The Platform Canvas is a framework proposed by Marcel Allweins, Markus Proesch, and Ted Ladd, leaned on Osterwalder and Pigneur’s Business Model Canvas. Other than the Business Model Canvas which focuses on traditional businesses, the Platform Canvas is devoted to identifying and interpreting the unique elements of multi-sided platform companies and their network dynamics.
What is the difference between a pipeline and a platform business model?
Pipeline business model
The “traditional” business model, or pipeline business model creates value in a linear fashion that resembles a straight line between producer and consumer. Products or services are sourced, created and shipped from internal operations to the external customer. The central focus of such a business lays with the internal value chain. The pipeline business model is often associated with the industrial era where product manufacturing and service creation followed a linear business model structure.
Platform Business Model
Multi-sided Platforms also referred as matchmakers or marketplaces have existed since the dawn of time but have transformed in the age of internet and smartphones to become a dominant business model in today’s economy. A platform business model creates value by facilitating the exchange of products and services between two or more independent external groups. The platform’s key activities revolve around coordinating the external ecosystems rather than an internal production process. A platform business thrives through co-creation of value and a user base that grows through positive network effects.
The Platform Canvas in a nutshell
The Platform Canvas consists of 12 building blocks that represent the essential elements of a platform business. The framework’s structure represents the two mirroring external sides of producers and consumers that come together creating value through their interaction.
Think about how Uber doesn’t own cars themselves but is more successful than any taxi business just by connecting drivers and passengers.
Consumer Segments consist of the groups of customers, their needs and their personas. In the example of Uber that would be the ride hailing people that look for a ride from A to B. This element includes things like the geography and demography of that target market.
Producer Segments are the user groups that offer the services or goods consumed by the Consumer Segments. Uber’s drivers are the producers that offer their car and their service of driving people around.
Consumer Value Propositions are the benefits the platform offers to the Consumer Segments. It describes the very reason the consumers participate. Riders using Uber desire a cheap and convenient way to get from A to B fast.
Producer Value Propositions compile the value the Producer Segments gain by offering products or services on the platform. This is often a form of monetary gains. Drivers use Uber to earn some money and often value the flexibility of riding on their own schedule.
Consumer Substitutes are other entities consumers have access to in order to cover their need describes in the value proposition. These can be current competitors or future competitors. A direct competitor like Lyft is a substitute to Uber, as well as traditional cabs or even bike sharing stations.
Producer Substitutes are current or future alternatives producers have to make use of their resources. This can be in the shape of other platforms, entities or through other channels. Uber drivers often seamlessly switch to Lyft or could offer their vehicle through car sharing platforms instead.
Interaction is where the value is created and the exchange between the user segments is made. This dimension describes how the two sides correspond and interplay to deliver the offered value propositions. Through the Uber app, the drivers and ride-hailers are matched, they communicate and rate each other.
Facilitation describes all the measures the platform business has to undertake in order to practically enable that Interaction. This includes technologies as well as rules and regulations. Uber, for instance, provides the payment system for the transaction between drivers and passengers and they established a multi-step safety screen for drivers.
Stimuli is the upper top element on the canvas. This element holds the measures the platform can undertake in order to attract the different segments to the platform and engage them into participating.
Moving to the “lower” part of the canvas. These elements are invisible to the users and focused primarily on the business success.
The initial costs of a platform are typically lower than those of pipeline businesses, but there are other expenses that are more prominent which is all disclosed in the Cost Model element. Operational costs and software development are costs found in most modern platform businesses, along with different promotional measures. To attract more users, Uber regularly subsidizes rides which increases their costs.
Platforms can employ an array of different revenue models, from subscription to pay-per-click. Monetization captures where the revenues are coming from, the procedure that are in place in order to ensure that the platform generates revenue. Uber’s main revenue stream consists of the ride transaction fees. They also make heavy use of additional services like Uber Eats or Uber Cargo.
The last element of the Platform Canvas is Metrics,which contains the many trackable indicators that describe the performance of the facilitators and checks the value propositions. that happens within a platform. This element also tracks developments in the Cost Model and Monetarization to monitor the platform’s financials.
Business Model Canvas vs Platform Canvas
The Business Model Canvas is the most acknowledged framework for business model development and analysis. However, the intent of the canvas was to help pipeline organizations and ventures succeed as it falls short in many aspects of developing and analyzing platform businesses.
The Business Model Canvas fails to capture the multi-sidedness of platforms and other elements simply don’t apply to this type of business model or are inaccurate. It has also been criticized for ignoring the external environment (substitutes) which is essential in the platform-economy where imitation of competitors is more likely than in an asset-based sector.
The Platform Canvas is designed specifically to assist in business model development or analysis for platforms. Establishing all the elements that are unique to this type of business model, internally and externally. The canvas is created with the dynamics between the elements in focus which is essential to capture the fundamentals of the network effects.
We’re entering a new era where platforms companies rule the economy and have exceeded all expectations of what we thought was possible when it comes to growth and size. A booming technological market with accelerating development, promises of lightning fast connections and various uncertain factors threatening status-quo have formed the perfect environment for the ongoing platform revolution.