Thread by @meedabyte

At @Boundaryless_ we recently spent a few weeks researching the key aspects of *pricing* in platforms and marketplaces to provide the key challenges: here's a thread with what I've learnt 🧵 👇

One of the highlights of a recent conversation we had with @JamesCurrier was that as we move into more vertical/managed marketplace opportunities, a mix of platform-provided services often complements the "transactional" nature of the marketplace and pricing becomes strategic

When thinking about pricing in a platform-marketplace one needs to understand that there are at least 3 contexts where pricing is a fundamental question to be addressed:
(1) the transactional marketplace;
(2) the product side;
(3) and the extensions of the platform.

The most important aspect of (1) is the sizing the *Take-Rate* you should apply. Take rates vary a lot in marketplaces: from as little as 5% where the owner mainly takes care of the intermediation, up to 80% (stock photo). In most cases the higher take rate is around 30%.

Key aspect to consider when setting a take rate: what's the actual contribution of the marketplace and how is that perceived by the entities in the transactions? A number of things need to be executed to ensure a good transaction and the platform owners normally takes over some.

Here's a stack of the things that need to be done Clearly, the more of this is taken over by the platform owners - instead of the providers - the more the owner of the platform is entitled to take a bigger rate of the transaction's value.

Another key aspect of sizing a good take rate comes from understanding the so-called BATNA (Best Alternative to a Negotiated Agreement). Both sides of the transaction (supply and demand) normally consider alternatives to transacting on the platform

From the perspective of providers, the alternative could be either:
- self-managing demand creation and transactions management;
- using an alternative marketplace (potentially multi-tenanting, using both at the same time when possible).

As Lilian Chen points out in her "A Comparison of Take Rates: Drivers of Value" (medium.com/r?url=https%3A… ) :

Another aspect defining the take rate in a marketplace is who to take it from: @Airbnb has a fairly articulated fee structure on the take rate. For non-professional hosts it's around 3% (up 6% in some cases) and ~14% on the guest's side.

Instead professional hosts (like hotels and some other hosts) the guest doesn't get any visible "service fee" and the host is charged around 14–16%. The articulated way that Airbnb uses to define its take rates is a good example of how strategic one can be about it.

Take rates impact the consumer side pricing on your marketplace, but the price that suppliers set is also a fundamental driver of consumers' willingness to pay for P/S. Depending on the nature of the supply marketplaces may or may not be able to apply certain pricing strategies.

There could be essentially two macro cases:
(1) the marketplace sets the price of the goods to be sold (and thus needs to attract sellers to sell at that price);
(2) the marketplace lets the providers set their price independently.

In case the services sold are frequently purchased commodities (rides) price is normally set by the platform.

When supply is not commoditized but can be owned by the platform (through exclusivity or other reasons) the platform has dramatically more leverage in setting the price. Netflix, for example, provides the whole inventory at a fixed monthly subscription price.

In few words:
- ubiquitous commodities are normally traded at fixed-price;
- for unique/niche services self-set pricing is the standard;
- when there's a fully platform-owned inventory the platform owners can play with bundles, going beyond monetizing a single transaction.

Besides take rates, marketplace platforms also often offer a "product" side, e.g.:
(1) tech. solutions hovering around a SaaS that supports the execution of the core tasks;
(2) a complementary set of enabling services (logistics, marketing, sales, supply chain management,...).

In particular, pricing a SaaS is a fairly mature matter, but the first thing you need to understand in that context is the so-called Value Metric. Once you understand your value metric you can pursue several approaches to building a contextual pricing strategy.

According @Patticus: "A value metric is essentially what you charge for. For example: per seat, per 1,000 visits, per CPA, per GB used, per transaction, etc…if you get everything else wrong in pricing, but you get your value metric right, you'll do ok"

In a few words, the more the platform's value proposition is in the "transaction engine" - depending on network effects based demand aggregation - the more you'll need to operate on low margins, falling back on competitor-based pricing and cost-based pricing.

The more your VP moves more into the learning/workflow engine zone (the "product side") you need to switch towards value-based pricing cause your value proposition is less sensitive to network effects, growth or size: see Substack, for example.

The 3rd major context of a platform's pricing strategy is the so-called "extension platform". Extension platforms are used by platform-marketplace owners to extend the value proposition of the product side of their platforms. @Salesforce Appexchange is a great example.

Monetizing the extension providers (developers) normally comes through: an integration fee, one-time or recurring, needed to create or publish the extensions, and a take rate on the purchase of the extension (if paid) or of any other digital element purchased (through it).

In more complex ecosystems, transactions can happen also inside the extension (often as micro-payments): and brands have been often battling around enforcing certain payment channels to their extensions or app builders. The obvious reference here is Apple's battle with Epic Games

I'll stop here because there's already too much for a twitter thread but you can look into:
1) strategically using pricing depending on the development phase
2) relating pricing to Unit Economics
...and more by reading the full post here: stories.platformdesigntoolkit.com/pricing-platfo…

If you liked the thread please retweet and follow me @meedabyte and my company @Boundaryless_ to discover more about the future of platforms. Subscribe to our New Growth Landscape research here: platformdesigntoolkit.com/growth-subscri…