THE NEW GROWTH LANDSCAPE #1 — read 2,3,4,5,6
Seeking Sustainable Growth in Platform-Marketplaces
Framing the new growth landscape for growth, network effects dependent Value Propositions by Simone Cicero and Manfredi Sassoli de Bianchi
This first research update on the emerging landscape of growth in platforms and marketplaces is brought to you by the team at platformdesigntoolkit.com and is dispatched in our fortnightly newsletter.
This essay presents the first framing of an upcoming integration to the Platform Design Toolkit: a new Guide and a new Learning experience on Growth, Network Effects and Defensibility that will also cover the “product” side of a Platform-Marketplace Strategy. Stay tuned by subscribing here!
Catch up with the whole series here.
As our loyal reader may know, we at Boundaryless provide our adopters with free and accessible design tools for the exploration, design, validation and development of platform-marketplace strategies: a bubbling industry where best practices are being shared and codified on a daily basis.
The work we are premiering here on this post is on the topic of growth, network effects, defensibility and product thinking in platforms and is premised on demystifying and democratizing such thinking, opening it to as many people as possible. For similar reasons, in 2013 we created the first Platform Design Toolkit — now adopted by thousands worldwide — and we later released the companion Platform Opportunity Exploration guide (currently under review a new release is expected shortly).
Markeplaces are pervasive
Why do we think that it is the case to keep such a democratic approach? First of all, in continuity with platform-design, platform growth needs to become a basic capability for teams and organization and here’s why: marketplaces and platforms are now pervasive.
As explained in our recent Whitepaper, marketplaces and platforms are now permeating all of our social contexts, mainly as a result of the maturation of internet-related technologies (Rita Gunther McGrath captures why so well in the quote below):
There’s a big chance that — if you’re on the market now with a certain value proposition — you’re thus either:
- running a platform-marketplace strategy, therefore, looking at how you can evolve and compete on the market by leveraging specific strategic patterns;
- thinking about creating a platform-marketplace strategy for your product or organization;
- needing to understand how to collaborate with a platform-marketplace as a producer, consumer or developer, considering the opportunity-cost of lead generation, data-ownership, access to services and APIs and much much more.
In a crowded market, a pragmatic approach would not be just about helping people launch a new marketplace-platform but about launching a successful one. This is a subtle but key difference: as the paradigm of network-based business models pervades and becomes the go-to strategy for deploying a new value proposition, there are cases and contexts where these strategies — especially if enacted approximately — may end up not being sustainable over time.
The key question of business sustainability certainly concerns getting the unit economics right (mainly the relationship between your Customer Acquisition Cost and the Customer Lifetime Value), but also on many other aspects. One key aspect is that of carefully designing growth leading flywheels that generate network effects and accrue value, creating defensibility through data-driven improvements, technologies that self reinforce, or by letting user embed your solution into their key business processes.
Understanding and tweaking existing power structures between the involved entities, tackling information asymmetries that can hinder trust, considering the often delicate relationship between high growth organizations and their impacted stakeholders: these issues also need consideration as they can create resistance to adoption and put friction on growth. This is particularly true today that we have seen companies like WeWork and Uber grow quickly with a dubious and somewhat unsustainable business model (not only from the financial point of view).
Don’t be a False Positive: Understand the Nature of the Network that underlies the Experience
In order to maximise the chances of success, especially as we approach niche markets, vertical contexts of value creation, it’s important to carefully design a growth friendly marketplace-platforms strategy for mainly one reason: avoid becoming a false positive. A false positive is a product that achieves traction but it’s unlikely to succeed due to poor unit economics, poor defensibility, poor market conditions. While we believe it’s important to keep a bias for action, we think it’s equally important to think strategically before and during launch in order to avoid a substantial waste in capital and time (marketplaces are both expensive and time consuming to build).
Thinking about growth in a strategic way is increasingly more achievable if, during the design and validation phase, we focus on understanding the nature of the “experience” we are designing for, and how such nature impacts the nature of the network we are weaving, and how the network effect we’re aiming at generating can unfold.
Understanding these “network properties” is crucial to derive your strategic choices in picking the best among the potential strategies for launch: what approach to choose between constraining the market by picking a bowling-pin launch strategy, subsidizing supply or demand, or providing a product value proposition in “single-player mode” (see below for more) largely depends on the nature of the network for which you’re staging an experience.
