Platform value offers companies the opportunity to leverage a relatively new type of value and really disrupt market dynamics. Platforms have disrupted numerous brick and mortar companies and are ploughing their way through many industries.
Most incumbents are completely unaware of what these disruptive platforms might look like. The question is, will your company be the disruptor or is an existing or new competitor going to disrupt your market by offering platform value before you do?
Whereas traditional business has been done by one company selling products and services to a customer, the platform changes these fundamental peer-to-peer dynamics of doing business. Platforms uncover new sources of supply and demand and create network effects. This empowers exponential numbers of buyers and sellers to engage through the platform. The more users on the platform, the more powerful and valuable it becomes.
There are many manifestations of the platform business model, but essentially it presents new possibilities to create business value and competitive advantage, with some obvious examples being Uber, Facebook, Amazon and Airbnb.
There are Transaction platforms, which facilitate transactions between different types of individuals and organizations, such as Uber and payPal.
There are innovation platforms, which consist of technological building blocks that are used as a foundation on top of which a large number of innovators can develop complementary products and services, such as SAP and SalesForce.
There are integrated platforms, which are a combination of transaction and innovation platforms, such as Alibaba and Google.
Finally there are Investment platforms where companies have developed a platform portfolio, such as Naspers and Priceline.
The unique aspect of the platform model is that you don’t need to be the buyer or the seller. Look at Uber. As a company they own no cars, employ no drivers and take no rides. But they facilitate the engagement between cars, drivers and passengers and make money from that.
Most traditional companies are thinking “how can we sell?” whereas platform innovators are also thinking, “how can we connect buyers and sellers?” This mindset is what separates digital economy thinkers from traditional business thinkers.
It’s important to understand that the value of a platform lies not in the technology, but in the extent of activity between the platform users. While we all know about some of these platforms, it will be a challenge for many incumbent organisations to consider how they could possibly make money from a platform model that doesn’t involve them selling their products or services to customers.
To create a platform model business, a company needs to provide the foundation (or platform) and tools upon which others can build and add value. Until that value begins to grow the platform itself has no value. For example, without drivers and passengers, the Uber platform has no value. And without people wanting a place to sleep and people with beds to rent, Airbnb’s platform would have no value.
When considering the platform model, answer these fundamental questions:
- What will the platform supply?
- Who can provide the supplies?
- Who will need those supplies?
Then you need to consider how can you make money from that. For example, Uber divides the fare of a ride by paying approximately 80% to the driver and 20% to itself.
What’s important in Uber’s platform business model is its value propositions to both of its user-types, which are customers (the passengers) and suppliers (the drivers).
- There is No need to wait for a taxi for long times.
- They can conveniently book a ride using your mobile device
- They enjoy Free rides on certain occasions and discounts from time to time.
- Prices are lower than the normal taxi fares.
- There are Fixed prices for common places like Airport etc.
- They enjoy an additional source of income.
- They have Flexible working schedules and can work part time or simply whenever they like.
- A digital payment process is provided
- People who love driving can earn money while pursuing their hobby.
- Uber pays drivers to be online, even if they don’t get any request.
Of course after establishing your platform business model, you need to consider the technology that underpins it. This requires smooth inter-operability between core functionalities which collectively make the experience between buyers and sellers possible. Key components include a customer app, a supplier app, a platform dashboard and the ability to use data to perform smart tasks such as the surge pricing that Uber uses.
The Platform business model represents some of the the most outstanding players in the digital economy, along with many we don’t know about yet. It is one of the most fundamental shifts a company can make in the digital economy, but adopting the model also calls for a fundamental shift in business thinking.