The crux of platform businesses

Prosus and MultiChoice offer two examples of what makes these companies work

- THE FINANCE GHOST

The term “platform business” tends to be overused these days. In its purest form, it means a business model that creates value by connecting two or more groups. Just think of how Meta's apps connect advertisers and social media users, or how Apple's App Store connects developers and device owners.

These businesses are incredibly valuable because they are highly scalable and become exponentially more powerful as the number of users on both sides of the platform increases.

Of course, the success of these businesses has created many copycats and platform-type businesses that are trying to channel some of this investor sentiment in their direction. But you always need to question whether they genuinely have the features that make platform businesses so powerful, such as network effects and improving unit economics over time. You also need to think about the likelihood of the business achieving its growth targets.

Thankfully, there are examples of platform businesses on the JSE to learn from, and two listed companies have just released updates that give us examples of where this type of business model is playing out. I've chosen a highly successful example and a struggling one, as it shows that not all platforms are created equal.

Prosus acquires La Centrale in France

As platform businesses go, Prosus is probably the best example on the JSE. The group has positioned itself as a technology giant outside the US, with exposure to numerous markets and businesses that genuinely exhibit similar characteristics to the US technology stalwarts. This is why Prosus is a significant portion of my personal portfolio.