How Multi-Sided Digital Platforms Are Changing the Rules in IT

A multi-sided platform grows in value to the extent that it attracts more users, a phenomenon known as the “network effect.”

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Multi-sided, user-facing IT platforms, such as those deployed inside Google, eBay, Uber and Xbox, are becoming more strategic tools for enterprises all the time.

While they have been used publicly for more than two decades, a lot of people still don’t recognize what a multi-sided platform is. It is defined as any type of platform that creates value by facilitating the exchange of goods or services among multiple parties. Examples of this include on-demand companies such as Lyft, crowdfunding platforms such as Kickstarter, commerce platforms Shopify or Amazon, travel and hospitality services like OpenTable, and social networks, such as Facebook.

The platform then creates value by facilitating interactions between the different groups. A multi-sided platform grows in value to the extent that it attracts more users, a phenomenon known as the “network effect.”

For example, the more people that use Google search, the more data the company has, and that data is the raw material for refining its search results further. Subsequently, the greater its market share in search, the more advertisers wants their ads placed on Google to reach the largest audience. That, in turn, solidifies Google’s position as the dominant ad market, and strengthens its pricing power.

“There are several positive feedback loops in this business, and they are particularly powerful,” Microsoft co-founder Bill Gates once said.

With this background in mind, eWEEK offers this Data Point article, based on industry information from online payment and multi-platform toolmaker Stripe, on best practices for the use and deployment of multi-sided digital platforms.

Data Point No. 1: CIOs must build for communities, not for products.

Multi-sided platforms face a chicken-and-egg problem when it comes to building a thriving ecosystem. For example, a ride-sharing platform must retain drivers in order to serve more riders. A commerce platform needs merchants in order to attract buyers. With IT teams strapped for resources, they’re forced to prioritize and juggle a dichotomy of needs while making it seamless for all interested users to plug into the platform.

Stripe, in a recent research report, found that it is advantageous for multi-sided platforms to first prioritize the experience of the workers who provide the services/goods -- at least, in the short-term. Over a two-year span, worker retention was associated with 10X increase in revenue than consumer retention.

Data Point No. 2: Multi-sided platforms require an API-centric architecture.

At their heart, multi-sided platforms are composed of multiple systems that grow increasingly complex as they bring continuous value to their users. For example: Forrester reports that workers are the most satisfied with platforms that provide multiple services, such as facilitating customer support and getting customers to reliably pay them.

CIOs now need to design platforms so they can be readily integrated across a variety of partners and services. Building an API-centric (application programming interface) architecture allows platforms to scale with the evolving needs of users and overall growth. APIs maintain an accessible environment that facilitates the necessary flow of information across internal and external systems, and foster a programmable environment that can easily integrate with future services/systems and extend the platform’s reach to new channels.

Data Point No. 3: Demand for mobile equals demand for deeper organizational collaboration.

According to Nielsen, five of the top nine types of multi-sided platforms are primarily accessed via mobile apps. This increasingly pushes CIOs to drive collaboration among mobile, front end and back end teams. Straddling the server-side and user-side, mobile applications need CIOs who are hands-on with the full-stack -- integration to security to future-proofing, when they’re asking to support the next mobile device (such as wearables or voice-powered smart devices). However, this also creates more opportunity for CIOs to provide a leadership role for their organization, because they must deeply understand and help to shape the platform’s business goals and objectives.

Data Point No. 4: CIOs are increasingly contributing to the governance of platforms.

IT is increasingly responsible for building infrastructure that facilitates the governance of platforms. This can be far-reaching--from on-boarding legitimate workers to protecting the data of consumers. In fact, according to a new study by Nielsen, 94 percent of consumers said it is “absolutely essential” that their contact information is safe when using a multi-sided platform.

A platform will greatly benefit from a CIO's deep knowledge of building infrastructure that facilitates policies and standards that are critical to the company's bottom-line.

Data Point No. 5: Multi-sided platforms demand personalized experiences, which shape the future of data.

The value of a multi-sided platform is increasingly dependent on its ability to provide personalized experiences. For example: 74 percent of people use platforms because they help them find products or services that they wouldn’t have found otherwise (Nielsen).

Personalized experiences can be greatly enriched by using contextual, real-time data. A commerce platform can offer more precise recommendations based on real-time signals. A ride-sharing app can understand current conditions for their drivers, improving real-time support.

Successful platforms will harness real-time data to evolve their platforms to be more responsive to real-world changes. CIOs must navigate the distributive nature of platforms: data is coming from disparate devices, locations, multiple types of users and spikes in usage. This places higher priority on technologies such as edge computing and real-time data processing.

Data Point No. 6: Platforms are driving new integrations for IoT.

At its core, IoT connects services and data, which presents ripe business opportunity for multi-sided platforms that seek to similarly connect users with services and goods. By integrating with connected devices, platforms can boost their potential to reach more users and offer convenient experiences.

Supporting the growing ecosystem of connected devices also comes with a new set of business challenges. Integrating payments is only one example. The rise of digital wallets--40 percent of people prefer to use other payment methods than credit cards or debit cards (Nielsen)--increase the need for ease-of-integration and security measures. APIs, such as Stripe’s, enable businesses to quickly integrate with IoT devices and support all payment methods including any future ones that might arise.

By opting to build with APIs vs. building custom technology, CIOs can accelerate time-to-market and deliver immediate results for their businesses.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 13 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...