The digital armageddon disrupting the real world comes as ‘Platforms’. Platform for this, platform for that. OLX, Housing.com, TripAdvisor, whatever. And platforms come with a power to disrupt existing businesses.
What is the source of this power. Not just match making.
The power is the way they empower the end user. If they just acted as match makers, the only economic value is reduced transaction value. Instead the really good platforms provide multi-dimensional surplus, which means more value to sell for an OK amount. That offers so must to the users for so little that sticking forever is guaranteed.
We’re developing a platform for Location Managers & Film production houses to come together. The three choices we had were
Build all locations data and become subscription product
Bring all location managers & production houses together and become transactional market place
Add value added tools for both location managers and production houses to provide a surplus value that ensure transaction stickiness
By creating Location Manager portfolios and allowing them to bid on new shooting schedules coming up, we ensured their ambit of opportunities expanded drastically. The production houses, on the other hand running on tight budgets and tighter schedules, can now have a certainty about their shooting locations. Too much economic surplus through the value added tools to both parties. That’s user’s creating value for other users -essence of network effect.
And a core value addition is the identification of the risk that platform can absorb better than it’s user – by bringing all location managers on the platform we ensured they are on an industry standard, and because they’re on industry standard we expect zero defaults from them for the pure reputational risk and the risk of getting banned from a business generating platform. In turn, we use this leverage to get better & uniform terms for the production houses and thus provide them stability and predibictibility. Against this predictibility, the production houses must pay upfront to ensure quicker cash flow cycles for the LMs. All sides win.
A platform investment model is therefore different from the efficiency model. Not to have all players but to make them interact in ways where the net surplus benefits all. That’s the true platform strategy executed through a good product.