Linear business models create value by selling products down the supply chain. Platform business models create value by enabling exchanges among consumers.
Has the business world changed?
In the old business era, the business that dominated the business world were linear business models.
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Nowadays, platform business models have become the dominant form of businesses as they can scale quickly and grab market shares more efficiently compared to linear business models.
Where a linear business might still be a great model for small organizations and startups, however, as companies scale, platform business models enable them to scale more efficiently to grab larger shares of the total market.
Related: Dissecting Platform Business Models With Nick Johnson [Lecture]
What’s a linear business model?
A linear business model creates value by selling products or services down the supply chain. Thus, its value starts by controlling the supply chain.
This concept is critical to understand as a linear business model would start from the assumption that the value is in the supply chain, and as it grows it can grab more market shares, by controlling more pieces of it. Also, a linear business model that scales will want to own more assets, thus it will require more capital to be managed.
Also, a linear business model has to be closed and controlled by definition, as this is the way value can be captured. Those logics do not apply to platform business models; let’s see why.
What’s a platform business model?
A platform business model unlocks value for its end users and consumers by enabling them to interact and transact smoothly with the other side of the transaction, be it another consumer or a producer.
Therefore, a platform business model won’t own assets, but it will make it possible to its end users to exchange things. In short, platform business models take their value from network effects. This means the platform business model scales way more efficiently than a linear business model because it’s able to reduce its transaction costs also as the scale reached is massive.
In other words, where linear business models hardly scale to the total size of the market, platform business models not only might scale to the size of the market; but they might actually expand these markets altogether.
Read next:
- Dissecting Platform Business Models With Nick Johnson [Lecture]
- A Guide To Disruptive Business Models With Thales Teixeira [Lecture]
- Discussing Business Model Innovation With Felix Hofmann [Lecture]
- Lessons On Running Lean With Ash Maurya [Lecture]
- Pretotyping: How To Find The Right Idea To Avoid Business Failure With Alberto Savoia [Lecture]
- Innovation Strategy Lessons With Greg Satell [Lecture]
Other key resources:
- What Is a Business Model? 30 Successful Types of Business Models You Need to Know
- The Complete Guide To Business Development
- Business Strategy: Definition, Examples, And Case Studies
- Blitzscaling Business Model Innovation Canvas In A Nutshell
- What Is Market Segmentation? the Ultimate Guide to Market Segmentation
Business models case studies:
- How Amazon Makes Money: Amazon Business Model in a Nutshell
- How Does WhatsApp Make Money? WhatsApp Business Model Explained
- How Does Google Make Money? It’s Not Just Advertising!
- The Google of China: Baidu Business Model In A Nutshell
- How Does Twitter Make Money? Twitter Business Model In A Nutshell
- How Does DuckDuckGo Make Money? DuckDuckGo Business Model Explained
- How Does Pinterest Work And Make Money? Pinterest Business Model In A Nutshell
- Fastly Enterprise Edge Computing Business Model In A Nutshell
- How Does Slack Make Money? Slack Business Model In A Nutshell
- Fastly Enterprise Edge Computing Business Model In A Nutshell
- TripAdvisor Business Model In A Nutshell
- How Does Fiverr Work And Make Money? Fiverr Business Model In A Nutshell
The post Linear Vs. Platform Business Models In A Nutshell appeared first on FourWeekMBA.