Designers and entrepreneurs need thus to understand better how the process of platformization starts when one identifies a certain value chain and centers around a system of two-sided relationships. For each of these two-sided relationships designers can design scalable experiences and envision flywheels that interconnect several of them like Airbnb did when plugged experience sharing on top of the solid flywheel existing around the short-term room rentals experience.
If one picks, for example, the agricultural ecosystem, made of several arenas, around planting, harvesting, distributing, etc… Each of these arenas feature a myriad of entities that interplay in specific value chains. Intervening with platform design in complex spaces (the spaces where increasingly most of the opportunities arise) is thus premised on a structured process of pruning the ecosystem to identify key clusters of jobs to be done and then the specific value chains that consolidate around certain systems of multi-sided relationships. In the end, picking the various two-sided relationships that compose the picture and design optimized, essentially two-sided, platform experiences around them is what we’re supposedly do.
This is why we believe that tackling growth strategically needs to be continuously integrated with opportunity exploration, value chain analisys and design.
Each of the experiences we design around a 2-sided relationship will be then characterized by the “network properties” mentioned above (that we will explore more in details in a coming piece) that will suggest a certain approach to growth: monogamous experience (such as that of matchmaking caregivers to elderly patients) are very different from more casual and polygamous ones (such as getting a ride); experiences that are premised on one-off exchanges, such as buying a house, need intentionally designing growth loops and flywheels that are very different from experiences that cover use cases that happen every day such as, let’s say, walking a dog outside.
Each of those properties needs to guide the entrepreneurs’ choices in the launch phase that leads to solving the chicken-egg problem, achieving liquidity and picking up growth: this intersection between exploration, product design and growth is now critical to generate customer attraction and retention. Getting this well helps channel value creation into sustainable value capture creating defensibility.
Why it matters: every product is a platform and every platform is a product
In the above perspective — that every human activity is being performed as part of a network — learning how to carefully design for frictionless, and sustainable (from all parties) growth has become essential. Infusing platform strategies into a value proposition is key to compete with existing network effects and to create defensibility.
Complementing a product design strategy with platform-powered experiences that sit on top of that is a key strategic advantage that can drive the growth in product adoption. Embracing a broader perspective, any product proposition quickly loses appeal if, in the market you’re operating within, one size doesn’t really fit all. Normally, the most interesting part of a market is where customers look for trade-offs between a clean and neat brand experience and the depth of customization: this is the space of horizontal-to-vertical marketplaces where often market size is remarkable and the value perceived from the customers is still not entirely commoditized like in a “one size fits all” market.
Looking at things the other way around, there are also many clear reasons for a good “product” strategy to be developed as part of a marketplace-platform value proposition: alluring to “come for the tool and stay for the network” is a classic, and it’s obvious that — when the size of the network is still small and liquidity is not attained yet — providing a “product” value proposition is a way to attract users that seek to “solve” a certain problem. The Opentable story, initially attracting thousands of restaurants by providing them with a solution to manage the, traditionally phone-made, bookings and then opening the network to end-users for bookings and reviews, is now more than a best practice.
The gradual evolution towards more vertical markets and managed contexts, where the marketplace takes over much more of the experience, often involves a stronger “product” value proposition that remains central way beyond the launch related, liquidity-seeking phase. These vertically-managed value propositions are now happening in networks that are increasingly business-related (b2b and b2c are overlapping) and professionals are more likely to choose products that support their business process beyond pure lead generation.
Sometimes the pattern starts from a network value proposition and later evolves and integrates a product value proposition (e.g.: Slice), sometimes the direction is just the other way around (a la Opentable).
According to Casey Winters (see this and this): “if a business starts as a marketplace, it usually means demand is the most important problem customers need to solve” while when a business starts from a SaaS, or more generally a “product” offering, there are essentially two patterns available:
- the marketplace pattern: where one transforms the customers of the SaaS solution into the supply side of the network, thus unlocking demand;
- or the so-called (by Casey) Extension Platform pattern: where one transforms customers of the SaaS into the demand side of a market that sees external developers on the supply side able to provide extensions and integration of the value proposition.
