A lesson I learned this week about platform economics
This week, I got a Slack message that made me rethink everything I understood about marketplace dynamics.
A bakery owner in New Rochelle wanted to switch their entire point-of-sale system. They were ready to migrate from Clover a well-established POS platform to Square. The reason? They wanted to use our app.
Not for better payment processing.
Not for lower transaction fees.
Not for fancier hardware.
They wanted access to the ecosystem we’re building on Square’s platform.
The Hidden Power of Platform Economics
Here’s what struck me: Per Diem is a small startup. We’re a Y Combinator backed company helping restaurants and coffee shops build direct relationships with their customers through white-label mobile apps.
We’re competing with the likes of third-party delivery giants by giving merchants ownership of their customer data and relationships.
But in that moment, we weren’t just building our own business.
We were actively driving customer acquisition for a multi-billion dollar company Square without them spending a single dollar on sales or marketing for this particular deal.
This is the marketplace multiplier effect in action, and it’s the most under appreciated competitive advantage in tech.
How the Multiplier Works
Let me break down what happened:
1. Square builds the infrastructure.
They’ve created a robust point-of-sale system, payment processing, and APIs that developers can build on top of.
2. Per Diem builds the customer experience.
We integrate with Square’s ecosystem to give merchants mobile ordering, customer engagement tools, and direct customer relationships.
3. Merchants choose Square to access Per Diem.
The bakery owner didn’t evaluate Square in isolation. They evaluated Square + Per Diem vs. Clover + whatever alternatives exist there.
4. Square wins customers they’d never have reached otherwise.
Their sales team didn’t make this call. Their marketing didn’t run this campaign. We did. And so did hundreds of other partners in their ecosystem.
The result? Square’s competitors don’t just lose on product features.
They lose because they’re missing the ecosystem that makes the platform exponentially more valuable.
Why Every Tech Giant Obsesses Over This
This isn’t unique to Square. This is the playbook that separates the platforms that dominate from the ones that fade.
Apple doesn’t just make great hardware. The App Store has 2+ million apps, each one giving customers a reason to choose iPhone over Android.
Every indie developer building a meditation app or photo editor becomes part of Apple’s sales pitch.
Shopify doesn’t win on e-commerce features alone.
Their partner ecosystem with thousands of apps for marketing, inventory, shipping, and analytics makes switching to any competitor painful. Each plugin is another lock-in mechanism.
AWS isn’t just cheap cloud infrastructure.
Their marketplace has thousands of third-party solutions that extend their platform’s capabilities. Every SaaS company building on AWS becomes a reason for enterprises to choose AWS over Google Cloud or Azure.
The Startup Perspective: Finding Your Platform
For us at Per Diem, choosing to build on Square wasn’t just a technical decision. It was a strategic one.
We could have built our own payment processing.
We could have created our own POS system.
But that would have meant competing with Square on infrastructure while also trying to build customer engagement tools.
Instead, we became part of their ecosystem.
And in doing so:
- We got access to their existing merchant base
- We inherited trust from their brand
- We could focus on what we do best: customer experience
- We became a reason for new merchants to choose Square
The lesson for startups: Don’t just build a product.
Build on a platform that amplifies your reach.
Find the tech giant whose success is aligned with yours, and become their unfair advantage.
The Enterprise Perspective: Your Marketplace Is Your Moat
If you’re running a platform company, your marketplace partners aren’t just nice-to-haves.
They’re your competitive moat.
Every partner that builds on your platform:
- Extends your capabilities without you building it
- Gives customers another reason to stay
- Makes switching costs exponentially higher
- Turns into a sales channel you don’t have to manage
This is why the smartest platform companies invest heavily in:
- Developer relations and documentation
- Partner programs and revenue sharing
- APIs and integration tools
- Showcase marketplaces that highlight partners
Your partners are doing your sales, your product development, and your customer retention work all at once.
The Ecosystem Advantage Compounds
Here’s the kicker: this effect compounds over time.
The more partners you have, the more valuable your platform becomes. The more valuable your platform becomes, the more partners want to build on it. The more partners build on it, the harder it becomes for competitors to catch up.
It’s a flywheel that, once spinning, becomes nearly impossible to stop.
This is why AWS dominates cloud computing despite Google having arguably better technology. Why iOS maintains premium market share despite Android having more features. Why Shopify keeps growing despite dozens of e-commerce alternatives.
The ecosystem becomes the product.
What This Means for You
Whether you’re a founder, a product manager, or a business leader, understanding this dynamic changes how you think about competition:
If you’re building a startup: Stop thinking about competing head-to-head with established players. Think about which platform you can extend. Which ecosystem needs what you’re building? Where can you become the reason someone chooses the platform?
If you’re running a platform: Your marketplace strategy isn’t a side project — it’s your future. Every dollar you invest in making it easier for partners to build on your platform is a dollar toward your competitive moat.
If you’re evaluating vendors: Don’t just look at the core product. Look at the ecosystem. The platform with the richest ecosystem of partners will be the one that grows with your needs.
Building the AI Operating System for Small Business
At Per Diem, we’ve taken this ecosystem thinking one step further. We’re not just building mobile ordering apps we’re becoming the AI operating system for small businesses and franchises.
Think about the reality most SMB owners face: they’re wearing every hat. They’re the CEO, CMO, CFO, CTO, and COO all at once.
They’re managing marketing campaigns while also fixing the WiFi and reconciling inventory.
That’s where we come in. We’re giving them the executive team they can’t afford to hire:
Your AI CMO handles your marketing strategy, creates campaigns, manages customer engagement, and optimizes your online presence all automated.
Your AI Analytics Team becomes your data detective, providing insights into customer behavior, sales trends, and operational efficiency without needing a data analyst on staff.
Your AI COO manages operations from review responses to customer support, ensuring nothing falls through the cracks.
This is the future of the ecosystem play. We’re not just extending what Square, Toast, or Clover can do we’re fundamentally changing what a small business can accomplish with their existing infrastructure.
Let’s Talk
If you’re running an SMB or managing a franchise using Square, Toast, or Clover, we should talk.
The marketplace multiplier isn’t just benefiting the big platforms it’s creating opportunities for businesses like yours to operate with capabilities that were previously only available to enterprises with massive teams.
That bakery in New Rochelle understood this. They saw that switching platforms wasn’t just about features it was about accessing an ecosystem that multiplies their capabilities.
The question is: are you getting the full value from your ecosystem, or are you leaving multiplier effects on the table?
Reach out. Let’s explore what’s possible when your POS platform becomes an operating system.
Doron Segal is the CTO and co-founder of Per Diem, a Y Combinator-backed company building the AI operating system for smb’s and franchises. Connect with me on LinkedIn or visit tryperdiem.com to learn more.