Comparing growth and profitability of online platform businesses gives insight into a business model and its prospects says research analyst Richard Durant. In this article, Durant proposes an assessment that ranks the attractiveness of social media, entertainment, and ride-sharing platforms. He examines standouts from each platform type: Facebook, Spotify, Netflix, and Uber.
To support his findings, Durant points to the Gompertz function – an S-shaped curve that models phenomena throughout a population. The Gompertz function illustrates growth behavior and allows comparison across platforms. By inputting Facebook, Spotify, Netflix, and Uber’s data into this statistical model, interesting findings are presented about each platform’s performance. Specifically, the data shows that social networks exhibit faster growth plus have the ability to reach users faster than other platforms. This has a lot to do with network effects, which provide community benefits and increasing value to users. In addition, these data models found that paid services “generally have a higher market capitalization to total users ratio as they are likely to generate more revenue per user than advertising-based business models.”
Facebook – This social media giant’s growth is continuing to increase but may soon reach a point of market saturation, and is predicted to plateau at around 3 billion users. From a profitability standpoint, the data shows that Facebook has been able to scale revenue per user over time; however, despite user growth and revenue growth, Facebook has not expanded its profit margins.
Spotify – Data shows that this entertainment platform is exhibiting growth in user numbers with no evidence of tapering; revenue is still low because of the subscription service and advertising-based service. As more users move over to the premium option, Spotify has a better chance of revenue growth. Another variable that impacts entertainment platforms, like Spotify’s, profitability is the high bargaining power of content creators.
Netflix – Netflix user base is “reasonably strong” but maybe plateauing due to competition and saturation; user growth has the potential to increase through an international focus. Netflix experienced revenue growth decline, until deciding to pivot to the original content and an increase in user subscription fees.
Uber – The ride-sharing platform’s growth is described as “erratic,” with no clear growth patterns for the future, likely due to fragmented markets and intense competition. Uber has yet to achieve profitability because of the many variables and problems associated with the ride-sharing business model.
The conclusion presented is the attractiveness of platforms. Attractiveness dims as growth becomes stagnant or begins to decline. All platforms are not created equal, and investors should avoid overpaying for high growth companies that are not on a path to profitability.
