Understanding Platform Capitalism — Data Driven Investor

Understanding platform capitalism is critical to making money in the 21st Century. To explain, a platform is a network; or ecosystem, (usually) digital that supplies goods or services.

The owners of a platform can make money from those goods or services in three ways. First, platforms like Netflix (NASDAQ: NFLX) charge a flat fee or toll for admission to the platform. For example, Netflix members get to access unlimited amounts of streaming video by paying a fee.

Second, a platform charges a fee on each transaction. For example, PayPal (NASDAQ: PYPL) charges 2.9% per transaction; or 30₵ a sale, for payment processing.

Third, many platforms charge businesses for access to customers or viewers. Specifically, Alphabet (NASDAQ: GOOG) charges advertisers for access to people using the Google search engine. Plus, Amazon (NASDAQ: AMZN) and Alibaba (NYSE: BABA) charge merchants for access to customers.

Can Platforms make Money?

In addition, there is a fourth model in which the platform offers both a toll and advertising based model. For instance, Spotify gives music fans a choice between a subscription service and a “free advertising-based service.”