How to build digital platform

For online platform businesses, customer mobilization challenges loom large. The most successful platforms connect two or more types of users—buyers and sellers on a shopping portal, travelers and hotel operators on a booking service—and a strong launch usually requires convincing early users to join even before the platform reaches scale.

Customers find Skype worth installing only if there are people on the platform to talk to. Who would join PayPal if there were no one to pay? Every platform starts out empty, making these worries particularly acute. For multisided platforms, which need not only many users, but many users of different types, the risk is even greater. It’s not enough for a ride-sharing platform to have a large base of customers who want to book taxis by smartphone. It also needs drivers willing to accept those bookings.

Despite these challenges, the number of online platforms has spiked in recent years. It’s not hard to see why entrepreneurs are drawn to these businesses: They create significant value by enabling communication and commerce that might not otherwise occur. They have modest operating costs because they don’t usually manufacture tangible goods or hold inventory. And network effects protect their position once established; users rarely leave a vibrant platform.

I have been studying the dynamics of platform businesses for 10 years, and, with colleagues including Peter Coles, Chris Dixon, Tom Eisenmann, and Andrei Hagiu, I have documented and analyzed case studies on dozens of platform sites and products. In the following pages, I draw from this research to offer a framework to help aspiring entrepreneurs make the right strategic decisions as they build their own platforms. The framework involves asking five basic questions:

Can I Attract a Large Group of Users at Once?

The first question entrepreneurs should ask is whether they can quickly attract a large group of users. Getting a mass sign-up at the outset can almost eliminate uncertainty about a platform’s prospects because it effectively builds critical scale into the platform’s network from day one. But in my experience, a new platform can do this only if at least one of two conditions is true:

The company already has the users it needs on another platform.

Consider Google’s 2003 launch of the AdSense contextual advertising service, the now-ubiquitous “Ads by Google” that appear on myriad websites. At the start, advertisers were hesitant to buy these placements. They worried that website publishers might click ads on their own sites (increasing the site’s revenue but depleting advertisers’ budgets) and that their ads might be placed on inappropriate sites (such as those with adult content).


But advertisers had already joined Google’s popular AdWords platform, providing advertisement text and payment details in order to obtain search engine advertising. By enrolling these advertisers in AdSense, Google set the platform up for a successful launch. With many advertisers, Google had relevant ads to place on most publishers’ sites, ensuring high revenue to publishers. Of course, this approach raised legal questions: Could Google provide advertisers with a new service they hadn’t asked for? The company had written its contract to retain great discretion over where ads could be shown, and to date advertisers have not succeeded in challenging unwanted Google ad placements.

User data is publicly available.

Consider Zillow’s early efforts to present profile pages for most houses in the United States, including “Zestimate” prices, information about neighborhoods and school districts, and more. Zillow was able to gather this information from government records, circumventing the impossible task of soliciting information from property owners for a site that was, at the start, unproven. Zillow’s initial information was good enough to attract consumer interest, at which point property owners happily contributed corrections, photos, and other information. Indeed, real estate agents were soon willing to pay to show their advertisements in and around Zillow’s property listings.

Zillow’s approach typifies a three-step process for launching an advertising-supported platform: (1) Collect data from public sources, and organize it to create a useful service that attracts consumers. (2) Encourage users to submit improved data directly to the platform. (3) Charge companies for preferred ad placement. Even Google’s widely used search engine is grounded in this approach. Initially, the company collected page contents by scraper; then it accepted structured data feeds from sites; and now it charges advertisers billions of dollars to appear adjacent to search results. It’s a proven path to success—one that overcomes the mobilization barriers that initially challenge so many platforms.

Can I Offer Stand-Alone Value?

If signing up large numbers of users is not feasible, platform businesses should look for ways of providing value to individual users even if no one else is on the platform. Consider the VCR in the 1980s. The challenge was that owning a VCR was useful to viewers only if they could get enough videocassettes to watch—and content owners would bother to make the tapes only if enough people had VCRs to watch them on. The problem was exacerbated by competition among incompatible formats.

The VCR could have been a flop, but its recording capability came to the rescue. The device could tape television broadcasts—and this benefit didn’t require that anyone else own a VCR or that any studio offer content on videocassette. Thanks to the wide popularity of the recording function (its legality was confirmed in a 1984 Supreme Court decision), VCRs avoided the mobilization problems that hinder many multisided platforms.

