It's Not Just About Reducing Friction
The Hidden Key to Platform Success
Have you ever wondered why some online platforms become huge successes while others fail, even when they seem to solve similar problems? I've been thinking about this a lot, and I want to share some simple but powerful ideas with you.
Garvit Sahdev enjoys understanding the ideas that shape our world. The Thoughtful Tangle is an initiative to share this journey and experience with friends who love to do the same. He selects one idea and dives deep into it to understand its basics, relevance, impact, and opportunities around it.
Many people think that making things easier (reducing friction) is all you need for a successful platform. While this is very important, it's not enough by itself.
Think of it like this: removing obstacles from a road helps traffic flow, but you also need reasons for people to use that road in the first place! Successful platforms need other things too, like:
Network effects (the platform becomes more valuable as more people use it)
A fair balance of value for everyone involved
Creating Value by Cutting Transaction Costs
When platforms reduce transaction costs (the time, money, and effort needed for people to do business), they create value in uneven ways. This is good!
Take Alibaba, for example. Before Alibaba, small businesses in China struggled to find trustworthy suppliers and buyers. Alibaba made this much easier, creating enormous value for these small businesses that had been facing huge obstacles.
Focus on the Biggest Pain Points
Not all friction is created equal. The bigger the problem, the more value you can create by solving it.
The best opportunities come from markets with:
Many scattered buyers and sellers who can't easily find each other
Trust issues between parties
High costs to complete transactions
When a platform solves these major pain points, it creates a much bigger "value pie" that everyone can share.
Growing the Value Pie, Not Just Slicing It
This is super important! A successful platform needs to create enough total value so that:
All participants (buyers, sellers, etc.) get enough benefit to make it worth joining
The platform itself can take a share and be profitable
If the pie isn't big enough, someone will end up unhappy and leave.
When Uber entered the transportation market, they didn't just redistribute existing value—they grew the entire pie.
Before Uber, the taxi market had a fixed size: limited medallions, set prices, and predictable demand. Uber created new value by:
Allowing car owners to monetize their vehicles during idle times
Making rides available in underserved areas
Reducing wait times through an efficient matching system
Creating transparent pricing and ratings
This expanded the total transportation market value significantly.
Some Friction Doesn't Matter
Here's something many platform creators miss: small inefficiencies might not be worth solving.
For example, in countries with good banking systems, switching from card payments to mobile payments might only save a tiny amount of time or money. That small improvement may not be enough to make people change their habits.
Don't Try to Solve Non-Problems
This happens more than you might think! In the early 2000s, many B2B (business-to-business) exchanges in the US failed because they were trying to solve problems that weren't there.
Existing tools like fax machines, established networks, and industry trade shows were already working well enough. The new platforms didn't create enough extra value to make businesses switch.
Do Your Homework: The Pre-Launch Friction Audit
Before launching a platform, smart entrepreneurs should carefully figure out:
Which specific friction points will their platform address?
How much can they reduce these frictions?
How much value will this create?
Whether this value is enough to satisfy all participants AND make the platform profitable?
Real-World Examples
Success Story: Airbnb - Before Airbnb, renting out your spare room was complicated, risky, and hard to market. Airbnb drastically reduced these frictions, creating enormous value for both hosts (who can earn money from unused space) and travelers (who get unique, often cheaper accommodations).
Failure Example: Many Food Delivery Platforms - Some food delivery platforms have struggled because the frictions they reduce (ordering convenience) don't create enough value to satisfy restaurants (who pay high fees), drivers (who need fair wages), customers (who face delivery fees), AND make the platform profitable.
Conclusion
Reducing friction is necessary, but not enough by itself. Successful platforms focus on major pain points that create substantial value when solved. They ensure this value is large enough to satisfy all participants while remaining profitable.
If you're building a platform, don't just ask "Does this make things easier?" Instead, ask "Does this create enough new value to make everyone involved happy, including us?"
The platforms that understand this principle are the ones that change the world.
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