Before jumping into two sided or three sided kind of business model.
Now let's quickly understand what is network effect and what a growth loops.
So you may have seen a lot of companies utilizing the network effect to really be both the side of business.
So now let's quickly understand those things.
So let's understand what exactly is platform business?
So platform business is basically our platform, which basically connects consumer to producer.
Now the bottom thing can be a consumer or a customer and producer can be a manufacturer or producer,
distributor or this intermediary producer are all those people who are either producing the product
or manufacturing it or distributing it, but they do not exactly know how to do all these things efficiently.
And that's why Blackphone business directly comes in.
They will say that if you are a distributor or producer or a manufacturer via someone who basically
takes care of all the marketing stuff, we have these many customers on our platform.
So if you start listing your platform, people can come and they can purchase it and we will provide
you a logistic support.
We will facilitate the transaction.
We will build the trust.
Let's quickly understand this with the help of an example.
Let's say Amazon is a platform business and there is one supplement company which basically manufacture
protein multivitamins and all of these kind of product and that really want to sell their product to
millions of billions of people.
So they will list the product on Amazon and Amazon will tell them that we are going to facilitate a
transaction, which basically means we will collect payment from customers and we will transfer it to
you.
We basically do a lot of marketing of your product.
We basically add a lot of value to your brand.
And then we are going to charge 15 percent to twenty five percent commission on your product depending
on the categories.
So some categories have a commission of 15 percent, 20 percent, while some categories also have a
commission of around 30 percent to five percent.
So it all depends on categories.
Two categories that one business basically provides tools and services that build a lot of audience
base, which is basically attracting customers using marketing campaigns.
They have some rules and standards.
So if your brand is not following those rules and standards, its chances are those Blackphone are going
to be your brand and then obviously the matchmaking.
So they will help your product to reach the right customer.
Let's say I am someone who is constantly chasing a lot of supplements and fitness.
Gornick Then chances are I'm going to see that brand in my feet or in my Amazon app.
So Amazon is basically a platform which basically provide all the services.
You can replace Amazon with any of the companies.
Let's say let's take Uber.
So always providing tools and services to right where they are collecting.
A lot of people who used to have Uber, they have some rules and standard.
Basically, they have to charge some commission.
If somebody is putting a lot of complaints towards a driver, chances are Uber is going to enlist or
be that driver.
And then obviously it is going to do matchmaking.
Let's the basic business model of platform, you can put Uber, Amazon, Flipkart, Dornbusch, any
company over here.
Now, let's understand how platform is really powered by network effect.
Now, in case, if you don't know, network effect is the most important platform business.
If you really want to build a platform business successfully, then you have to have a network effect.
Now let's understand what exactly is network effect?
So network effect is a phenomena whereby increased number of people or participant improves the value
of goods or service.
I'll give you a very simple example.
You use Facebook or WhatsApp just because your friends are using it.
You use Instagram just because a lot of your friends out there on Instagram, you purchase your product
from Amazon just because there are a lot of resellers who are selling the product on Amazon, that means
every additional person that is using that product or service, that person is adding a lot more value
to that specific product.
And that's why you are coming and using that kind of product.
Social media, e-commerce platform, take over.
Everything is driven by a network effect.
Now, let's see how this network effect is powering different sort of companies take over more rivals
is it will be more some more the number of riders who have more, the number of drivers who have.
So every time you look at Uber, chances are you have drivers near by you and that's how you end up
getting the Uber very fast and very cheaper.
Second example is Facebook.
If you have more and more friends who are using Facebook, you will also use Facebook.
If some of your friends stop using Facebook, they're not active.
Chances are you're going to also switch to Instagram or maybe to Snapchat.
Microsoft, if more and more people are using Windows operating system, you have more and more software
available because then you have more developers and that's how the basic network effect will kicks in.
Then you have Google.
If you do more Google search, Google will understand your social term, your keywords much better.
And you have more and more people who are putting their websites that blog post content on Google.
And Amazon is the best example, if you have more bios, then you have more silos, if you have more
silos, then you have more competition.
If you have more competition.
Chances are the product is going to sell at a lower price.
So more seller is equal.
Do better for buyers because they will get a product affordable rate or the cheaper it lets the best
example.
