Platform businesses have reached a major milestone. Smartphone apps are now 50% of all U.S. digital media time spent. The top 15 mobile apps that make up the lionshare of consumption and user engagement are mostly all platform businesses, except for Pandora and Apple Music. I’ve bolded the platforms that round out the top 15 and their unique number of visitors (000, July 2016):
Facebook Messenger: 131,609
Google Maps: 100,347
Google Search: 90,260
Google Play: 88,625
Pandora Radio: 76,781
Amazon Mobile: 71,427
Apple Music: 68,002
Apple Maps: 60,956
Pokemon Go: 54,535
What is it about these businesses that makes them so attractive to consumers and producers? The answer is the platform business model.
We define platforms as a business model that enables the exchange of value between a third party network of producers and consumers. Think Uber, Facebook, Airbnb, and Snapchat, to name a few. These businesses are infinitely different compared to companies like Home Depot or Coca Cola. While these linear businesses may have mobile apps, their business can not solely be conducted on mobile. Platforms can conduct their business primarily through mobile apps. Of course, they must also secure a network of producers and consumers to create a value ecosystem that is attractive to both sides of the platform. For instance, Snapchat needed users to produce content and consumers to view and interact with that content. The same goes for Uber and Airbnb. These platforms needed inventory listed on the platform to make consumers interested in using the service. This is a common challenge for platforms called the chicken-and-egg problem, which these platforms were very effective at solving for.
What exactly about the business model enables these platforms to be so attractive to users? Here are three reasons (there are many more).
1. Aggregating supply
A common value proposition of platforms is their ability to use technology to aggregate and make available for consumption formerly disaggregated supply. Before Uber, there was no centralized network of drivers available for consumers to hire. Uber began as a ride hailing service for black cars and used that early success to expand into providing more than just one type of car service.
Airbnb created an entirely new market by aggregating people’s rooms in homes and making them available for renting. While CouchSurfing.com and Criaglist were viable options, Airbnb ultimately succeeded in pioneering home sharing through a centralized platform.
2. Provide new modes of socialization
Facebook Messenger, Snapchat and Pokemon Go fall in this category. Facebook made the very wise decision to make Messenger into a standalone app – the messaging platform now has over 1 billion active users. The standalone nature of the app took messaging behavior happening on the mothership Facebook platform and separating it. This allowed for Messenger to become a development platform for third party software developers to create experiences for consumers on top of. What developer wouldn’t want to create experience for an audience of 1 billion plus? What consumer wouldn’t appreciate new innovative experiences to communicate with friends and family? Platforms create win-win scenarios.
Snapchat radically changed how a younger generation communicates. Disappearing messages may have seemed like the worst idea at day one, but the concept stuck and now Snapchat is Snapchat. The Los Angeles-based startup is an excellent example of an organization that applied creativity to reimagine communication in the platform economy.
Pokemon Go doesn’t really require much explanation. The game revolutionized gaming to a greater degree than Angry Birds and we’re lucky enough to have the World’s First Pokemon Go Master working at Applico, Nick Johnson.
Amazon is the definition of convenience. You press a Dash Button and you get toilet paper the next day. One click. However, Amazon started off as a book reseller i.e., a linear business. It eventually became the internet’s largest store because of its product marketplace, which lets merchants sell to consumers. The scalability of its marketplace helped Amazon establish dominion as the premiere destination to shop online since over 90% of its products are listed by 3rd parties (check the %% )
To read more about platforms, check out the book I co-authored with Nick Johnson, Modern Monopolies.