Platform businesses, where technology serves as a backbone that facilitates transactions between two or more parties, have become a big business and an aspirational goal for many companies. Early tech-driven examples include platforms like Amazon Marketplace or eBay, where the technology allows buyers and sellers to transact business, and the platform owner takes a small cut. Perhaps some of the most lucrative platform businesses are the app stores created and owned by Apple and Google.
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With Apple, not only do potential developers need to pay $99 to $299 for access to the company’s development tools and an ability to put an app in the store, but for each sale of a paid app, Apple takes 15-30%. Not only are these fees a bitter pill to swallow, but Apple expressly prohibits any apps from allowing alternate means of payment, as anyone that has attempted to buy a Kindle e-book from the Amazon app has discovered.
These fees, and the lack of easy alternative payment or app installation tools on Android and iOS, prompted several lawsuits against Apple and Google around the world, and the plaintiffs appear to be scoring early victories. South Korea recently announced that the country-specific version of the App Store and Google Play store must allow alternate payment methods. In a less dramatic concession, Apple has agreed to allow app developers to inform their customers that alternate payment methods exist, a tactic that would have previously caused an app to be removed from the store.
Can your platform be fair?
Apple and Google contend that creating, curating, developing and maintaining their respective stores is a costly endeavor that requires significant remuneration. Google has suggested that Play Store revenue funds ongoing development of the core Android OS, and removing that revenue stream could handicap the world’s most popular mobile OS.
There are obviously costs to build and maintain an app store. However, one of the primary benefits of digital platforms is that there’s a near-zero incremental cost for adding additional sales to the platform. If you’re selling toasters, each additional sale incurs a similar cost of materials and manufacturing as the previous sale. However, while there’s a high cost to build a Netflix-like movie streaming platform, streaming the first movie might cost tens of millions of dollars, yet each subsequent stream costs only pennies.
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Companies have realized the robust economies of platform models as they scale, and many organizations have cast an envious eye toward the likes of Apple and Google which have turned their platforms into money-creation machines. However, it’s also worth noticing the recent adverse reactions to these platforms, with the plight of app developers gaining headlines in the mainstream news and acquiring sympathetic regulators and customers.
When one player in your platform bears an unfair portion of the costs, and your actions lean more toward monopolist than a benevolent caretaker, you may face a rebellion. This may be the case especially with mature platforms, where most innovation and incremental value creation took place years ago. The participants in your platform might not be able to articulate it, but they likely understand that there’s less incremental overhead and that more participants in the platform generate additional non-linear revenue growth. If key participants see the same or increasing costs, minimal new innovation and no sharing in the rewards, they’ll seek an alternative that might include legal action.
How to build a better platform
Some of the best platforms provide benefits to each player in the ecosystem without placing an undue burden on any single participant. While I struggle with companies that essentially sell highly targeted advertising, like most social media companies, YouTube is a good example of this phenomenon. Viewers have access to a vast library of free content. Content creators get paid a market rate based on their viewership, and advertisers get access to targeted eyeballs that allow for more effective advertising.
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Each player on the platform pays a seemingly reasonable cost to participate. Viewers (hopefully knowingly) sell their personal data in exchange for access, creators provide content without upfront payment in exchange for a promise of future remuneration, advertisers provide direct investment, while YouTube routinely upgrades and develops the platform.
The more you can not only provide value to each participant but regularly increase the value of the platform as you maintain or reduce the cost, the less likely you’ll be to have a platform rebellion on your hands. Like any organism, platforms evolve, grow and sometimes take on an unexpected life of their own. If you’re a gracious and thoughtful caretaker rather than a pig looking for an all-you-can-eat buffet, you’ll remain a favorite of your customers while avoiding potential angst and legal scrutiny.