3 Strategies to transform your Product into a Multi-Sided Platform

byJayant Jain •
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platform and product meme

 

If I ask you to tell me the names of five top tech companies, what are the names coming to your mind? - Alphabet, Amazon, Facebook, Microsoft, and Apple, right? What is common between these firms? All these have multi-sided platforms. Multi-sided platforms facilitate interaction and transactions between different user bases, thus, making themselves more valuable than other businesses in the same industry. For example: Airbnb has a higher valuation when compared with Marriot. 

There are two reasons why products and services try to convert into multi-sided platforms:

  1. Greed: Increase the company’s value by identifying new sources of revenue. Eg: Airbnb runs an Ad engine, apart from the commission model from the hotels.
  2. Fear: Converting to a multi-sided platform strengthens the company’s competitive advantage, increases the switching cost of the user, and improves the barrier to entry through network effects. 

Please Note: I am not advocating that every product should convert themselves to a multi-sided platform. The blog covers the strategies of how a product can perform this transformation if they find a good opportunity for the same.

The following are three strategies that can be used to transform a product into a multi-sided platform:

#1 Partnering with third parties

If your product has a large user base, you can invite third parties to provide their services to your user base. The strategy works best when both of the following conditions are met:

  • Your product should be solving the main pain points of the users, but leave a few heterogeneous pain points unserved
  • The frequency of customer interaction with your product should be high
For example: Cred started with a product to allow users to pay their credit card bills smoothly and earn Cred points. The basic pain point was solved. The size and the frequency of interaction of the user base was also good. Then they started inviting third parties to sell their products (D2C) on the app. This allowed Cred’s existing user base to burn their Cred points and get products at a cheaper rate. Hence, transforming a product to a platform for D2C brands to interact with Cred’s user base.

However, do keep in mind three points while following this strategy:
  • The invited third party should have good relations with the existing user base such that they don’t object to the presence of these third parties with the product.
  • The quality of service of the invited third parties should be good. Else the existing user base would attribute the poor service of the third party to the poor service of your product.
  • Make sure that the invited third parties are solving a heterogeneous pain point for your user base. The products or services of third parties should not cannibalize your offerings.

#2 Connecting different customer segments

If you are serving two different customer segments that interact with each other outside your product, you can plan initiatives around featuring these interactions through your product and become a multi-sided platform. For example, Intuit’s Quickbooks serves two different customer segments: Accountants and Small and Medium Enterprises (SMEs). Hence, Quickbooks is building a matchmaking functionality allowing SMEs to find the best accountants in their geography for auditing and tax filing through Quickbooks.

However, do keep in mind two points while following this strategy:
  • Make sure that the interaction you are targeting to onboard generates good value for both customer segments to enable the growth of the multi-sided platform.
  • Make sure that the interaction you are targeting to onboard is aligned to your positioning for these customer segments, else, it might lead to negative PR.

#3 Supplying to a Multi-Sided Platform

You can become a multi-sided platform by providing an offering to your customer’s customer which would enhance the value of the product or service of your customer. For example: Tata had a lot of digital products - Big Basket, 1mg, Cliq, Croma, Air Asia, etc. Tata decided to launch a platform - Tata Neu. This platform provides single sign-on capability, NeuCoins as common reward points, and many more offerings which are useful to the customers of these products of Tata.


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