Across myriad enterprises, digital platforms are becoming more widely accepted but vary on business need. Some support broad, horizontal markets; others target business functions or industry sectors. For example, a company like Airbnb empowers trust between market participants and reduces information asymmetry. This can drive down the cost of delivery the service. And the platform can deliver a rich customer experience through technologies that create a personal link between provider and buyer.
A few platform considerations
As market dynamics change, organizations must figure out how and where to create or engage with emerging platforms to create new forms of value. But where do you start? A few things to keep in mind:
- What’s on the periphery becomes the core: Digital technology can turn non-core services into sources of customer delight and value. Uber, for example, doesn’t employ drivers or own cars. But it brings untapped social, economic, and environmental value to the market by connecting consumers with formerly idle assets. It also provides an efficient payment infrastructure, real-time vehicle location tracking, and a self-governing system of rider and driver reviews. In the digital world, where interactions complement transactions, under-utilized assets can play a central role in a rich service experience.
- Lower costs atomize operations, giving individuals more control: Technology helps resolve transaction costs, which are often a barrier to entry. Such atomization gives individual more control unleashing the flexibility and dynamism of the “franchise of one”. This then spawns sole proprietorships that appear as full-fledged, vertically integrated companies. By using digital technologies, peer-to-peer lending services like Zopa and crowdfunding platforms like Kickstarter, individuals can become financiers and angel investors.
- Information asymmetry presents opportunities: Information asymmetry can cause the better-informed party to exploit the other. Platforms, on the other hand, democratize information and create transparency with real-time reputation mechanisms that build trust. When designed well, rating systems, feedback opportunities, and provider profiles improve transaction efficiency by helping platforms identify and promote quality sellers.
- Platforms shape next-generation models where winner takes all: Scale and a near-monopoly market share are in the DNA of successful platforms. The valuation difference between Uber (at $62.5 billion) and its nearest competitor Lyft (at $5.5 billion) reflects how the “network effect” creates big winners for those who are first to market with the best solution.
These are only some of the examples of the proliferation of platform models across a range of businesses, ones with valuable lessons for entrepreneurial organizations, and ones that need or want to evolve. The water’s warm, and competition’s only going to get hotter. It’s time to dive into the platform economy.
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