So which means all these negative effect are driven by something called Flybe and these flywheels are
made up of small growth loops.
Don't worry, we will understand what exactly is growth and Flybe concept.
But you can clearly see from all these things, growth loop simply means that more driver is equal to
more rider.
More rider is equal to less price, more driver is equal to lesser price.
So all of these are individual loops.
And if you connect all these individual loops, they make a flywheel, which is very powerful for all
these companies.
Then you have different types of network.
Then you have one side of network to say a three sided multisided, direct or indirect.
There are different types of network, but the only request which I have from you is to start making
notes.
Believe me, guys, if you are making notes of this course, you will understand much more than other
people.
If you write down all these concepts about all these companies, then chances are you are going to retain
this concept to a very longer duration of time.
So, as I explained, there is a network effect which is driven by growth loops.
So you have individual growth loops and those individual growth loops combined together to form a flywheel
concept.
So let's understand that we'll get that in a much better way.
So effect is driven by two important things.
One is the growth group and second is the Flybe.
So basically all these growth loops combined together and then they make a Flybe.
Let's understand the overgrowth group.
So when we were starting its operation in 2010 or in 2012, at that point of time, they do not have
so many riders on the platform.
So they started doing a lot of marketing campaigns.
They were collaborating with so many companies.
And after a moment, they also started getting a lot of writing requests or write requests that, hey,
man, I want to go from this place to this place.
I have just booked Uber and then more and more riders started coming to the platform.
Then Uber also started on a lot more drivers.
Now you have more riders and more drivers and everything is happy.
But now that we start coming in, because when those drivers are doing more number of trips, then obviously
the cost will be less because previously they were only doing 10 or 15 trips.
But now, because more riders are there on the platform, instead of now 10 trips, they are doing twenty
five trips city, which means that their overall revenue or overall salary or wages are high.
And then the company started paying them a little less.
So let's say if previously the company or the Uber is paying them around, let's say previously if Uber
was taking only five percent of the total size now, they started taking 10 percent of the trip size.
So let's say if if previously the trip cost you ten dollars, then you will really take like maybe one
dollar or half dollar of that trip and then they will pass on the remaining amount to the drivers pocket.
But now, if Uber have more number of riders and more number of drivers, now, Uber have power to take
a very large cut.
Now they can take one dollar or two out of that trip.
So now more number of prep means less cost.
So now customers are also paying less.
Uber is also taking more and drivers are also paying less because now we will have an effect, not one
third growth loop.
If you look if you have more number of riders on your platform, chances are all those customers have
less waiting time.
So let's imagine a situation.
If you have five, six other cars around your home or house, then you will feel like, hey, this is
just coming in two minutes.
It's very convenient for me.
So if you have more and more number of drivers, you have very less waiting time.
But if you combine all of these growth loops, you have something called Flybe, which is also the next
version of network effect.
And the main idea of this flywheel concept is growth.
So if you really want to achieve hyper growth or if you really want your product or service to grow
very fast, then you have to maintain a local structure and to maintain a local structure, you basically
have to lower your prices.
And if you lower down your prices, then your customer or your rider.
In this case, which is Uber, they really have a good experience because now they are paying less.
They are really enjoying the ride and the rider experience is very nice.
And if the right experience is good, they are really enjoying the ride.
That means more and more people will also start using Uber.
If more and more people started using Uber, then you have more and more number of drivers who are driving
the car.
And if you have more and more number of drivers, then you have more number of rides.
And if you have more number of.
Right, then, basically, nobody's is getting benefited from them, so this complete small, small
growth loops are now combined together to form a flywheel concept.
And that's how all these companies are successful.
You can replace labor with any food tech.
You have one restaurant, one person who is ordering now you have one million restaurants and maybe
10 million people who are ordering the food.
And that's how those things really kicks in.
So now you have cheaper food and now you have cheaper prices.
Customers are really happy.
Delivery is also very fast.
So all those network effect walks almost in every company, in every domain bagel stock market or baco
food aggregator or right hailing companies.
Network effect is present every.
So I think you got a fair understanding of network effect, growth loops and a vicious cycle.
Now let's see how two sided business model actually works.
And for this, we're going to take an example of companies like Uber and.
So let's quickly jump on a computer screen or understand two sided business model.