COMPLEMENTARY GROWTH Offering related products and services can help platforms keep expanding
A typical product line has linear growth – a direct result of a product or service sold to increasing numbers of consumers. A multisided business platform that connects customers or groups with multiple products or services, however, allows for complementary growth. By first creating a healthy ecosystem, multisided platforms are benefiting from additional revenues by expanding into unexpected areas.
Late in 2016, Airbnb, the platform that disrupted the hospitality industry by matching travelers with short-stay accommodations in private homes, announced that it was expanding its travel offerings to include restaurant reservations, audio walking tours – perhaps even car rental reservations.
Airbnb’s expansion of its platform’s wildly successful formula into related travel services was part of a process that platform experts call complementary growth – taking a successful platform idea and branching into related businesses. Annabelle Gawer, co-director of the Centre for the Digital Economy at the University of Surrey in Guildford, England, said that after the huge investment needed to start a platform ecosystem, it makes good business sense to expand.
“Once you have an installed base and you want to keep adding value to it and retain the engagement of people, you can do that by adding different sides to your platforms by bringing in new groups to interact with your existing side,” Gawer said, referring to each group of users or producers on a platform as a “side.”
When more than one group is present and begins interacting with another group, the platform is considered to be multisided. The platform owner sets the rules, but does not have to participate in the business being transacted.
Another good example is the ride-hailing platform Uber, where the UberEATS food delivery service was a logical expansion of the brand. But Uber also has branched out into UberHEALTH, a less obvious partnership with travel medicine service organizations, sending registered nurses direct to your door to administer flu shots and other vaccinations.
Sangeet Paul Choudary, who runs a platform consultancy in Singapore called Platformation Labs, cites the example of WeChat, China’s most popular messaging app used by millions of people instead of email and voicemail. The company wanted to enter the peer-to-peer payments market, but that sector was already crowded. So it hit upon the idea of peer-to-peer gifting, based on the Chinese New Year’s tradition of gifting red paper envelopes of cash to friends and family.
Although the tradition has become financially burdensome to many Chinese, people feared insulting friends and family if they cut back on the gifts or eliminated anyone from the list entirely. So WeChat invented “randomly assigned gifts.”
A New Year’s celebrant gives a fixed sum to WeChat, say $50, and the service messages everyone on their list that $50 is available to be randomly assigned to the first responders. One person might get $25 and 25 others might get $1 each. But because WeChat divides the gifts, not the sender, small gifts do not cause embarrassment.
In the 12 days of Chinese New Year, Choudary said, WeChat sends more money than other payment services do in the entire year. In this way, WeChat’s messaging service expanded into a complementary payment service that challenged more established competitors.
“Once you have an installed base and you want to keep adding value to it... you can do that by adding different sides to your platforms by bringing in new groups.”CO-DIRECTOR, CENTRE FOR THE DIGITAL ECONOMY, UNIVERSITY OF SURREY
“We’re seeing a lot of companies that are really looking at who they are in order to figure out who they want to be in the next generation, where the roles aren’t set, and how they are going to position themselves to do that,” said Michael Biltz, managing director of Accenture Technology Labs in San Jose, California.
Biltz points to CVS, which started out as a chain of pharmacies in the United States, expanded into walk-in MinuteClinics for simple medical procedures like a flu shot, and now is offering telemedicine services that allow patients to visit a doctor remotely via an internet connection. CVS provides the platform to handle the paperwork, such as processing the patient payment or insurance submission, and then pays the doctor a fee.
As services like Uber and Airbnb reach the saturation point for the number of users, the complementary approach offers a way to keep increasing business transacted on the platform and will become a model of future platform growth. ◆Back to top
Read the complementary growth report from Centre for the Digital Economy: