# Google Research

## [`platform business model`](https://www.google.com/search?q=platform+business+model&oq=platform+business+model&gs_lcrp=EgZjaHJvbWUyBggAEEUYOTIGCAEQLhhA0gEINTkyOWowajGoAgCwAgA&sourceid=chrome&ie=UTF-8)

### [Platform Business Model – Definition | What is it? | Explanation](https://www.applicoinc.com/blog/what-is-a-platform-business-model/#:~:text=PLATFORM%20BUSINESS%20MODEL%20DEFINITION%3A%20a,the%20way%20linear%20businesses%20do.)

creates value by facilitating exchanges between two or more interdependent groups, usually consumers and producers.

platforms harness and create large, scalable networks of users and resources that can be accessed on demand. Platforms create communities and markets with network effects that allow users to interact and transact.

Like Facebook, Uber, or Alibaba, these businesses don’t directly create and control inventory via a supply chain the way linear businesses do. Platform businesses don’t, to use a common phrase, own the means of production— instead, they create the means of connection.

Successful platforms facilitate exchanges by reducing transaction costs and/or by enabling externalized innovation.

#### What a Platform is Not

a platform isn’t just a piece of software. It’s a holistic business model that creates value by bringing together consumers and producers.

The most common misuse of the term “platform” is when it’s used to describe an integrated suite of software products.

In the case of SaaS companies, they’re building products, not networks.

Remember: Platform design isn’t just about creating the underlying technology. It’s about understanding and creating the whole business and how it will create value for and build a network.

in a networked world, scale comes from cultivating an external network built on top of your business. This is the essence of how platform business models work.

#### Platform Businesses Dominate the Economy

Platform business models aren’t new. In fact, they’re as old as human civilization itself – going all the way back to early marketplaces, bazaars and auction houses in ancient Rome.

platforms can now facilitate the exchange of value produced by decentralized networks of individuals.

The three most successful platforms to date are Google, Apple, and Facebook.

the list includes Amazon, eBay, Instagram, YouTube, Twitch, Snapchat, Slack, WhatsApp, Waze, Uber, Lyft, Airbnb, Pinterest, Square, Social Finance, GitHub, Kickstarter, ZocDoc and more

you can’t succeed in today’s economy without understanding how platforms work.

#### Investors Value Platform Businesses More

Successful platforms have strong moats in the form of their networks and operate at a scale that positions them to dominate their industries.

businesses for which a platform is a significant part of their business have an average revenue multiple of 8.9. In contrast, linear businesses are valued between two to four times revenue on average

Platforms perform better over both the short and the long term along key financial dimensions. For example, they deliver faster growth, better return on capital, and larger profit margins.

Nearly 60% of today’s billion-dollar “unicorn” startups are platform businesses.

the next wave of large public companies worldwide will be mostly platforms.

#### The Anatomy of a Platform Business

A platform ultimately enables this value creation by facilitating transactions. While a linear business creates value by manufacturing products or services, platforms create value by building connections and “manufacturing” transactions.

The core transaction is the platform’s “factory”— the way it manufactures value for its users. It is the process that turns potential connections into transactions. Getting the core transaction right is the most important part of platform design, as the platform business will need its users to repeat this process over and over to generate and exchange value.

These are the four core functions of a platform:

- Audience building
- Matchmaking
- Providing core tools and services
- Setting rules and standards

#### Types of Platforms

They are organized by the type of value that’s exchanged in the platform’s core transaction.

1. Services marketplace
2. Product marketplace
3. Payment platform
4. Investment platform
5. Social networks
6. Communication platform
7. Development platforms
8. Content platforms
9. Social gaming platform

Platform type affects everything from the design of the core transaction to how you handle the four functions, making it one of the most fundamental distinctions that any platform business must understand.

Figuring out which platform type a business fits into should always be one of the first steps in designing a platform.