Many folks building a business platform overlook one crucial aspect: the product isn’t just what you sell, it’s also the connections you create. Shifting your mindset about this can change everything from how you build to how you price and scale.

In traditional businesses, you create products, hire people to deliver them, and keep the profits. Platforms take a different approach. For example, Airbnb manages almost 7.7 million properties globally without owning a single one. Amazon Marketplace, which contributes about 60% to Amazon’s total sales volume, does so without purchasing any inventory. Last year, Alibaba reported a whopping $248 billion in gross merchandise value, all while holding minimal stock. This asset-light model isn’t a gimmick; it’s a fundamentally different economic approach.

Experts predict the platform economy will reach around $7 trillion by 2025. This might sound like a catchy statistic until you realize it encompasses everything from payroll software to creator tools, not to mention two-sided marketplaces and operating systems. Knowing where your business fits within that big umbrella helps determine which choices really matter.

Pipeline vs Platform Models

A pipeline business operates linearly: you acquire inputs, add value, then sell outputs. Retailers, law firms, and manufacturers all fit this model. Value flows in one direction here, and businesses control quality at every stage, which is great but limits growth. Growth depends on how many resources you can acquire.

A platform flips this equation. Rather than generating value internally, it facilitates value creation for others and takes a cut of the profits. Shopify, for instance, supports over 1.75 million merchants without ever selling products directly to consumers. Instead, they provide infrastructure, letting merchants do the actual selling while Shopify earns subscription fees and processing margins. Essentially, it’s a platform sitting above what could be countless separate pipeline businesses.

The cost structure differences are telling. Pipelines scale by adding more resources, while platforms scale by simply adding participants. At some point, this marginal cost becomes almost negligible. That’s why investors often pay high multiples for platform companies. The challenge for many founders lies in acquiring both sides of the market simultaneously. Many early-stage platforms fail in this tricky gap.

How Network Effects Fuel Growth

Network effects mean that a platform becomes more beneficial as more people use it. Typically, when a platform’s user base doubles, its value to each user often increases even more. This compounding is why getting a head start is key. Once a platform achieves critical mass on both sides, switching costs become significant.

There are a few types of network effects:

• Direct network effects: more users of the same type enhance the service (think messaging apps or social networks).
• Indirect network effects: more sellers draw more buyers and vice versa (like marketplaces or app stores).
• Data network effects: increased usage leads to better data, improving the product for everyone involved.

Most marketplace-style platforms thrive on indirect effects. eBay became more valuable for buyers as more sellers came aboard. The tricky part? Indirect effects require you to grow both user groups at the same time, or at least create the perception of it. For instance, many founders subsidize one side during launch. Uber paid drivers before the riders were reliable. This approach can drain cash, but it buys time for the business model to stabilize. However, figuring out how long you can afford that subsidy is often the real challenge.

Don’t underestimate data effects. A business platform that tracks every transaction, search, and abandonment can enhance recommendations and fraud detection like no newcomer could manage. That’s a barrier competitors can’t easily cross.

Choosing the Right Business Platform

If you’re picking a business platform to build on, the factors change, but the stakes remain high. The platform you select will dictate your fee structure, customer interactions, and exit opportunities for the foreseeable future.

Shopify allows merchants full access to their customer data and keeps a branded storefront. You own that customer relationship. Selling on Amazon Marketplace provides immediate traffic but at a steep cost — Amazon retains ownership of the customer and can change the rules at will. Neither option is wrong, but they’re not the same at all.

Before making a decision, consider:

• Who retains customer data and relationship
• What percentage the platform cuts from your sales (Shopify takes about 2.9% plus 30 cents per transaction, while Amazon charges between 8–15%, plus additional fulfillment fees)
• If the platform’s growth aligns with your market
• Your vulnerability if the platform alters its algorithm or terms

Concentration risk is real too. Founders who rely solely on a single platform’s API or advertising channel have seen their businesses vanish overnight due to policy changes. While branching out over two platforms could increase your costs, it’s usually worth it once you’ve passed early validation.

What Makes a Platform Successful

A business platform thrives when both sides would truly miss it if it disappeared. This might sound simple, but many platforms focus on convenience rather than necessity, leading to rapid commoditization. The successful ones either hold unique data, foster a strong community, or integrate into workflows so deeply that leaving would cost more than the fees.

So whether you’re building your own platform or selecting one for your sales, the pivotal question remains: where does the true power lie? Get that answer right, and the rest of your strategy will start to fall into place.

FAQs

What is a business platform in simple terms?

A business platform connects two or more groups — buyers and sellers or users and developers — to create value without solely producing and selling a physical product.

How do business platforms make money?

They typically earn through transaction fees, subscriptions, advertising, or data licensing, often combining at least two of these for a diversified revenue stream.

What is the difference between a platform and a marketplace?

A marketplace is a specific type of platform that focuses on transactions, whereas platforms can also facilitate communication, development, or services without any goods changing hands.