Over the past two blogs I’ve explained what a platform is, why they’re important for agribusinesses to understand, and how to begin designing a platform for your business.
However, you may have noticed a gap in our platform conversation. What is the business model? How do you profit off this? Once we’ve created this space for interaction and value-exchange – how do we get to share in this value?
At first glance, this seems like an easy question. Just charge the users of your platform! You’ve built the space – so it’s only fair for them to pay for it.
Unfortunately, it’s often not as easy as this. As I’ve explained – the value of a platform comes from the interaction between participants. The more producers and consumers on your platform offering a value exchange – the more valuable your platform is to them, and the more new participants will want to join.
If you decide to charge users to join your platform – you may instantly reduce the amount of participation on your platform. Which means the value of your platform will decrease – and this can lead to a spiral towards zero.
For an example of this – think of TradeMe or e-bay (popular trading platforms). TradeMe requires people listing items to sell, and people seeking to buy items. One without the other is a low-value proposition – you wouldn’t want to browse an empty platform, would you?
But if you charge users to join your platform from the outset, then this is exactly the dilemma you face. Creating a user fee limits the participation on your platform, which reduces the value of your platform.
Alternatively, you might consider building a platform for free – and then charging users once you have critical mass. Again – this approach rarely works in practice. People are not happy to pay for value they’re used to receiving for free, and usually vote with their feet.
You can now see why the authors of The Platform Revolution wrote, “Monetization, in fact, is one of the most difficult – and fascinating – issues that any platform company must address.”
The issue is the relationship between charge and participation. If you charge to access your platform, people will avoid your platform. If you charge for usage, this will likely reduce the frequency of participation. If you charge the producers – they will reduce the value they create, and if you charge the consumers, they will limit consumption.
The challenge is not insurmountable, but it does require careful thought. Your business model around your platform needs just as much strategic thought, trial, and design as the platform itself.
As you think about monetising your agri-business platform, there’s a few guiding principles helpful to keep in mind.
Keep thinking value
Remember – at the core of this platform is the creation of value. Any platform invites participants to join the platform, and then can explore ways to charge for the excess value that is created.
Before you know the excess value, it’s critical to understand the core value consumers and producers receive from their engagement with a platform. Broadly speaking, this can fall into four categories (as explained superbly by the authors of The Platform Revolution):
- Access to value created on the platform. The heartbeat behind any platform is providing value to consumers. This may be access to learning, data, expertise, services, goods – the list is near endless.
- Access to a market. The producers find any platform valuable as it allows them to access a market at scale. This may be access to farmers, farm-service providers, other businesses – whoever is seeking to use the value on the platform.
- Access to interaction facilitations. Platforms provide value to consumers and producers by allowing high-quality interaction for them. Instead of having to email back and forth, negotiate prices, engage in Zoom meetings and go through intermediaries – a platform allows direct exchange in a low-friction environment.
- Access to quality curation. Great platforms provide unique value by building curation systems that connect the right producers and consumers, at the right time. This reduces wasted time in searching the best fit, and allows for high-quality matches that meet customer needs, and producer offers.
When your platform does this well, you are creating excess value that a traditional pipeline business model cannot offer. That’s great! Most well-designed platforms actually create more value than they can capture, which is why free participants are happy to engage with the platform.
A solid monetisation strategy depends on thinking about each aspect of the above value your platform offers, and where you are creating excess value that can be monetised – without reducing the growth of your platform.
Monetise exchange, not use
One of the simplest – and most effective – ways to monetise a platform is to charge a transaction fee. This is sensible as the transaction between producer and consumer is the culmination of each of the sources of value.
Once the producer and consumer have agreed to participate in the exchange, your platform has delivered the promised value. If your platform facilitates the exchange of money, taking an agreed transaction fee is a solid monetisation strategy – especially if your platform caters to a high frequency of exchanges.
If you try to charge participants to use your platform, they are unlikely to explore the value possibilities your platform offers. They are taking a risk on your platform – choosing to pay before knowing what value they can receive. This strategy often limits growth and has been a death-knell to many platform start-ups.
If you take the advice of monetising the exchange, however, you are allowing participants to browse and explore your platform for free. They can experience the value of your platform, and it is only after the platform has delivered an excess of value that they are required to pay.
This approach de-risks the payment for both producer and consumer and makes your monetisation dependent on the performance of your platform. This is the approach used by many of the popular platforms in the world (Amazon, Uber, Airbnb) – and is worth considering.
Monetise access to producers if your platform is a community
An alternative strategy to carefully consider is monetise access to your platform to producers. This approach can work – but only if your platform has a wide-range of users who have joined to produce and share together. For example: this strategy would be suicide to a platform like Uber or Airbnb, which requires producers for the very success of the platform.
But think about LinkedIn, or any other platform where users both produce and consume value. On LinkedIn, users read posts and articles that are produced and shared by other users. You don’t go on LinkedIn to try and interact with specific sellers of services – you go to there to learn and connect with others.
However, LinkedIn represents a valuable market for another group – recruiters. As people don’t join the platform to meet with recruiters, LinkedIn have been able to charge recruiters and company an access fee to target individuals for potential jobs, which likewise encourages users to keep their profiles up to date.
Remember – this strategy only works if it has a positive effect on the network and encouraging growth and interaction. Applying this strategy to an auction or trading platform would not work – and would lead to a strong decrease in producer engagement.
Don’t monetise what used to be free
This is the golden rule of monetisation for platforms. Don’t charge any participant for value they are used to being free. People don’t like being told they now have to pay for a service they’ve enjoyed gratis. It’s an easy strategy – and one that usually doesn’t work.
Instead, strive to create new additional value that makes sense to charge for. Offer specialised curation, unique access, priority service – anything that allows the free model of your platform to continue growing – and direct participants towards the extra-value.
As you can see, monetisation is a huge challenge – but also a huge opportunity for strategic thinkers and for creating new revenue streams for your business. I recommend you plan your monetisation into the initial designs of your platform – rather than waiting until you have critical mass.
Although this plan may change, it is helpful to have a roadmap for monetisation as you design your platform, and allows you to prioritise build decisions, keep value-focused and seek to grow your platform in a sustainable and value-adding manner.
If you’d like to discuss more about the value of platforms, or chat about an idea for introducing a platform model into your business (remember – it’s not easy, but can be incredibly valuable!) – don’t hesitate to reach out!
I’m always happy to chat more about agribusiness, agritech, and improvements to business models and processes, and to share more about the work Rezare has done in this space. Just get in touch.< View more articles