In a world dominated by digital innovation, platform business models aren’t just reshaping industries but redefining the market. From startups disrupting traditional markets to established companies pivoting to platform strategies, innovation is critical to staying relevant.
“Platform companies have become increasingly important to the global economy and are some of the largest and most valued companies today,” says Harvard Business School Professor Feng Zhu, who teaches the online course Winning with Digital Platforms.
If you're considering a platform business model for your company, here's what transitioning to one involves and its strategic advantages.
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DOWNLOAD NOWWhat Is a Platform Business Model?
A platform business model capitalizes on digital infrastructure to facilitate interactions between user groups. Organizations that use such models generate value and revenue through transaction fees, advertising, and data monetization.
Platform business models fall into two categories:
- Open: Platforms designed to be accessible and flexible with no single gatekeeper controlling access to or regulating them
- Closed: Platforms owned and heavily controlled by one company to protect its interests at all costs
When it comes to your business, you don’t need to choose one or the other.
For example, Adobe transitioned from licensed software to a digital platform, Creative Cloud, by combining a subscription-based model for its core software with an open platform community, Behance. This enabled Adobe to control who accesses its tools and services while allowing users to engage and share resources and creations with each other.
Related: Digital Platforms: What They Are & How They Create Value
“Companies transition to a platform model for many reasons,” Zhu says in Winning with Digital Platforms. “For one thing, the fact that more and more companies are becoming platforms means that you could lose ground to competitors who have capitalized on the benefits of platform transformation if you fail to make the jump.”
If you’re interested in bringing your business into the digital age, here’s how transitioning to a platform business model can benefit you.
3 Benefits of Transitioning to a Platform Business Model
1. Expanded Market Reach
One advantage of transitioning to a platform business model is that you can expand your market reach exponentially. By leveraging your existing user base, you can harness network effects—which occur when your service’s value increases as more users join—and help your business grow.
Network effects include:
- Direct/same-side network effects: A situation in which the value the user receives changes with the number of all users in the same group or side
- Indirect/cross-side network effects: Increased users in one group or side (e.g., sellers) enhance value for those in the other (e.g., buyers) by boosting variety or service quality
- Data network effects: Data generated from user activities improves your platform's services, attracting more users and creating a reinforcing cycle that enhances your offerings
As HBS Associate Professor Chiara Farronato notes in Winning with Digital Platforms, network effects have contributed to the success of social media companies like TikTok and Facebook.
“The more users are actually using TikTok or Facebook and creating content—distributing content on those platforms—the more valuable that platform is for every other user who's considering joining it,” Farronato says. “This is a form of direct, or same-side, network effects. The fact that there are many other users like me participating in a platform makes me more willing to participate in that platform.”
Utilizing network effects can rapidly increase user engagement and participation—in turn, broadening your platform business's impact and reach.
2. Better Scalability
Transitioning to a platform business model also offers scalability opportunities. By taking a digital-first approach, you can connect supply and demand without extensive physical infrastructure—reducing barriers to expansion and adapting quickly to market shifts.
In Winning with Digital Platforms, CEO of Zé Delivery Rodolfo Chung shares how the platform improved scalability with the support of its parent company, AB InBev, during the COVID-19 pandemic. Using partner networks and existing corporate structures, the beverage delivery service pivoted and expanded its operations, achieving growth that would’ve taken months without AB InBev’s resources.
“With tapping through the InBev ecosystem, we did it in a matter of weeks,” Chung says in the course. “In less than a month, we were able to have the sales team explaining, expanding the ecosystem, gathering new partners in over 300 cities throughout Brazil because you already had people in all those locations.”
The synergistic relationship and accelerated scaling not only served as a strategic advantage but provided a buffer against market volatility.
3. Cost Efficiency
Beyond improving scalability, transitioning to a platform business model can lower operational costs.
Unlike companies with traditional models, platform businesses act as intermediaries that facilitate transactions and interactions, meaning they don’t need to invest heavily in production, inventory, and resources.
For example, e-commerce platform eBay doesn’t hold inventory, instead providing a marketplace where sellers can list items that buyers can purchase. Its model eliminates the risks and costs associated with inventory management, such as storage, obsolescence, and supply-chain logistics.
This can be advantageous when transitioning to a platform model. Since starting a business from scratch often demands substantial upfront investment, it helps if you already have existing digital infrastructure—which generally requires less capital.
Shifting from a capital-intensive to an asset-light approach for your platform can allow you to better deploy funds and invest more in technology and customer acquisition.
Transitioning to a Platform Business Model
Transitioning to a platform business model calls for reassessing your product and service offerings, redefining your customer acquisition strategies, and embracing technological upgrades.
One of the best ways to prepare for the process is by enrolling in an online course, such as Winning with Digital Platforms. The course can not only enrich your understanding of platform business models through real-world examples but connect you with fellow learners from diverse professional backgrounds.
Do you want to learn more about the digital platform landscape and launching and scaling a platform business? Explore our online course, Winning with Digital Platforms, and download our free entrepreneurship e-book to discover how you can take your career to the next level.
