“Yeah, but…”: The Litmus Test for Platform Businesses

Platform businesses are among the most successful companies of the past few years (think Uber, Facebook, Airbnb, or Amazon). You might also have heard of this model as “multi-sided platform”, or “marketplace”. This isn’t a new business model, but as Internet connections becoming increasingly ubiquitous (first in every home, then in every pocket) spurred a global-scale platform revolution. 

“A platform is a business based on enabling value-creating interactions between external producers and consumers. (…) The platform’s overarching purpose: to consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value creation for all participants.”

Parker, G., Alstyne, M. V., & Choudary, S. P. (2017). Platform revolution: how networked markets are transforming the economy and how to make them work for you. New York: W.W. Norton & Company.

To gain from these interactions, platforms position themselves in the middle between producers and consumers — but the presence of the platform there needs to be relevant.

Introducing the platform’s core job

In Platform Scale, Sangeet Paul Choudary proposes the notion of core interaction, which he defines as “a set of actions that producers and consumers on the platform perform repeatedly to gain value from the platform”. To assess the viability of a new platform business, we’ll now introduce a slight variation of that concept: the core job. Whereas the core interaction tends to be specific to the platform, the core job is only marginally related to it. The core job is the main exchange of benefits between the consumers and producers.

Producers, Platform, Consumers — core interaction
© 2020 João Craveiro. Re-use with appropriate attribution (link to https://jpgcc.eu/blog/yeah-but-the-litmus-test-for-platform-businesses/).

To assess the viability of your platform business, you’ll need to identify the core job you’re proposing a platform as an intermediate.  Then you need to consider that job and ask the following question:

“Are they (producers, consumers)
doing it without the platform?”

From the title you’ve probably guessed what the “right” answer is: “Yeah, but…”. Before dissecting it, let’s see what other archetypes of answers may reveal.

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“No!”

If the core job your platform is betting on gaining from is not something producers and consumers are already doing at a relevant (albeit smaller) scale, you’re in for an uphill battle. It’s tempting to think of successful, disruptive platforms as falling into the “No!” bucket just because they found a novel way for producers and consumers to interact — but the core job was already there. Of course people weren’t calling Ubers before there was Uber, but people were already hiring cars they didn’t own, driven by someone else, to go to places.

“No, but…”

Hey! I said: if the core job you’re betting on gaining from is not something producers and consumers are already doing at a relevant (albeit smaller) scale, you’re in for an uphill battle. 😉 Anything you’re writing after the “but…” is likely to be a solution looking for a problem — and that’s not a good starting point.

On the off chance that you’re on to create a new, successful category altogether — but do you have the resources to pull it off? Is this the right timing? Are you going to both create a need and serve it? 

An example of how such platform business fails is HelloParking — who wanted to be the platform for people to share parking spaces with others in demand of them. Parking space owners just weren’t (and aren’t) sharing them with others while they’re away at a relevant scale. They certainly aren’t doing it with strangers, and someone leaving their parking space available for a friendly neighbour once a year isn’t really a big market. Besides, why would they need a platform? HelloParking tried to make a business out of facilitating a transaction that basically wasn’t happening before.

Nope (no need), but (solution looking for a problem?). You might be trying to create a new category altogether — can you?
© 2020 João Craveiro. Re-use with appropriate attribution (link to https://jpgcc.eu/blog/yeah-but-the-litmus-test-for-platform-businesses/).

The importance of the core job existing independently from the platform was quite visible in how COVID-19 impacted previously successful platforms. Take Airbnb: with all flavours of travel restrictions worldwide, the need Airbnb was meeting swept from under their feet.

“Yes!”

If the core job is something consumers and producers are already doing well enough, why add an intermediary? How would a platform add enough value to this interaction to somehow create economic rents for themselves?

Another flavour of “yes!” is when the core job, rather than being served without an intermediary, is already solved well enough by existing intermediaries. In this case, the challenge a newcomer faces can range from:

  • the space being dominated by a successful platform, with network effects and/or switching costs glueing the participants to them; to
  • the space being saturated.
Yeah! (No but — met need.)
© 2020 João Craveiro. Re-use with appropriate attribution (link to https://jpgcc.eu/blog/yeah-but-the-litmus-test-for-platform-businesses/).

The kind of answer to “Can they (and do they) do it without the platform?” that hints that your platform product can be valuable and viable is:

“Yeah, but…”

The producers and consumer are already doing the core job the platform proposes to facilitate, but there’s room for improvement.

The statements after the “but…” should be present tense ones, representing real gaps how producers and consumers are enacting the core job. Conditional statements are off — “Yeah, but it would be way more awesome if they did it on the blockchain” is cheating.

Yeah, but... — need, and platform value.
© 2020 João Craveiro. Re-use with appropriate attribution (link to https://jpgcc.eu/blog/yeah-but-the-litmus-test-for-platform-businesses/).

Key takeaways on platform business viability

Next time you find yourself in the position of analysing the viability of a platform business, think beyond “it’s the Uber for X” and try framing its contribution to the core job like this. If you can’t express it with something that boils down to “yeah, but…”, you’re likely to be trying to solve a problem that either:

  • doesn’t exist; or
  • has already been solved.

If you can find your “yeah, but…” narrative, not all is won yet — you have a necessary but not sufficient condition. Now it’s time to look at what comes after “but”: the opportunity is in that ellipsis.

You now have a list of things you can improve in that core job, and they’ll likely fall into one of:

  1. it’s hard (or impossible) for producers and consumers to discover each other;
  2. it’s hard to consummate the interaction that does the job (the core interaction);
  3. it’s hard for producers to find the right consumers (and/or vice versa), i.e. find the matches that are likely to create more value for all participants.

This is where you start turning the vision into a strategy — let’s talk about that next time.


Thank you Daniel Zacarias and Minh Nguyen for the feedback on earlier drafts.

This post represents my individual professional opinion on this subject, not that of any company I work (or have worked) at/for on this subject area.