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The platform is not a new concept. We have seen this in traditional settings like open-air marketplaces.
The digital platform looks new because of the digital elements added to the platform itself. Ultimately, we are back to the fact that the Internet is the main disruptor to all businesses.
Let’s look at 2 stages of how digitalization disrupts traditional businesses.
Stage 1: Efficient pipeline overcomes inefficient pipeline
Digitalization has made distribution more efficient. The first businesses affected are businesses that involve information distribution. For example, newspaper stands, bookstores, and music CD stores are amongst the first to get disrupted by the Amazon marketplace and Spotify.
Stage 2: Platform overcomes all forms of pipeline
While the Internet has created a more efficient pipeline, the platform replaced the entire pipeline.
Platforms, in this sense, have created infrastructure and do more coordination between both sides of the community, with the Internet as the main tool for the process.
That is why the digital platform has become a real disruptor to traditional business.
Impact of platform disruption
There are 3 main impacts that a platform business do, and it’s very different from a traditional business:
- Value creation: Creation is no longer from the supplier, but everyone is a supplier. Wikipedia has volunteers to supply the knowledge, homeowners become suppliers of rooms in Airbnb, and Grab allows car owners to become drivers.
- Value consumption: There are new ways to consume value when digitalization comes into play. For example, Grab users knows exactly when their rides are coming. Shopper buyers know exactly where their parcel is in the delivery.
- Quality control: The community becomes the quality in ensuring quality products. For example, Grab users can provide feedback on their rides, and drivers can also provide feedback on the riders.
The platform also disrupts the business structure
The platform business has also affected business structures due to the difference in the pipeline being replaced.
Assets are no longer linked to value: Platforms can ensure that assets are not part of the value creation. Assets are now on the platform to be shared from the supplier to the users.
Middlemen are removed: Traditional businesses like insurance and travel agents are likely to be affected due to digital platforms like FWD and Skyscanner. This effect is also known as re-intermediation.
Aggregation: Because platforms are centralized, data is aggregated in a single source. We can see this in Amazon and Alibaba, where they can discover consumer behavior in a single platform.
How pipeline businesses can get into platform businesses
While most pipeline businesses can’t turn into full-platform businesses, they can transform a segment of their business into a platform. They must look at their pipeline to determine which area of their business process can be open to platform business.
We can see this in Nike working with FuelBrand, where they build a fitness ecosystem, and Apple, as a pipeline business, produces iPhone and create an Apple store, which is a platform.
So since there are benefits in going platform, how should a business proceed? What should they look out for?
What to look out for when designing a platform business
Businesses should consider 3 things:
- What is the business process for attracting both sides?
- How complex would be your platform system?
- What is being exchanged?
Let’s look deeper into 3 things that are being exchanged.
3 things are being exchanged in a platform:
- Exchange of information: Exchange of information is the most common. We see this on Facebook, TikTok, and Instagram, and we go to these platforms to share and exchange information.
- Exchange of goods and services: This is commonly seen in Amazon Marketplace, Shoppee, and Lazada, where we go to platforms to look for goods and services. Lalamove is a service to deliver.
- Exchange of currency: The most obvious one would be PayPal, where we see an exchange of currencies. Even Airbnb is part of the process as they also process transactions. Currencies are also in the form of social currencies like followers and likes.
Core interaction of the platform business
It is important to find out the core interaction of the platform business. Without the core interaction, there is no platform business.
Defining the core interaction helps to answer the “why” in the platform business: Why do the users want to visit your new platform? Why will they want to be involved in the value exchange?
There are 3 key components in a core interaction, and it’s illustrated in this diagram.
- Participants: What are the roles? It is usually the suppliers and users. Identifying your key roles is important
- Value units: The value that is being exchanged. The supplier in Airbnb could be the room listings where the users can decide to take exchange the value unit
- Filters: Filter is mainly the role of the platform. As many value units are available, the platform’s filters will enable the user to search and filter what the user wants. It can be a manual search or an algorithm to filter the user’s wants. In Grab, the user can search and filter where they want to be picked up, and Grab can also use an algorithm to determine the nearest drivers.
All 3 components need to work together to create the core interactions.
For example, in Airbnb, there are 2 sides of participants: Hosts and guests. The value units are the rooms from the suppliers. Airbnb as a platform will enable the function to search and filter the rooms’ availability based on the users’ needs.
Now we can easily answer the “why” in the platform business: Why do users want to use Airbnb? Based on the core interaction, the availability of the rooms attracts users, and the users are willing to exchange the value. Airbnb software help users find the rooms they want based on filtering.
As you can see, platforms don’t create value. Suppliers create value. Platform plays an important role in filters; in reality, platforms are “information factories” and quality controllers.
How to design the platform
Now that we understand the “why” of the platform business, it’s also important to understand the “how” of the platform business.
In short, users know “why” they are attracted to the platform. The next challenge is attracting and keeping them in the core interaction. In designing the platform, the platform must pull the users to the platform and keep them “locked in.”
There are ways to attract users to the platform, but the most common practice is that the platform will first entice the suppliers, and once they are onboard, they will attract the users. On top of that, the platform business needs to work on 3 factors: Pull, Facilitate, and Match to ensure the platform core interactions are going on.
Pull
It is also important then when the platform attracts users, it should also allow them to participate in the platform with the feedback loop. The feedback loop allows the users to play a part, a skin in the game, and also it will enable quality control.
Facilitate
The platform business should also allow easier interactions and yet provide guidelines for the interactions. For example, Facebook only allows “Like” as an emoji interactive response for user posts. It took them some time to gather feedback and add 4 more emojis as additional responses.
Match
Platform businesses must provide filters and search to allow users to find what they want. This should be done with an algorithm to provide a better experience. We see this in Amazon, where they have a section “Users also search for” in addition to the user’s search, providing a better experience of knowing what others are thinking.
Growing from Pull, Facilitate, Match
Once the platform is in place and running, platforms can also grow in improving users’ experience (e.g., Facebook adding emojis) or adding additional services to expand more services available for the users. For example, we see that LinkedIn started as a professional networking platform. Later, recruiters and advertisers are added to the services, allowing LinkedIn to share information as “thought leaders.” Users’ experiences are improved with new value units and categories of users.