This is an important point to recognize; a solid theory of platforms and ecosystems needs to look into third parties value-add patterns that complement the classic producer-consumer dynamics: developers become ever more important in an api-first context and this pattern of organizing markets through interfaced integrations through APIs is here to stay (see: APIs All the Way Down — Not Boring by Packy McCormick).
There are of course several other elements that a marketplace-platform entrepreneur needs to keep in mind when coming to the market with such a “blended” proposition. First of all, any professional adopting a new toolset to support a certain business process — especially if the tools become embedded into the core of the workflow — faces a strategic and long-standing choice. Such choices are hard to make due to concerns related to lock-ins, potential discontinuity in the service provided by emergent startups, and more. In some cases, SaaS/Product value propositions target emergent players and underdogs, deliberately trying to “unlock” certain supply that previously was unable to join the market and is inclined to take more risk in embedding a third party solution in their workflow. Bringing this new supply online promises a reduction of entry barriers and potentially, in turn, the creation of a more accessible market as well on the demand side, hinting towards easier to attain network effects.
Nuances of this SaaS/Product to Marketplace/Extension-Platform pattern, are common in many recent success stories: from Android to Figma, from Salesforce Appexchange to the already mentioned Opendoor.
For all these reasons, embedding in our new theory of marketplace-platform growth key elements of product thinking is crucial.
Evolution of Marketplace-Platforms Value Proposition as innovation plays out
The interplay between the product value proposition and the “marketplace” one, also expresses itself — in Dan Hockenmaier words — in the tendency for a marketplace to continue the re-bundling process of the market and progressively reintegrate vertically and managerially into what he calls “super suppliers”.
In this recent post (The future of marketplaces: coordination, capital, and creativity) Hockenmeier explains that there are three main categories of “things that marketplaces do”: coordination, capital and creativity. Hockenmeier’s point is that, in markets when the peer consumers do not expect particular variability and innovation in the product, you’ll normally end up with vertically integrated and managed marketplaces (super-suppliers) while, in ecosytems where high creative intensity is auspicable, the case for super-suppliers is to emerge to only serve part of the customers, while other marketplaces would provide multiple choices for the consumer that prefer niche experiences.
The penetration of financial services and fintech into marketplaces and platforms also provides a way to look at the “product” side of a platform experience from an additional point of view. According to Pete Flynt, marketplaces indeed also increasingly provide three major type of embedded financial services, in three main categories (points below from Pete Flint’s The Next Frontier for 2-Sided Marketplaces: How Fintech Will Unlock Enormous Value (nfx.com)):
- Insurance: In-house insurance products made possible by better underwriting models
- Financing: Non-traditional financing options such as rent-to-own or income-sharing
- Banking: Novel and customer-specific solutions to manage transactions, deposits and payments.
As a recap, we therefore see a tendency towards different “productization” aspects from all the points of view one may have in the platform-marketplace:
- from the user’s point of view: with the emergence of “super-suppliers” (vertical and managed marketplaces) that can provide consistent, “productized”, experiences;
- from the producer’s point of view : with powerful SaaS offerings that increasingly become embedded into the providers’ workflows;
- towards the platform itself: with new ways to provide financial services, capital, and insurance to reduce friction in the execution of the transactions, fuelling growth.
Complementing Hockenmeier’s stack with Winter’s and Dealroom’s ones (see gallery above) and adding some further considerations by Ben Thompson, we came up with a synthetic stack that aims at integrating all the above in some sort of synthetic schema.
In this schema:
- Customer Acquisition and Attraction refers to the processes needed to attract customers;
- Discovery/Matchmaking refers to facilitating the identification of the niche product being sold (by the independent producer) and the connection with the “other side of the apple” (the perfect buyer looking for such a niche experience);
- Trust Building and Risk reduction refers to mechanisms for the facilitation of the transaction achieved by reducing risk perception in the parties and increasing trustability;
- Customer Services and Refunds refers to managing potential issues post-transaction, due to bad quality of the experience;
- Ancillary Services to production refers to all services (eg: logistics) that support producers to execute the niche value proposition they’re delivering;
- Production refers to the actual execution of the core of the niche VP (value proposition) (eg: renting the room, delivering the freelancing gig outputs, etc…);
- Niche VP (value proposition) innovation refers to the processes that are needed to innovate the value proposition that independent providers are providing to customers;
with capital being somehow transversal in these elements of stack (as it relates with enabling and improving all of the above).
