Top 5 Things I Learned After Completing Section4’s First-Ever Platform Strategy Sprint

7 min readApr 10, 2021

What is a platform? Platforms are everywhere. We interact with platforms for the majority of our day. How we eat, socialize and travel are all facilitated by a platform. You can spot a platform by three key attributes: two or more market sides, network effects, and external value creation… or just check the top three apps on your phone!

Why are platforms important? It is simple. Product-based disruptions change what people buy, platform-based disruptions result in more far-reaching societal shifts!

Check out the graph below, outlining key platform interactions:

Platforms generate enormous economic value by leveraging underutilized assets and skills within their ecosystem. Without owning fixed assets, platforms are more efficient, resilient and their network effects make them tough to disrupt. Check out this (slightly) older article for a deeper dive, The Rise of the Platform Economy by WSJ.

The ticket to creating this value? The five stages of the Platform Evolution Framework: Inception, Scaling, Monetization, Protection, and Expansion.

Not to give away the whole course, here are some highlights of the framework — and coincidentally the top five things I learned about platforms:

Inception

If you observe inefficiencies, fragmentation, or a trust deficit between two markets, there may be an opportunity for a platform introduction. Leading platforms tackle big problems with total addressable markets (TAM) large enough to fuel external value creation.

There are 4 key steps to follow when a platform is created:

Understand the issue you are solving, and identify the key pain points. Taking a look at any given market — are there inefficiencies, friction points in the customer journey, is it fragmented, or are there trust deficiencies between the two sides?
Identify & size the two sides that are being connected. Are there any under-appreciated assets or underutilized resources that can be deployed? What is the value of each transaction that your platform will facilitate (this will help prove out a TAM)?
Ensure the platform’s unique value proposition or UVP addresses validated pain points. Is is trust? optionality? convenience?
Design the interactions that make the platform successful. The buyer and the seller, buyer and platform, seller and platform. How can we make these interactions seamless, scaleable and safe?

Scaling

The value of a platform is that buyers and sellers create value for one another. Hence, the chicken-or-egg problem: how do you get one side on your new platform, without the other? It is critical to focus on activating one side of the market first. To kickstart scaling, you’ll need to artificially inject liquidity through seeding or subsidy strategies. It takes a keen sense of judgement to balance building critical mass on each side. Platforms may fail to build out one side of the market enough, and therefore, never achieve critical mass. There’s also the risk of over-subsidization, which creates an unsustainable model.

There are 4 key steps to follow when scaling a platform:

Identify which side to focus on. Transactional platforms onboard sellers first; Technology platforms onboard the end-users (buyers).
Inject liquidity into the platform. Seeding is one-of-two ways, temporarily incentivizing one side to join (think ride bonuses for Lyft drivers). The second, Subsidizing, placing promotions or discounts to end-users, often the most price-sensitive (think ride discounts for Lyft riders).
Growing the other side. Once one side has been acquired or grown, or the supply or demand has been generated, it’s now time to bring on the other side to achieve that critical mass.
Avoiding pitfalls or growing pains. Failing to achieve defendable critical mass, over-subsidization, or logistical nightmares will crack your platform.

Monetization

Winning platforms know when it’s time to hit the brakes on the infinite scaling loop (remember network effects?), and prioritize monetization. Platforms have a handful of viable options to monetize their customers: transaction fees, subscription fees, a freemium/premium model, advertising, or fees for complementary products and services. No matter which monetization strategy you choose, it needs to be simple, sustainable, and keep customer acquisition costs at bay.

A cool thing to note is that you can mix-and-match with monetization strategies. Uber, as you may guess, monetizes with transactions but they also introduced subscriptions like Uber Pass.

There are 5 platform monetization strategies:

Transaction Fees — think DoorDash
Subscription Models — think Adobe
Freemium & Premium Access — think Spotify
Advertising —think Facebook
Complimentary Products & Services — think Salesforce Training

Protection

Platform companies are the ultimate disruptors. Increasing multihoming costs, preventing disintermediation, adapting your rules of engagement to promote trust, and other defensive strategies fortify your platform against new entrants. Platform companies are most vulnerable to multihoming, or when users participate in multiple platforms with the same service (think Uber and Lyft). A lack of rules of engagement to promote trust and transparency can also be particularly costly.

There are 6 platform protection strategies:

Switching costs. How costly is it for your customer to switch to another platform? Think about leaving Apple’s ecosystem.. no more shiny blue iMessage, hello green bubble.
Multihoming costs. Multihoming is when customers use more than one similar platform, so think about DoorDash and Uber Eats, Uber and Lyft. How do we make this more difficult? One way could be exclusive offers, Cactus Club only delivers on DoorDash, Spiderman is only on the Playstation network.
Prevent Disintermediation. Don’t allow both sides to interact and create your value outside your platform. Ever wonder why AirBnB hides certain text? It has an extensive AI network that hides any type of indicative text between host and guest that would lead to outside deal-making.
Platform Innovation. This one is simple, make sure your offering is innovative enough to appeal to the current and future needs of your users.
Avoid Platform Envelopment. Also known as, being gobbled up, don’t allow an end of your platform to be gobbled up by competitions.
Adapt Rules of Engagement. Ensure proper safety, trust, regulatory requirements are being met as your platform grows and evolves.

Expansion

Whether it’s offering a new product to existing customers or the same product to a new customer segment, leading platforms pursue growth as they mature. The best growth direction gives you the highest return with the lowest risk. Choose your expansion strategy based on these parameters: ensure you’re solving an actual problem, the problem is sizeable enough, and the investment is feasible.

There are 5 platform expansion directions:

Geographical. This one is straightforward, can we expand to areas outside of home court? Bits vs. Atoms: Bits can be scaled globally, atoms require regionalized strategies.
Product. How do we build off of our ecosystem to enhance our offering to our existing customers? Check that Apple Watch on your wrist. A new product for an existing customer (you).
Customer. How do we broaden our segmentation to target a net-new client base? A new customer, with an existing product.
Capability. Different than Product & Customer. How do we create a new product for a new customer?
Increase Share of Wallet. How do we more efficiently monetize our customers. Think Adobe, once a pay-per-download software, now a rolling-subscription.

What is a great example of a platform?

Stripe is what I consider the ultimate platform, as it is a platform for other platforms. Crazy right? This ultimate platform theory justifies an entire article but for now Ben from Stratechery does it justice with his article, Stripe: Platform for Platforms.

In the meantime, below is a diagram I designed to help illustrate Stripe’s aspirational positioning. The interesting thing to note is that the “Customer Base” is open-ended. For example, let’s consider Stripe Treasury, Stripe connecting Shopify Merchants to SMB Bank Accounts at Goldman Sachs. In this scenario, we can interchange “customer” for “platform.”