This is the fifth article in our series excerpted and adapted from the best-selling book, Platform Strategy. The first four pieces covered the Attract, Match, Connect and Transact functions of the rocket model for platform businesses.

 

Having already built the business architecture of the platform with the rocket model – attracting participants on both sides of the market, defining the matching criteria to bring participants together, creating opportunities for participants to connect, and identifying the type of transaction(s) that take place on the platform – the next task is to establish ongoing oversight mechanisms for sustained growth. This is the Optimise function.

 

Overcoming bottlenecks and unlocking growth

The final stage of the rocket model, Optimise, is iterative and represents an absolutely critical process for continuous enhancement of the platform. Given the dynamic nature of platform businesses, this data-driven function allows platform businesses to find the right balance between the two sides of the market and to optimise at a functional level – for instance, within the matching, connecting, and transacting functions – or holistically across the platform. 

 

One of the goals of the Optimise function is to identify bottlenecks as they arise within the platform ecosystem so that they can be addressed as efficiently as possible. Because this function is data-driven, platform businesses can spot blockages in near real-time if they are monitoring the right metrics.

 

Data-driven optimisation

Many platforms can frame their early development as a portfolio of experiments and hypotheses that need to be tested. For example, Google’s search algorithm and result display went through many iterations before became what we know today as Google search and is still constantly optimised through daily A/B tests to ensure the best and most relevant search results are provided to users. 

 

When a bottleneck forms at one of the stages of value creation, management’s attention can almost immediately focus on the issue. While traditional marketplaces, such as estate agents, are types of platforms that have existed offline for centuries, we note the technology that enables advanced use of near real-time analytics on customer data has only been available relatively recently. Online platforms almost always capture, store and analyse vast amounts of data so that hypotheses can be formed and tested. As such, data can be considered an ‘input of production’, as well as a ‘strategic asset’ and even a tradable good. 

 

Platforms increasingly use unique performance indicators and dashboards to track their progress. Selected platform success metrics can be mapped onto the rocket framework to provide a holistic way of monitoring performance and identifying bottlenecks. These metrics can apply to stages of the rocket, but also to the wider ecosystem of producers, users and partners.

 

The concept of ‘big data’ is part of the organisational DNA of most online platforms, and continuous monitoring of potential bottlenecks can unlock growth in near real-time. Many platforms are so adept at these types of analytics that they are now applying these tools across their businesses to generate new management insights.

 

The life cycle phases of a platform

As a platform business develops and matures, growth bottlenecks are likely to appear along the way. These bottlenecks will be different from one market to another, and the sequence we propose is by no means scientific or exhaustive since every platform is different. We have, however, seen some patterns emerge, since the same issues and bottlenecks tend to appear at similar stages of development.

 

Broadly speaking, the life cycle of platforms has four phases, and the activities of each building block of the rocket model (Attract, Match, Connect, Transact, Optimise) evolve depending on the life cycle phase.

 

These life cycle phases are:

1. Pre-launch, when the platform is designed and built, prior to its launch.
2. Ignition, when the platform is tested and launched.
3. Scaling-up, when building a critical mass of participants on all sides of the platform becomes key.
4. Maturity, when the focus is on continuing to grow the business while also defending against new entrants and existing competitors.

 

Again, the Optimise function is iterative; in contrast to other functions whose activities can differ significantly across various life cycle phases, optimisation is consistently focused on setting and monitoring performance metrics. This performance data is gathered in order to strategically direct other functional activities.

 

Monitoring the right performance metrics

The Optimise function at the pre-launch phase is focused on defining the North Star metric and other key KPIs to help identify progress in terms of ‘platform fit’. As discussed, this foundational work is important to enable optimisation at other stages of the platform’s life cycle.

 

We propose the following pre-launch questions to guide thinking around performance metrics:

1. What information will the platform need to gather in order to test the main hypotheses behind the business case?
2. Which interactions between platform participants can be captured in a small set of key performance indicators (KPIs) to track platform developments and help identify bottlenecks as it scales?
3. Which metric(s) can best measure platform success?

 

Network effects are at the heart of platform success. KPIs capturing ‘magic moments’ (when a uber user is saved from the rain by a driver available immediately) and ‘horrible nightmares’ (as when a Uber client remains stranded and unable to find a car after an hour and misses an important appointment) are often very helpful to identify early traction and improve the platform iteratively.

If the platform doesn’t change significantly over time, there’s no compelling reason for the North Star metric to change. In contrast, the KPIs are a manifestation of various priorities and will change over time or be adapted, depending on the life cycle stage and particular set of business goals.

 

How to choose a North Star metric for a platform business

Because it remains consistent across life cycle phases, selecting the right North Star metric is an important aspect of building and maintaining a thriving platform ecosystem.

 

The North Star metric should be chosen with consideration of the:

• Vision, mission and objectives of the platform;
• Specific type of platform you operate;
• Life cycle phase that the platform is at;
• Constraints faced by the platform, e.g. the organisation’s financial targets, information available

 

For platforms, the best North Star metric often:

1. is strongly connected to the core interaction that participants have on the platform, and
2. focuses on the overall value creation of the ecosystem, rather than purely on the financial goals of the platform owner.

 

For example, Airbnb’s North Star metric is the number of nights booked eBay is the combined value of goods treated on the marketplace (in marketplace jargon this is the GMV or Gross Merchandise Value) , while Bumble might focus on the number of chats that result in an in-person connection.

 

Summary

• The goal of the Optimise function is to spot bottlenecks in the platform ecosystem so that they can be unblocked.
• The North Star metric and Key Performance Indicators (KPIs) are important performance statistics that help platform owners judge if their platform ecosystem is operating optimally.

• The life cycle of platforms has four phases: Pre-launch, Ignition, Scaling-up, and Maturity, and the activities of each building block of the rocket model evolve depending on the life cycle phase.
• The North Star metric typically stays consistent over time, while KPIs are adjusted regularly based on evolving business priorities.
• There are several considerations when choosing a North Star metric, for example, the platform’s vision, mission and objectives, the type of platform, the life cycle phase the platform is in, any major constraints, etc.

 

To explore the rocket model in more depth and learn about other proven strategies to grow your platform business, pick up your copy of Platform Strategy: How to unlock the power of communities and networks to grow your business.