large base of patrons (to attract the restaurants). So they started by distributing booking management software that restaurants could use to manage their seating inventory. Once they had enough restaurants, they built out their consumer side.
- The producer evangelism strategy:
Provide tools for one side of your marketplace and assist the producer side of your user base in catering to their own audience (the other side of your user base) through your platform. They promote your platform as an unintended side effect of promoting themselves. Take Kickstarter for example, the crowd funding site. They make it easy for a user to get funded by the crowd. In order to get funded, that user has to promote his kickstarter campaign which brings the funding crowd to kickstarter. The producer side onboards the consumer side for you. Udemy, the online education platform provides it’s users a place to create and sell courses. Once the teacher uploads their instructional videos, they must promote the course which brings students to the platform. Attract the producers first, who can bring their consumers to you as an external effect of promoting themselves. The education platform Skillshare signs up influential teachers and allows them to easily host online courses, which then prompts their students to get on board.
- The big-bang adoption theory:
Use traditional push marketing tactics to launch. These are normally ineffective but it has worked on a few occasions. Twitter put a pair of large jumbo screens in the hallway at South By Southwest displaying the twitter feed. It instructed passers by to tweet right onto the screen. It became the communication app of the entire event and that was a breakout moment for Twitter. Thousands of people started tweeting the event. 20k tweets per day to 60k per day from that one event. Foursquare did this is SXSW as well. Tinder did this by launching at a frat party allowing everyone to basically try to hook up through the app. If you can find an event where thousands of influential people will be there, push something in front of them that enables them to do what they already want to do. Just make it easier. This isn’t like a Coca-Cola branding campaign at an event, it has to aid them in doing what they came there to do, like network with people there. Offer something remarkably different to get the network effect to reverberate.
While push strategies have become increasingly ineffective at sparking large-scale growth, there are exceptions. By the end of the event of your choice, your usage can triple. For example, an app for home upgrades released at home shows where homeonwers go to find home upgrades is a perfect place to launch a platform like Houzz. If you were to find an underserved portion of the process Houzz provides it’s users and specialize in that as a single extreme strength, you could use the Piggy Back Strategy on their platform and use the Big-bang adoption at home shows nationwide.
- The micromarket strategy:
Use a small tight group that will interact over a closed community so they care about communicating with each other already, not a wide, global audience. For this strategy, you’re looking for an active community that already understands each other and has a common goal. The community and common goal could be as simple as hair dressers and fashionable women. Facebook did this by launching only within Harvard students and every new campus after that needed to launch within it’s own campus until cross campus mingling started. You have to keep them engaged. It doesn’t have to be geography, it can be category focused. High end purses for example.
I noticed that any industry that has independant contractors with some form of brokerage in the middle is ripe for a platform disruption.
The speed of expansion is excellerated through viral growth depending on 4 Key Elements.
The 4 Key Elements of Viral Growth
A virus is spread by a host becoming infected (excited about it, fear about it). That person now breaths around their friends (shares it) and one of them gets infected. Now carrying the virus, that person breathes it to their close friends (shares). If this happens often enough, you have an epidemic.
- The Sender
- The Value Unit
- The External Network
- The Recipient
Let’s take Instagram’s example:
The value unit is the image that The Sender shares with friends (the virus). When Instagram launched, They allowed users to post those images to Facebook, The External Network. This allowed the value unity (virus) to be exposed to other potential users: The Recipient. Finally, one of the recipients gets intrigued by the image and visits Instagram. This user may create their own photo and start the cycle all over again. Now The Recipient is acting as The Sender.
They scored over 100 million users in less than 2 years without a single traditional marketing campaign. It was organic.
Your users are your marketers.
AirBnB allowed users to list their homes on Craigslist.
You need to design rules and tools to jumpstart the cycle. Create an ecosystem where senders want to transfer value units through an external network to a large number of recipients, leading those recipients to become users of your platform.
This isn’t word of mouth. They’re not spreading the word about how much they like your app. They’re spreading their own creations and indirectly generating interest in your platform. Users spread this to get social feedback that bring them fun, fame, fortune or some kind of reward for themselves.
Practical Exercise Homework:
Create a platform that has at least 4 of the elements above built into it’s structure.
- Use one of the templates above to create the technical platform. Just enough for it to be functional.
- Use one of the 8 proven strategies to launch it.
- Post your results in the comments.
If you get any viral effects, write me, tweet at me, Facebook message me, inbox me or yell from your roof… let me know what you did!