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The Platform Economy: A Deep Dive Into Digital Business Models

Adamou Boubacar Amadou

Table of Contents

Introduction

The platform economy model is transforming the way we do business.

Today, some of the biggest companies in the world are platform businesses—from Amazon to Apple, Google to Facebook.

Platforms have created new ways for people and businesses to interact, networks have been made more valuable than their individual nodes, and consumers are now able to access a wide range of products and services from one trusted source.

But what does this mean for your business? What are the implications of a platform economy for you and your customers? What are the key characteristics of successful platforms, and how can you build one yourself?

In this article, we'll explore why companies build a platform business model and why it's so important to do so.

We'll look at some of the biggest platform success stories—from Amazon to Apple, Google to Facebook—and discuss what they did right and the implication for users.

We'll also look at the impact of platforms on business, technology, and society as a whole.

What Is A Platform?

A platform is not merely a website.

It's a business model that enables you to create value for your users and other businesses.  A platform can be a website, but it doesn't have to be.

It could also be an app or even hardware (like Amazon's Echo).

Unlike a regular website, platforms are digital business models that connect together people, businesses and organizations in order to create value.

They make connections between value creators and value extractors, earning a profit either in commission or through advertising.

These connections might be physical, like the Uber app connecting passengers with drivers, or they might be virtual, like Facebook connecting friends with each other and advertisers.

As for what makes a platform different from another digital business model, there are two  key characteristics:

  • Platforms are open or closed (or both). Examples of open platforms include Uber and Airbnb; examples of closed platforms include Amazon and Apple's App Store. The difference between them is whether third parties can develop their own apps on top of the parent company's infrastructure (open) or not (closed).
  • Platforms can be centralized or decentralized in nature. Centralized platforms like Google Search require users to use one dominant search engine to find what they need online—this makes sense because Google has more data than any other search engine service provider. Decentralized platforms like Ethereum enable companies without many resources to build scalable applications using blockchain technology without having access rights issues."

Platforms benefit enormously from network effects; the more people that use a platform, the better it is for everyone else who also uses it.

What Are The Benefits Of Platform Business Models?

The primary benefit of a platform business model is that it reduces transaction costs for all parties involved. This can be achieved through lower prices and/or higher quality, greater availability, or better customer service.

For example, if you're a hotel chain and are looking for ways to increase revenues per customer, starting a travel agency would likely be one of your strategies.

As an agency owner, you will earn a commission on each booking made through your website or app rather than having to pay third-party commissions as in other industries (e.g., insurance).

With fewer intermediaries between you and your customers—and therefore fewer transaction costs—you can offer customers more competitive prices while still generating enough profits to keep going strong!

Platforms can help companies gain a competitive edge, so it's worth considering them in the context of your business model.

Platform business models also allow businesses to improve their customer experience by connecting users with similar interests through social networks or providing them with products tailored specifically for their needs.

Using data analytics firms such as Salesforce can help companies optimize their processes across all departments so that they can deliver personalized solutions quickly and efficiently without requiring additional manpower from employees at each department level within the company itself.

Do I Need To Be A Software Expert To Run Such A Business Model?

You don't need to be an expert in software or hardware to run a platform business model.

The platform economy is not just about software, but it is about connecting people to each other and creating value for all involved parties.

It's all about data-rich environments, openness to innovation, and acting as an enabler of other people's ideas and businesses.

On an individual level, there are many technologies to help you on your platform business journey.

Besides, you could also be supported by technical teams when it comes to developing and deploying your platform if need be. Essentially the only requirement for anyone wanting to embark on the platform business model journey is the willingness to develop worthwhile solutions for users.

Which Businesses Are Already Running This Type Of Model?

You may be wondering, "How do I know if my company is a platform?"

Well, there are many businesses that are already running this type of model.

For instance, Amazon is a platform business because it has a marketplace where other sellers can list their products for sale.

Airbnb is also an example of a platform business because it lets users offer accommodations for those who need them.

At this point in time, there are many examples of digital platforms out there running at scale—but not every company with an app or website can be considered one.

