So here we run.
In the last two videos, we had a discussion about freemium, business model and subscription business
model.
Now, in this video we'll understand about platform business.
So today, in 2023, we do almost everything online.
So from buying a book online to booking a cab to ordering food or let's say, booking a hotel, every
single thing is there on your mobile.
And that's why to understand how exactly these economy work, we have to understand about platform business.
So in the coming videos, we'll talk about marketplace and aggregator business model.
But before that, let's understand what exactly is a platform business.
So what is a platform?
So a platform will create value by facilitating the transaction between a buyer and seller in an ecosystem.
And these platforms will take a piece of the pie in the transaction.
And if I give you a couple of example, your favorite companies like Uber, Airbnb and Amazon are really
good example of a platform because their main role is to act as a platform between a buyer and the seller,
and they take a small piece of the pie in the transaction.
Now that small piece can be 2% or let's say 20%.
It all depends on the kind of business model these companies have.
Now let's pick one company and let's expand on that.
Let's understand why these platform businesses are so powerful.
Let's take Airbnb as an example.
So let's understand all the factors that make these platform business very powerful when compared with
traditional businesses that we had.
The first reason why these are so powerful is that all these platform businesses are asset light.
Well, if I'll give you a simple example.
Airbnb doesn't own their buildings, but on the other side, Marriott does.
Now, you may have one question in mind.
Now what's the problem with owning an asset?
So if you look at companies like Marriott and we work, they used to own a lot more buildings and properties.
Because they have taken these properties and buildings on lease and because of COVID 19, nobody was
traveling.
And these companies faced huge losses because they own these property and buildings.
And that's the problem with owning an asset.
All these platform business like Airbnb or Uber or Amazon.
They are asset light that doesn't own any of their property.
The second reason why these platforms are so powerful is because they have zero marginal cost.
So what do you mean by marginal cost?
So every time a business add a new customer, they have to employ some people to manage that customer.
In case of Airbnb, they have zero marginal cost.
And same goes with Uber and with Amazon as well.
Because these brands are acting as a platform, they don't really have to employ their own people.
Any time they add a new customer or a new seller.
If I'll give you a simple example, in case of Airbnb, Airbnb benefits from external resources like
their host, and they don't really have to employ their own people to manage that property.
And that's why all these platform businesses have zero marginal cost.
The third reason these platform businesses are so powerful is that they benefits from the network effect.
And let me simplify network effect for you.
So the reason you use WhatsApp is because all your family members and friends are also there on WhatsApp.
And that's the network effect.
Any time you use a product, the value will multiply if you have more people using the exact same product.
And that's your network effect.
In case of Airbnb.
If more host will register themself on the platform, more guests will automatically book their hotel
or their property on Airbnb.
And this is a good example of network effect.
If all the best property in a town are listed on Airbnb, people will automatically use this platform.
And that's the network effect.
It's there in case of Amazon.
Network Effect is also there in case of Uber and Airbnb.
I guess Network Effect is there in almost every single platform business model.
Now Brian Chesky, who is the co founder of Airbnb, he summarized all these learning in a single tweet
in 2014.
And let me show you that tweet.
So in 2014, Brian Chesky said that Marriott wanted to add 30,000 rooms this year.
But we will add that in the next two weeks.
And one of the reason Airbnb was able to expand really fast is because they don't really own any asset.
They have zero marginal cost and they have achieved a network effect and that's how they are able to
scale their business so fast.
And that's the reason why platform business model are so powerful.
So now that you understand what exactly is a platform business, let's understand two different types
of business model.
All these platforms businesses use.
The number one is marketplace business model.
And number two is aggregator business model.
In the next video, let's talk about marketplace business model.