The widely-used canvas created by Alexander Osterwalder is a great tool for analyzing pipeline business models. However, this canvas does not help you all that much when it comes to understanding the business model of a two-sided digital platform, let alone develop a new one. In this article, we introduce a new business model canvas for two-sided digital platforms that we’ve developed at ICSB and used successfully with clients.
Currently many of the most valued unicorns, like Uber, AirBnB and Snapchat, are two-sided (or more) digital platforms according to CB Insights. These platforms make use of both same-side network and cross-side network effects. Same-side effects result from producers attracting more producers and customers attracting more customers. Cross-side effects come from producers attracting more customers and the other way around. Thus, the number of (potential) core interactions between customers and producers will grow exponentially. And, the valuation of these platforms will skyrocket.
In this article, we’ll discuss the following three questions: what is a two-sided platform in comparison to a pipeline business model? What are the most important elements of the platform canvas? And, how can you use the new canvas?
From pipeline to platform
Platform businesses have already existed for a very long time. The traditional village marketplaces has evolved into the modern shopping malls. However, because of new IT technologies digital platforms have sprung up and scaled globally. They bring together producers and consumers in high-value and frictionless exchanges. Their chief assets are information, data and interactions.
Two-sided digital platforms are taking over and disrupting the pipeline business model of the established product, service and software companies. For example, the digital platform business model of Wikipedia has disrupted the pipeline businesses model of the Encyclopedia Britannica in no time. Pipeline businesses create value by controlling the classic value-chain. Value is added in different steps of the chain from raw material to finished end-product. Their most important assets are mostly physical.
Elements of the platform canvas
Although two-sided digital platforms come in many varieties their basic elements are all the same. We will illustrate the most important elements of the platform canvas with the ANWB garage platform, see www.anwb.nl/garage. ANWB is the Dutch auto club, like the AA in the UK and AAA in the US. The ANWB Garage is a relatively straightforward platform for which we witnessed the development of the vision, strategy and first version of its business model first hand.
It all starts with the customer segment. In this case: the Dutch car owners. Some of them want to compare the trustworthiness of nearby service stations before choosing one to service their car, but do not exactly know how. The ANWB garage platform offers them a trustworthy search and overview of nearby service stations based on consumer review results. This customer friction and ANWB’s solution is called the value proposition. The reservation is free of charge. Therefore, this side of the platform is called the subsidy side.
The core interaction at ANWB’s garage platform starts with one question for car owners (consumers) about the location of their car. By filling in the postal code or city name of their car’s location ANWB shows them a list of nearby service stations (producers).
On the other hand, service stations in The Netherlands are the producers of this platform. The ANWB garage platform offers them publicity, customer feedback and extra customers. This is called the value proposition for producers. ANWB offers them basic presence services for free, such as a profile page, photo, and online communication tools. On top of that ANWB offers extra paid services, like an extra advertisement possibility for service stations on their profile page in return for a subscription fee. Therefore, this side is called the money side of the platform.
The customer segments, value proposition and core interaction, as well as the producer segments, value proposition and same core interaction should be aligned. These are the most important elements of my platform canvas. These aspects need to be in line with the other aspects of the platform.
Use of platform canvas
Senior Executives, Marketing Directors, etc. at established companies can, for example, use this canvas to develop a new platform business model next to their existing pipeline one. Many companies have already transformed from a pure pipeline business model to a combination of a pipeline and platform model. Apple, for example, has transformed from a pipeline model originally producing Macintosh computers into a combination of pipeline and platform model selling iMacs and iPhones with the Apple Store nowadays.
Growing a platform business model is far more difficult than a pipeline one, because you serve two target groups instead of one, you need to discover two insights instead of one, and you orchestrate four network effects at the max instead of one. You start small and validate a minimal viable business model, rather than a minimal viable product. With the aid of this newly created digital platform canvas you can make a good start with your growth path.
- Business Model Generation by Alexander Osterwalder
- HBR Article about Pipelines, Platforms and The New Rules of Strategy of April 2016
- Matchmakers by David S. Evans and Richard Schmalensee
- Modern Monopolies by Alex Moazed and Nicholas L. Johnson
- Platform Revolution by Geoffrey G. Parker, Marshal W. van Alstyne, and Sangeet Paul Choudary