The platform business model is a powerful one, but it's not for everyone.  If you're thinking about adopting this type of approach, here are some questions to ask yourself:

  • Do I have access to valuable data?
  • Can I use that data to deliver value to other people or businesses?
  • Do I have a network of people who rely on me as a platform to reach their goals?
  • Do my customers expect to use a platform?

If the answer is yes, then you might have an opportunity to build a successful platform business model.

If the answer is no, keep working on your core product or service.

The platform business model isn't for everyone, but it can be powerful if you have the right ingredients in place.

Is It Right For My Current Business Model?

There are several factors to consider before deciding whether your business is a good fit for platforms. First, you should look at the size of your customer base and how it will grow over time. Platforms need large numbers of customers to be viable, so if you're only selling a few products or services, this model might not work for you.

Second, consider how much control over pricing and distribution channels you want to have. Many platform businesses operate in a highly competitive environment, which means they must be able to adapt quickly.

Third, think about how much maintenance it will take to manage third-party relationships and customer complaints.

On the flip side, if these factors don't worry you too much and your business is already successful, platforms could be an excellent way to expand.

Platforms Are Everywhere, And They're Not All The Same.

Platforms come in all shapes and sizes, so there's no one-size-fits-all approach to building one. Some platforms are open, while others are closed. Some platforms make money by selling ads, while others charge fees or subscription fees to the users of the platform.

Some platforms are for individuals (e.g., Airbnb), some are for business (e.g., Amazon Marketplace), and some exist somewhere in between (e.g., Etsy).

Other platforms serve as a marketplace for businesses to sell products and services (e.g., Shopify).

You can even think about platforms across industries—for example, Uber has created new markets by connecting drivers and riders through an app.

What's Driving The Growth Of Platforms?

We are in the midst of a digital revolution.

And while the pace of technological change is fast and unrelenting, there's one thing that won't change: our desire to buy goods and services online.

In fact, according to Allied Market Research, by 2030, digital commerce will be a $17,53 trillion industry— with e-commerce growing at a CAGR of 15.1% from 2021 to 2030.

And this isn't just about buying things online; it's also about how people expect their shopping experiences to be structured.

The rise of platforms like Amazon Prime or Netflix has changed how we consume media content.

Online platforms allow consumers to access products from multiple sellers quickly and conveniently—and often at a lower cost than brick-and-mortar stores offer them for offline purchases.

The rise of Internet connectivity has led us into an era where platforms have become central players in business strategy planning because they provide access to vast markets with minimal investment required by any individual company involved in these digital ecosystems.

As a result, platforms have become the key to success in today's business world.

How Much Of The Economy Is A Platform?

As the platform economy continues to grow, it's important to understand its impact on traditional businesses and economic theory.

The most common approach is to look at digital platforms as an additional layer of the market economy: they sit atop their partners' existing products or services, adding value and enabling increased consumption.

This model is consistent with older theories of competition among producers (think Adam Smith), but there are other ways that platforms can be used to create value for customers and partners, disrupting traditional business models while still adding value.

In his book Platform Scale: How an emerging business model helps startups build large empires with minimum investment, Geoffrey G. Parker describes platforms as "fundamentally new economic entities." He goes on: "The goal of platform scale is to ensure the simultaneous scaling of quantity and quality, of interactions." and adds, "We are not in the business of building software. We are in the business of enabling interactions."

In 2016, researchers Peter Evans and Annabelle Gawer set out to estimate the size of the platform economy.

They arrived at a global mark of around $4.3 trillion, though they highlighted the difficulty in quantifying the market's value due to a lack of reliable data and definitions that vary depending on what type–or types–of platform people are talking about.

They also noted many 'free' services available on some platforms, which makes defining their worth difficult too.

The global platform economy, which revolves around a handful of companies, including Apple, Amazon and Microsoft, among others, has grown to an industry value exceeding $7 trillion, according to a report by Consultancy.org.

The rise of the platform economy has brought both positive and negative effects, according to a recent report.

On one hand, platforms allow consumers more choices in products or services.

On the other hand, many people are struggling in today's workplace as traditional jobs become automated by machines—so much so that income inequality is at an all-time high.

Many analysts have criticized the negative aspects of platforms, such as extensive personal data extraction and privacy breaches.

