Ecosystems

WePay Co-Founder: The Power And Peril Of Ecosystems Within Ecosystems

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When Facebook announced its intention to get into the dating game a few months back, it managed a rare feat: The company got back to its roots while stepping boldly forward into the next evolution of monetizing the power of its platform.

Back to its roots, Karen Webster observed in a recent conversation with WePay Co-Founder Rich Aberman, because before Facebook was the global powerhouse connecting more than 2.5 billion people every day on its platform, back in the dorm room days of 2004, it was “a technologically assisted way to find good-looking girls at Harvard and ask them out.”

But, as Aberman told Webster, that decision is just one example of how platforms that were initially created to make a simple match between two sides have since evolved to become richer and deeper ecosystems. Those new features and functions make it an indispensable utility for its users, delivering value that can be monetized in new and different ways.

Payments, therefore, is a key enabler to that evolution.

“If you are a platform that does not offer anything but a simple matchmaking — connecting buyers and sellers, or audiences and advertisers — it’s hard to charge for anything but performance,” Aberman told Webster. “Advertisers charge per eyeball or click; marketplaces charge a piece of each transaction.”

That’s not all bad, Aberman said, especially if you’re a Facebook and you’ve managed to enroll half of the adults on planet Earth onto your platform. There’s a lot of money to be made in charging for those eyeballs. But, of course, not every platform has a 2.5 billion-plus user base. And even Facebook, for all its size and scale, is challenging itself with how to expand and create new value to create more user engagement.

“People use Facebook for all kinds of purposes today,” Aberman continued. “The question becomes how to create deeper, more valuable relationships.”

The answer for Facebook, and any platform that has acquired critical mass and is looking to scale it, is about building very specific experiences around particular use cases: Building the monetizable ecosystems within the ecosystem.

Russian Nesting Ecosystems

Facebook, Aberman said, is never going to charge users for access to its content platform. It would be illogical to do so. Charging a fee would drive off users in droves, and Facebook certainly makes a lot more money charging advertisers for access to those users to whom it offers a free service.

But, he noted, if one clicks over to Facebook for Business, there is a paid service — a subscription model that charges $3 per user per month. Facebook is hoping to leverage the power of the platform it’s built — and its status as a trusted authentication source for users — and monetize it by offering access to workplace-specific functions, such as chat and document sharing, that provide a service and keep users sticky.

While Facebook provides easy examples, Aberman said, it’s not unique. The goal, he noted, is to provide value around a specific feature and function, which is as relevant to Facebook’s dating and business services as it is to scheduling and inventory management on platforms that enable buyers and sellers to do business.

It’s also where Aberman said that platforms are beginning to tap into the power of subscription services. Many of them are using this new business model to charge users commensurate to the value of accessing the software or services that a firm provides, inside a platform they may also access for free for other purposes.

Take Facebook and dating as a hypothetical.

Users have free access to Facebook today, but perhaps in the future, they will opt into paying a monthly subscription fee to access the site’s dating ecosystem. They’ll pay because of the access to vetted potential mates, who have been authenticated as the real deal on the platform. While there, perhaps they will take advantage of other services — like booking a restaurant reservation, buying a new dress for a hot date or booking a weekend getaway. These potential interactions all leverage Facebook, the platform and its free access, with monetization happening inside the ecosystem on top of Facebook’s platform.

The question for these platforms, Aberman told Webster, is how deep they want to go when payment-enabling these new models and sources of value.

The Question of Mediation

On one end of the spectrum, Aberman said, there are commerce platforms like Amazon that very much want to be the central payments intermediary. They are the merchant of record, and, Aberman said, they don’t just want to be where customers find things; they want to be the entity with which they are transacting — full stop.

For instance, eBay is now moving in that direction. After years of functioning mostly as a platform to connect buyers and sellers (albeit with protections for each baked in), using PayPal as the payments intermediary, eBay is stepping into the merchant of record role and directly mediating the transactions.

That, Aberman said, can work well in an explicitly retail context.

But it doesn’t work quite as well in more complicated ecosystems — or, at least, Aberman noted, it’s a less proven method. Building out a more curated experience and drawing consumers into contexts where commerce feels like a more natural fit is a big opportunity, but it’s not one without costs and a heavy lift to manage payments as part of the platform.

“The deeper these platforms get into payments,” Aberman said, “the more operational overhead they take on.” That means not only accepting payments, but also paying out money to suppliers, which is complicated even when things go well. “But it’s a rare ecosystem that wants to get in the middle of every dispute someone has with their contractor who booked and paid for that service on a platform,” he continued.

Take Yelp, Aberman said: The company has branched into areas like home repairs and other local services. It’s happy to offer the platform to match buyers and suppliers, but stops short of being in the middle of that transaction.

“Yelp wants to get close to [the transaction] without having to directly mediate with every plumber, electrician or chiropractor,” Aberman said.

Instead, he said, Yelp prefers to be a commerce platform that can extend the matchmaking to include payment, without having to directly mediate the payment, since matchmaking — not payments — is its core business.

Some platforms, Webster and Aberman agreed, have the problem in the opposite direction. MINDBODY’s customers, for example, understand it as a transactional app — the payments engine that sits underneath the apps and allows them to make appointments at the gyms and salons they already favor. But it may be a challenge to follow the OpenTable model of transitioning from a payments enabler to a digital marketplace that customers use as a starting point to search for spas, gyms and hair stylists – and then book and pay for services.

The Top of the Stack

Facebook has often said that it views itself, in some ways, as a global communications utility, Aberman noted — which is a good role for the company and speaks to just how wide-ranging their reach is.

The problem, he continued, is that by becoming the public square, Facebook and other similar connecting platforms run the risk of falling into the background, or “to the bottom of the stack.” Customers like going to the square to see all the neat and cool things on display, but the public square itself kind of fades into the background. Consumers are there to interact with all the cool stuff, which, in the case of social media platforms, includes the third-party apps deployed in its ecosystem.

Facebook makes plenty of money charging all the people in its square for access, Aberman noted. But, like all platforms, it also wants to be at the top of the stack it created. These firms have a strong motive — for reasons that include profit and beyond — to also be the entity that offers the most specialized and interesting features and services available in their ecosystems. They also want to be the entry point for how users find and use those services.

Building those services is difficult – particularly when they are transactional and involve payments. But, Aberman said, it’s necessary for future-minded platforms, especially those that have already done the hard work of gathering the parties to their sites.

“The natural starting point is a destination where people go to explore,” he explained. “The natural evolution is that it is no longer a destination alone, but is also the conduit to making a purchase.”

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