Fundamentals of Platform Design

Sangeet Paul Choudary | July 31, 2012

The key benefit that a platform delivers is a means for producers and consumers (of content, goods, services etc.) to interact efficiently. The platform business is essentially about helping users interact. The central premise of Twitter is to serve as a micropublishing (and broadcasting?) platform for users.

User interactions are the life blood of a platform. The key metric that determines the success of a platform is a measure of the number and quality of such interactions. Consequently, all design considerations for a platform revolve around enabling more user interactions.

Platform design essentially involves:

1: Identify the core interaction that you want your platform to facilitate

What is the key interaction that your platform helps facilitate?

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This key interaction should typically:

Involve both consumers and producers: Buyers and sellers are involve on an ecommerce marketplace transaction, status updaters and commenters are mutually involved on a social network’s status update. Typically, the interaction is a producer-consumer interaction. However, in a case like Wikipedia, the interaction between producers and consumers may be less evident as producers update articles and consumers independently consume them.
Either requires producers to create the complementary products that increase the value of the platform: All updates on Twitter and Facebook increase the value of the network to other users in the first users’ social graph. These updates are essentially the complementary products which attract users to Facebook and Twitter on a daily basis. The principal interaction on Wikipedia creates the articles that the consumers read.
Or involves an interaction around these complementary products: One an ecommerce marketplace, posting a new product may mean nothing but a transaction involving that product is key to the
At least one of the interactions between user groups should be monetizable: Platforms make money through monetizing interactions between users. While there may be many different interactions on a platform, at least one of those interactions should be monetizable.

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The goal of all platform design is quite simply to maximize such interactions:

2: Structure the platform so as to maximize the number of users producing and contributing to the system

More participants on the platform lead to more interactions

Focus on easy sign on and onboarding.

More interactions occur when more producers are producing

Create intuitive production tools that producers can use to build on the platform

Offer producers a clear roadmap to distribution which is democratic and usage-based rather than one dependent on externalities

Signal consumer participation and activity

3. When you need good selection, you must prepare for noise

When it comes to platforms, noise happens! It just does. When you allow millions of users to create content easily, set up shop easily etc., a good number of those will not be delivering quality. In fact, if a platform doesn’t have a problem of noise, it could be owing to either of two reasons:

A really good pre-production curation
A really poor production mechanism

4. To facilitate interactions, a platform needs to have mechanisms to ensure a high signal to noise ratio for its users

This is possibly the single most important principle of platform design. As users are encouraged to contribute to the platform, noise becomes a major pain point. The effectiveness of a platform depends on its ability to match producers and consumers. This is accomplished through a combination of algorithms and user actions that help isolate signal (producers and products relevant to the consumer) from the noise. This is usually done through:

Curation: A mechanism to differentiate users and products of high quality from those of low quality.
Discovery: A mechanism to help users discover products or other users they may be interested in.
Personalization: A mechanism for the user to be served information and products that are highly relevant to her to keep her engaged.

Identify monetizable interaction(s)

Not all interactions are monetizable. Twitter doesn’t make money off users tweeting to each other (except if they are promoted tweets), Youtube doesn’t directly make money off users commenting on videos by other users. But all these interactions build engagement and curation into the system and are key to using the platform. However, there should be at least one interaction on the platform that can be monetized. Consumer internet startups that find one such interaction that can be monetized on a sustainable basis move on to huge growth. Google as purely a search engine was helping match consumer queries with relevant web pages. It, however, started making money once it allowed owners of web pages and brands to reach out to consumers looking for related information.

While designing for a monetizable interaction, it is critical that the user experience of other users on the platform isn’t affected adversely. This is the problem with a lot of advertising. Platforms that require users to interact with advertisements often come in the way of users interacting with their main content.

Design so as to prevent interaction from being taken off the platform
This final principle is extremely important. For a platform to have a sustainable business, it needs to have returning users who continue to transact on it. When platforms charge users (e.g. a lead generation fee or transaction cut), it is in the users’ interests to continue transactions offline once the initial matchmaking is done. Platforms which succeed typically add value way beyond the initial match-making.

Of course, this applies most directly to Seller-Buyer interactions where one or both users are actually charged for transacting on the platform.

This design principle needs to factor in a couple of things: