How to Build a Successful Online Platform: Edelman 5-Question Framework
In the past decade, the number of online platforms has increased significantly. This is not surprising, given the ability of those platforms to create a lot of value through the enablement of communication and business models that might not be realized otherwise. Besides, the operating costs of such platforms are relatively low, given the fact that they usually don’t hold inventory or tangible goods.
Edelman (2015) conducted research on online platforms and created a framework consisting of 5 questions entrepreneurs need to ask themselves when desiring to establish such an online platform. The framework supports entrepreneurs in effective strategic decision-making as they
build their digital platform:
- QUICKLY ATTRACT A LARGE USER GROUP: Entrepreneurs need to ask themselves if they are able to attract a large group of potential users quickly. Mass sign-ups almost always remove uncertainties with regard to the future prospects of your platform, since it enables entrepreneurs to develop critical scales from the very start. According to Edelman, two conditions need be present in order to realize such a mass sign-up:
1.1. The organization already has a platform with a large group of users.
1.2. Data with regard to users is publicly available. - PROVIDE STAND-ALONE VALUE: If attracting a large group of users at once is not realistic, entrepreneurs should search for ways in which an online platform can offer value to its users in case of only few users sign up. This is a challenging goal, particularly when needed interventions require costly hardware/software. Two strategies can help when finding your type of stand-alone value:
2.1. Industry niche: targeting potential users in a relatively narrow market, because it easily gaining attention and recognition.
2.2. Search for or develop small social groups: Identifying the needs within those small social groups and responding to their needs could help to build and expand a platform that is used by only few users first. - BUILD CREDIBILITY: Especially in a competitive environment, a critical component for long-term success is the creation of a credible platform that users perceive as being worth joining.
- CRITICALLY THINK ABOUT CHARGING USERS: the functionality of online platforms provides large flexibility in choices concerning charging users. According to the author, two pricing levers have been used a lot in successful online platforms:
4.1. Pay as you go: pay per individual transaction. The internet has made this a lot easier than before.
4.2. User subsidies: subsidize one type of user in order to attract others. For example, online platforms offer free services to regular visitors to attract (paying) advertisers.
- ENSURE COMPATIBILITY OF YOUR PLATFORM WITH LEGACY SYSTEMS: compatibility with traditional technology (even if outdated) is often critical in the success of online platforms, particularly because users of new platforms often switch from prior systems. As such it is important to establish a platform that is to some extent compatible with legacy systems.
Source: Edelman, B. (2015) “How to Launch Your Digital Platform” HBR April 2015
⇒ Do you agree with these 5? Are there any more best practices for establishing online platforms?
