Why do most platform businesses prioritize building a customers base and burn instead of becoming profitable?

A large customer base is something every platform business aims to acquire, and most businesses pay a huge cost over a long period of time for it.

Businesses that created new segments or are leading a segment, like Uber, Revolut, CRED, are still not profitable or got close to it, after many years in operations and raising millions and even billions of dollars in external funds.

An interesting way to look at it is using “Pull” and “Push” approaches to building customer propositions, a combination of these two leads to the strategy that prioritizes customer acquisition over profitability.

  1. “Pull” propositions are “demand driven”, customers know what they want and will look for the proposition specifically. A simple example would be a customer going to the bank to create an account, with the objective to store funds.

These services are improved and rebundled using technology, but still perform the same traditional function with added convenience.

These propositions are usually highly commoditized, and offer very low or no margin to profit, but these demand driving offerings are absolutely essential to acquire customers, and build a strong customer base.

  1. “Push” approach becomes critical for growth once a business has acquired a strong customer base over a period of time. Businesses fund the growth through external fund raising or reinvesting the earnings into the business. For example, an ability to pay for a product online without actually going to a bank(online).

“Push” or “offer driven” approach to customer propositions, aim to leverage the customer base to push value added services that probably the customers were not looking for. These services are highly innovative and unique, and potentially command high margin.

Google is a great example of these two approaches being used over a few years. Google did not monetize for years, before their ads business started to dominate the profitability strategy.

Some business take longer; Uber is still not profitable after 13 years in business, Revolut became profitable in 2023, after more than 7 years of operations.

I believe “Pull” and “Push” approaches represent two sides of the same coin for platform business, and managing these will usually decide if a business scales and succeeds.

 

Ajay Singh Pundir

Over the last decade and half, Ajay has acquired experience across ‘Business Strategy’, ‘Sales management’, Business Development’, ‘Solution Consulting’ and ‘Research and Development’. He has been leading interactions with financial institutions, fintechs, software vendors and services organizations globally, acquiring crucial global exposure of varied financial technology markets with a focus on payments but not limited to it.

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