Becoming a Multisided Platform

Part Two: Should Your Platform Become an MSP?

Attract, accelerate, ignite! (CC0 image by D. Thomas)

Read Part 1 to get a solid overview of the criteria for being a multisided platform.

Here are a few considerations as you consider your software platform strategy.

1. Do you intend to maintain each side of the platform continuously, forever? Once you set up a marketplace that creates transaction opportunity, you need to make sure to keep feeding it participants who need to find each other. There are unique costs of acquisition and operational infrastructure for managing each side of the platform. Think about how differently PayPal manages a merchant from a buyer.
2. Do you wish to enable a continuous and valuable stream of transactions, outside one-shot revenue opportunities, for all participants?
3. Does your software platform help people find, evaluate, and use the resources of others, rather than be a service provider itself?
4. A sticky platform provides lower costs to sales and marketing (increased bottom line though lower churn rate) and increases the opportunity for recurring revenue (increased top line).
5. Valuations! According to “Modern Monopolies: What It Takes to Dominate the 21st Century Economy,” unicorn MSPs are valued 1.8x higher than non-platform unicorns ($4.5B to $2.49B, on average). 58% of the top 100 unicorns are MSPs. Six of the top-ten unicorns are MSPs.

Attract, Accelerate, Ignite!

Here’s how to get it done.

1. Attractors

Attractors create gravity toward the network by pulling participants in with the expectation for value, such as engaging topical content, personalized learning and opportunities to connect. Participants benefit from the presence and participation of other members.

2. Accelerators

Accelerators include incentives that motivate your participants with benefits above and beyond the simple on-platform transaction. For example, Stack Overflow’s badge and score system creates a substantial drive for contributors to build their social capital. Rather than simply answering questions for each other, they are motivated to improve their online reputation. This accelerates the accumulation of high quality content on the platform at a lower cost.

3. Network Ignition

Think of nuclear fission. The right elements are at the right place, at the right temperature, to ignite. In your platform, ignition happens when the positive direct and indirect network effects of your attractors and accelerators create massive gravitational pull and explosive growth. With careful attention to attracting the right blend of participants, and understanding and alleviating their frictions, your platform generates massive opportunity for value for individual participants and for the entirety of the network.

Early Days Chicken & Egg Problem

Who to serve first?

A demand-side economy of scale doesn’t happen immediately. It requires spending time and money on code, content and marketing. You won’t have adequate supply of resources to satisfy at least one side of your MSP demand immediately, so get focused on setting up resources with content support for one or both sides. Initially, this content won’t have a large audience. This requires developing marketing campaigns, partnerships, and incentives to attract resources to the platform, despite low numbers.

Keep Reading

Image thanks to David Evans ad HBR.

Matchmakers, the New Economics of Multisided Platforms, by David Evans, is a must-read for the serious student of these amazing, value-creating engines. Thanks to David and HBR for the concepts!