Now, if we look at what happened in the first “wave” of marketplace-platforms we’ve seen what Thompson captured really well in his Netflix and the Conservation of Attractive Profits: the unbundling of the lower part of this stack and then re-bundling of the upper part thus leaving many capital intensive pieces (mainly inventory) to the ecosystem to produce.
In this second wave — to which Hockenmeier hints when he speaks about “super-suppliers” — we’re essentially looking at the progressive reintegration of the whole stack with the aim of providing a consistent experience (partially jeopardizing the leanness and extreme profitability that the first waves of marketplaces have been able to rely on).
The ever growing context of application of such thinking
As the attentive reader will have noticed at this point, we’ve been often using “platform-marketplace” in this introductory essay. This was done to signify a more blended and harder to characterize context of application of the growth related thinking that we’re starting to codify here and with the upcoming guide. The word “platform” is often used to characterize more “technology centric” strategies, often targeted on one hand to users, on the other to developers (as in Winter’s Extension platforms), and the word “marketplace” on the other hand, often used to characterize offerings where developers and third parties integration are not necessarily involved and one single brand empowers interactions in the network between consumers and producers with a variable exent of coordination. Overlaps between the two concepts are increasing.
Furthermore, as organizations embrace organizational development models that resonate with the network paradigm, as the ones we’re uncovering now with the work we’ve been doing in the last couple of years on the EEEO (Entrepreneurial Ecosystem Enabling Organization), we see the need to master an understand these key growth drivers also important for organizational developers, and management in general, also in the incumbent space.
We thus end with the need to understand a new framing of value proposition in platform-marketplaces where there is:
- value in the network: with the transactions engine that enables exchanges between peers;
- value in the product: through the SaaS and softwarization of complex business processes, but also the more capital intensive enablement that normally the platform owner puts in place;
- the value in the learning engine: with dynamics of shared spaces of learning through competition and cooperation between and among participants;
- the value in extendability and modularity: with third party-developers providing complements and & organizational boundaries disappearing (towards an API first economy of platforms of platforms)
How does Growth fit in the Platform Thinking Practice?
It’s of course crucial to understand how to integrate these elements in the process. As said above, our existing methodology starts from exploration (a new guide is coming up so stay tuned!), and eventually leads to identifying a smaller system of relationships that one centers the design around, producing several platform experiences that can be prototyped. After the validation phase: that’s when dealing with growth, network effects, defensibility and product value proposition starts to really pick up.
As marketplaces and platforms pervade the economy the growth landscape and the challenges related to reaching liquidity, growth and defensibility become more complex and specific, we believe a compendium of techniques and framework is needed. We thus aim to cover — in the coming months — these essential elements:
- understanding the characteristics of the network underlying the experience you’re bringing to the market and if the use case you’re enabling is the most suitable one;
- identifying underutilized fixed assets and how they can enable faster growth;
- designing growth loops and flywheels strategically too drive defensibility;
- identifying the best growth tactics to solve chicken-egg problems and achieve liquidity;
- mastering leveraging SaaS and embedded finance to drive the “product” value proposition of your marketplace towards consumers and producers;
- exploring techniques for customer acquisition through sales, organic marketing and paid performance marketing;
- designing tactics that can impact retention, reduce churn and increase fidelity;
- identifying the key metrics to be considered to monitor growth, retention and engagement;
- evaluating if your unit economics maks sense and stand the test of time.
And we’re going to approach the challenge as always, by leveraging on the work of so many experienced practitioners and professionals that are so generours to share their insights.
A new course
As said above, this new framework — that we are already partially teaching at our public bootcamps (next coming up in February) — will seamlessly integrate with our widespreadly adopted Platform Design Toolkit methodology and nicely fit into our existing toolset for the age of networks.
A new intensive course will be released before the summer: the course will be offered at premium discounted price for early registrants to this list of super-early-bird subscribers, provide your expression of interest here at this link: https://platformdesigntoolkit.com/growth-subscribe
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