(Part 1 covers the basics of economics, platforms and network effects here)

TLDR: Properly applying platform growth tactics means prioritizing network value over revenue and constantly finding ways to exert leverage from each side of the market. Holding one side of the network static and creating attractive features is a common way to kickstart a platform.

After demand is created pricing subsidies applied to more price sensitive side of the platform let you get more users which you can leverage on the opposing side of the platform. Sometimes you need to prioritize high value users though in order to get over growth humps and motivate opposing side users.

From reading a variety of research, I’ve found there are a few tactics that are typically utilized by the platform creator. Each of these tactical levers are used strategically to stimulate growth, manage quality, operate more efficiently and optimize positive network effects.

Questions to be answered

Below, I’ve tried to consolidate this research into an easier to digest form than the academic articles linked above. I hope to give insight into the following questions:

What are some commonly pursued platform growth tactics?

What should my north star be when building a platform business?

How do I get started building a platform?

How should I think about pricing and what type of pricing should I implement?

Variety of platform growth tactics

The goal of platform building

Maximize network value.

In a platform business, there are two sides that we are creating value for. We can think of network value as being the combination of value generated for both sides.

A good way to think about calculating network value is:

What would the world be like without your platform? What would all of the costs be to each side of the platform? For instance, if there were no Airbnb, users would be paying more for hotel rooms, potentially staying farther from expensive areas and spending more on travel, etc.

Build an understanding of value created for each side of the market and combine

So long as possible, it is important to think in terms of network value instead of revenue in the growth stages of a platform. Revenue lags network value. This is because revenue collection acts as friction to platform adoption. The more you can increase network value while creating as little friction as possible, the more you can compound the positive cross-side and same-side network effects.

If your objective is to build a winner-take-all marketplace over a very long term, you want to build a platform that has the least amount of friction (both product and pricing). High rakes are a form of friction precisely because your rake becomes part of the landed price for the consumer. If you charge an excessive rake, the pricing of items in your marketplace are now unnaturally high (relative to anything outside your marketplace). In order for your platform to be the “definitive” place to transact, you want industry leading pricing — which is impossible if your rake is the de facto cause of excessive pricing. High rakes also create a natural impetus for suppliers to look elsewhere, which endangers sustainability.

Bill Gurley — A Rake Too Far: Optimal Platform Pricing Strategy

What this means is you need to be very strategic in applying strategies in order to optimize network value. Which strategy is right at any given moment depends on which will have the highest impact on network value.

We can look at these strategies applied over time and visualize them on a timeline tied to platform value.

And you can analyze other platform businesses by the strategies they apply over time.

For example: Uber

Extrapolated from A Brief history of Uber

How do you apply this to your business?

By constantly asking, “where do I have leverage?” and “how can I use this leverage on the other side of the market?” using the strategies outlined below.

Similar to a see-saw that continually gets more and different weight on each side…

For example: leverage shifting of a typical customer/vendor marketplace

In many ways its also like catalyzing a chemical reaction: more on that here if you want to ponder it.