Creating stand-alone value can present difficulties, of course, especially when extra features require costly hardware. But it’s easy to add functionality to a software program or an app. Suppose you find that your taxi-booking app is unpopular with passengers because few drivers accept bookings through it. Perhaps the app can provide train and bus schedules too, or give phone numbers for traditional taxi dispatchers. With the right additional content, the app could attract enough passengers to make the platform appealing to drivers, who would then pay to be included.

As you try to figure out what kind of stand-alone value to offer and which customers you should be offering it to, consider two strategies:

Start with an industry niche.

A good approach for many platforms is to target customers in a relatively narrow market where the platform can more readily gain traction. The Yelp review site now evaluates almost every small business in the U.S. (and many international businesses too), but initially it focused on a much smaller sector: ethnic food in San Francisco. With that base, the company attracted dedicated reviewers and interested readers. Word of mouth and participants’ travel facilitated growth—first to covering other cities and then to reviewing sectors other than restaurants. As it grew, Yelp naturally expanded from reviews to other functions, such as accepting reservations, forwarding online orders, and offering discounts.

In a world focused on getting big fast, it’s all too easy to overreach. Having built a general-purpose review platform, Yelp could have tried publishing reviews of all businesses everywhere from the outset. Instead, it stayed focused on a narrow sector until it had attracted devoted fans and higher-quality content, which paved the way for subsequent success.

Find or build small social groups.

For some platforms, success comes through identifying and serving the social needs of small groups. Two people can use Skype and immediately enjoy its free, high-quality calls; they get these benefits even if no one else ever joins. Skype spread exactly this way—a student calling parents, far-flung friends staying in touch—with users often joining in pairs who call only each other. Of course, Skype becomes even better when most people have accounts.

Skype expanded naturally because users were motivated to spread the word and encourage others to join in order to get the most out of the platform. But not all platforms are inherently social, so businesses may need to build that capability into the value proposition. Computer and video games, for example, are not necessarily a social activity; historically, gamers have played alone. Zynga reimagined online games as “games with friends.” In running an imaginary farm on Zynga, a player might run out of key supplies and need to borrow from a real-life acquaintance playing the same game. Social features like this accelerated Zynga’s spread; having friends to call on helped people perform better, giving them an incentive to recruit more friends to the platform. Another approach to building in sociability is discounter LivingSocial’s offering of a free restaurant meal, spa visit, or other local service if a customer can find three friends who will buy the same thing. The approach has helped expand the service while reducing the high marketing expenses that have strained competitors.

These strategic choices are all largely within the control of a platform designer. As first envisioned, a platform might require thousands of diverse users—hundreds of taxi drivers in every city, or a full suite of movies playable on a new device. But the right adjustment can make it attractive when used by just a few people—or even by a single person.

How Will I Build Credibility with Customers?

When there are competing platforms in your space, users need some reason to believe that your platform will be worth joining, especially if doing so involves a significant investment, as is the case with game consoles. To attract initial users, a new platform must satisfy those concerns by building credible expectations for its future success.

The basic strategy for credibility building is to attract a marquee platform contributor. Gaming console makers, for example, need to demonstrate that highly sought-after games will be available, so they often pay a well-known game developer to provide a given game on the console. In some cases, console makers have bought the developer outright: Once Microsoft acquired Halo, for example, there was no doubt that its eponymous game would be available on Xbox. For the greatest effect, the marquee contributor’s participation should be exclusive. That’s why Microsoft pays some game developers a premium to provide their content on Xbox only. If devoted gamers want those games, they have to buy an Xbox console.

Exclusivity with a marquee user can drive growth; however, a platform must compensate that user for the profit it could have made by joining other platforms. The costs can be prohibitive, giving incumbents a big advantage.

While the high costs of attracting such users may tempt platform businesses to build their own capabilities, there are downsides to relying too much on in-house development: Prospective users may see it as competition. For example, starting in 1984, Apple’s hardware lineup included printers. Suddenly other printer manufacturers thought twice about making them for Macs, figuring (not unjustifiably) that Apple was bound to give its own devices some advantages. After weighing the modest printer profits against the risk of losing key partners, Apple exited the printer business in 1997.