A common definition of a platform business model is that other people can build profitable businesses on top of the platform.
With many of the platforms being public companies, or getting ready to go public, there is a lot of earnings pressure. How do you address that pressure as a platform company? You have 3 main choices:
- raise demand side prices
- raise supply side prices
- make the platform itself more efficient
Raising the prices on the supply side is the easiest choice, and unfortunately, this is often the one the platforms pick. It’s the easiest because the supply side is generally making money on the platform rather than spending it. Also, the other two are hard to do. Raising demand side prices means you need to increase the value of your platform to those who might have money to spend. Making the platform more efficient can be a lot of work.
But here what raising the supply side prices does: the freelancers, the drivers, the dog walkers are now making less. They aren’t raving about the platform anymore. They are considering getting a full-time job. The social change that the platforms were created to make is stalling. The new career path of working with a platform doesn’t seem trustworthy after all.
The generosity here can be very powerful. Giving those on the supply side enough reason to continue with the platform, to wait out any of the rough changes to the platform mechanics, to continue recommending Upwork or Uber to their friends.
We need to pay more attention to the people on the supply side and enable them to build profitable businesses and earn a good living for long enough to build trust with the new ways to make money. Without a healthy supply side there is no sustainable platform.