Understanding Platform Business

patriciahandschiegel:

Where business is concerned, it’s important to look at the internet as if it’s a platform versus whatever feature or application sits on top of it. It’s not to say things like Facebook, Twitter, blogs, digital media, etc. aren’t important. It’s that their monetization and models are going to be subject to the same rules that have applied to platform business forever. That’s because at the end of the day, what a platform is determines how the applications that sit on top of it can make money. The failure to see the world this way is why so many people and companies are fumbling around with how to do business and make money online.

There are six major platforms in our world — PSTN (landline phone), Cellular (mobile phone), broadcast (TV), print (media/newspapers), radio and of course, the internet. These things exist for the sole purpose of providing information or utility to a public. The secondary element to this is that they can also provide entertainment. If you think the internet was created so you could social network, you’re nuts. The internet was created because it has the capability to marry all of those other platforms into one. There are other benefits but this is the core purpose.

The rules of platform business are simple. What makes the internet so complicated for people and business (among other things) is that it combines several different platforms into one. That means that some applications will operate by certain rules, others by other rules, and unlike any other platform in the environment, some will be subjected to both. This, however, doesn’t change the basic rules of platform business. In short form, here they are:

1. It is very difficult to interject an ad into a stream of conversation. That is why platforms that enable two or more people to communicate typically monetize through subscription services. Your phone company makes most of its money off things like voice mail and texting, not ad revenue. There is a reason for that. The web has actually been more flexible with this than any other platform, but it’s still very limited and always will be in regards to monetizing via ad revenue.

2. Platforms that exist for the purpose of distributing information generally can not rely on ad revenue alone. Unless the production and distribution is bare bones cheap, few can. It costs money for someone to write articles, create TV shows, etc. – even on the internet which lowers (but doesn’t eliminate) the cost. Few information outlets can live on ad revenue alone and produce the kind of quality content people want. Yes, some can, but not all — and certainly, there is not enough ad revenue even in a good market to go around. This is why subscription content exists. We willingly share the cost.

3. To succeed, you must marry audience to platform. When television was invented, it was unveiled at the World’s Fair with the President and demonstration of how to use it through displays that showed it in various environments consumers live in. This helped marry the audience to the platform. From there, television networks worked to marry the audience to them. With the internet, everybody seems to completely ignore this. I am not sure why. In what world would a product be successful if no effort to truly create a customer base was done? When I say “audience,” I do not mean “traffic” — there is a difference.

4. To accomplish #3, you must train the audience. We use the term “train the audience” in web business often because it’s essentially showing people what to do, or driving them to understand how to engage with your site. With my first startup, I knew if users had to set up a tripod or have someone take their picture, less of them would engage in the site. That’s why I took pictures of myself in the mirror. Once people saw this, they understood they could too and started doing it. TV wasn’t just dropped in front of people to figure out — they were showed how to use it. This is why it worked.

These rules have existed since long before the internet was created, going far back to the invention of radio and telephone. If nothing has changed in decades and decades, it has not and will not now.