Winner-take-all monopolies for big companies that can afford to pay for all the necessary computational power—large companies enjoy monopolies over certain industries—whereby smaller competitors are forced out of business—while many workers struggle to find or retain a job due to so much work being done digitally; thus making them vulnerable for exploitation.

Decreased social cohesion due proliferation of anonymous bots masquerading as real people from social media echo chambers and fake news.

While many seem to have benefited from the convenience and efficiency of online platforms, others have been harmed by this development: some consumers feel safer with more human interactions, while others experience anxiety because they cannot escape their digital existence.

In response, the report recommends that governments take action to establish ownership rights over data, and enact legal and regulatory updates to balance interests and address proportionality.

It also encourages platform-neutral regimes in order to avoid abuse of power, as well as improved transparency audits for platforms.

KPMG Data Platform Economy

How Have Platforms Changed The Rules Of Business?

Convenience, low prices and personalization have made the internet a global marketplace for goods and services.

Algorithms make it possible to use data from hundreds of sources to predict trends before they become visible in market research.

Online ratings give consumers more power than ever before when making important decisions about what products or services are best for them.

The internet has transformed the way consumers shop and businesses interact with their customers.

But as more people turn to online platforms for everything from groceries to transportation, the rules of commerce are changing.

The explosion in online shopping has led to new ways of doing business.

E-commerce platforms such as Amazon, eBay and Alibaba have dramatically reshaped global trade by making it easier for producers and consumers around the world to connect.

However, the rise of e-commerce has also created new challenges for regulators.

The rapid growth of online shopping has left governments struggling to keep up with the pace of change.

Who Benefits Most From These Changes In The Way We Do Business?

The changes have benefited consumers, who now have access to an unprecedented number of products and services at lower prices but also firms who now have access to a larger market.

Businesses can easily reach more customers than ever before through platforms like Facebook or Google Ads that are built specifically for advertising purposes.

In addition, many companies have been able to increase their profits by using digital technologies such as machine learning software that allow them to target consumers with very specific offerings.

But the biggest beneficiaries of these changes are the firms themselves. Technology has allowed businesses to operate more efficiently, reducing costs and increasing productivity.

Many companies have been able to use these savings to offer higher wages or better benefits.

In addition, many firms have used technology as a way to create new products or services that help consumers be more productive in other areas of their lives.

What Are The Risks Associated With This Rapid Growth Of Platforms?

There are three main risks associated with the rapid growth of platforms.

The first is that firms will use their power in ways that harm consumers or other businesses.  For example, Amazon has been accused of using its dominance to prevent competitors from selling on its platform.

This can lead to higher prices for consumers and fewer choices for shoppers.

The second risk is that platforms will use their power to unfairly discriminate against certain groups or individuals.

This could include charging different prices for similar products or services based on the customer's race, religion, gender identity or other protected traits.

The third risk is that platforms will use their power to influence public opinion.  For example, Facebook’s data breach has been used to target voters with messages that are likely to change their political views.

Platforms have the power to affect our lives in many ways.  We need to be aware of this, and we should work together to create policies that help keep platforms accountable while still giving them the freedom they need to innovate.

Conclusion

The platform economy is here to stay, and it's changing the way companies do business.

The best part about this new model is that it doesn't necessarily require massive investments or significant changes to how you run your current operations.

To build an ecosystem around your products or services, consider how technology can help create mutually beneficial relationships between buyers and sellers.

The platform economy can help your company grow, but it's important that you understand the risks and challenges associated with this new model.

By being aware of these issues, you'll be able to build a secure ecosystem that works for everyone involved.

It's a new world, and it's time to embrace it.

References

Market size of global platform economy surpasses $7 trillion mark. (2018). from https://www.consultancy.org/news/104/market-size-of-global-platform-economy-surpasses-7-trillion-mark#:~:text=The%20global%20platform%20economy%2C%20which,value%20of%20over%20%247%20trillion.

https://www.conference-board.org/publications/the-platform-economy

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Adamou Boubacar Amadou Twitter

Growth Specialist and Content Creator. I write content at the intersection of business and technology to help you learn while I do the same. Helping SaaS Startups Scale With Digital Marketing.