Sangeet Choudary is the Founder and CEO of Platform Thinking Labs, best known for his work on platform business models and multi-sided network effects. He is also the co-chair of the MIT Platform Strategy Group at MIT Media Labs, Boston, an Entrepreneur-in-Residence at INSEAD Business School, a Global Fellow at the Centre for Global Enterprisein New York, a speaker atthe G20 Summit 2014 in Brisbane and an advisor at 500Startups in Silicon Valley.
I’ve been following his work on the emergence and strategy of digital platforms. He has a multi-part series running on his blog that is well worth a read. Recently he introduced the concept of “value units” and how they power platform businesses. Sangeet writes:
There are two defining characteristics of today’s economy: it’s networked and it’s built around information. YouTube’s open-access network allows anyone to create videos but it is the information/data in the video that determines who it is served to for consumption.
Today’s digital platforms enable the exchange of information to power the exchange of goods, services, money, reputation and attention; essentially all social and economic exchanges.
Uber’s drivers, for example, announce their availability and coordinates on the platform by sharing various parameters on location, availability etc. Drivers create value units: information about themselves that helps them to be matched to the right consumer. When a consumer pulls out his phone and requests for a cab, he creates a filter i.e. his location. The driver that is most relevant to a consumer’s location and time of request is sent across.
Once this match is made, everything else clicks into action. The taxi turns up, the traveler is taken to his destination, the appropriate charge is transferred out of the traveler’s account and the taxi driver is compensated.
All subsequent exchanges occur once the information exchange takes place.
The information exchange has three key components:
- The producer (taxi driver) creates a core value unit (information about availability, location etc.)
- The consumer (traveler) sets up a filter
- The unit(s) that pass through the filter are notified and one of them fulfills the need
The core value unit is the fuel that powers the platform. At any given point, a platform is only as useful as it’s ability to match it’s units to the filters that consumers have.
The value proposition of a platform revolves entirely around its core value units.
From a producer’s perspective, a platform is:
- An infrastructure to create or store units. Android provides an infrastructure for the creation of applications. YouTube provides an infrastructure to host videos.
- A marketplace to find an audience for the goods/services represented by the units. Airbnb acts as a marketplace for listings that represent rooms, Uber serves as a marketplace for information that represents available taxis.
From a consumer’s perspective, a platform is:
- A repository of units where the consumer can discover units based on her filter.
The value proposition revolves entirely around the value units.
A platform without units has little or no value proposition.
A platform that fails as an infrastructure or a market for value units will not attract producers. A platform that fails to match the right units to consumers will fail to hold on to them.