Platform Business

Intermediate

A platform business is a company that creates value by enabling interactions between different groups of users, such as buyers and sellers, drivers and riders or app developers and phone users, rather than mainly by making products itself.

Traditional businesses create products and sell them to customers in a linear chain. Platform businesses build a digital or physical space where others connect, exchange and create value. The platform sets the rules, provides the tools and usually earns a share of the value created.

Examples include app stores, social media networks, online marketplaces, payment networks, ride-hailing services and video-sharing sites.

Platform businesses often benefit strongly from network effects. As more users join one side, the platform becomes more attractive to the other side. More app users attract more developers, and more apps attract more users. This can lead to rapid growth and a dominant market position.

For example, an app store might take a commission of up to 30% on paid apps and in-app purchases, earning revenue from millions of transactions it did not create itself.

Platform businesses can be very profitable once established, but they often spend heavily to build both sides of the market at the start. Their size and influence have also attracted attention from regulators concerned about competition and fairness.

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