Winning in the multi-trillion dollar platform economy
The digital platform economy is expected to generate an estimated $10 trillion in socioeconomic value through 2025. The number looks quite optimistic when we realise that Alphabet (Google), Facebook, and Amazon alone have a combined market cap of more than $2 trillion. It is clear that Digital Platforms will unlock phenomenal new commercial opportunities for all types of industries – get it right and one could transform industries and societies in a matter of years. However, building successful scalable Digital Platforms is a tough job - the success of future Digital Platforms will largely be dependent on their ability to introduce new transformational business models, whilst promoting an environment of inclusion, constant innovation and personalised experiences to unlock their share of multi-trillion dollar Digital Platform economy.
Many may think Digital Platforms are a new supernatural tool to unlock magical streams of revenues, but looking at them closely we realise the concept of “platforms” is not new at all. Big or small - Platforms have existed long before the introduction of digital technologies and have been instrumental in driving growth through all economic cycles. For example, prior to the arrival of digital technologies, retailers such as Walmart were the physical platforms of their age connecting manufacturers with consumers. Similarly, for the past 1000 years, London’s Borough Market is successfully working as a premium physical platform for the suppliers and buyers of quality food products.
However, unlike their physical predecessors Digital Platforms thrive on delivering borderless and time neutral value to suppliers and users of products and services through a single, convenient point of access. Digital Platforms not only have the ability to drive growth and increase market share for the Platform Owner, it is their network effect that creates massive value for all platform participants, which is transforming global economies across all industries.
Building and running a successful Digital Platform is a collaborative effort. Digital Platforms flourish on creating an Ecosystem of value for all platform participants. The below diagram explains the Digital Platform Ecosystem and its participants.
Look at any successful Digital Platform and you would realise that its foundations are deeply rooted in the successful implementation of Digital Platform Ecosystem.
For example, Apple’s App Store platform deploys the Digital Platform Ecosystem model to unlock value for all stakeholders. From games to news to streaming to E-commerce and a lot more, it offers the Demand Side Users unlimited choice through a single, convenient point of access. To its Supply Side Users it offers a single place to reach millions of users in order to sell their products, services and advertisements. Lastly, it creates jobs by inviting people and companies offering digital and technical skills to sell their services through building solutions for the platform – as a result, the App Store platform users downloaded 2.1 million apps in 2018 and gave $46.6 Billion in revenue to its owner (Apple) and supply side users.
Building a profitable Digital Platform is a complex, challenging and time consuming task – it doesn’t happen overnight. It requires hard work, determination, patience and continuous cash flow to reach a critical mass and become profitable. Very little is known about the challenging beginnings of the now multi-billion Airbnb platform and its owners’ out of-the-box solutions to keep the platform moving – like selling special edition cereal boxes back in 2008 to raise $30, 000, to help fund Airbnb website.
The world of Digital Platforms is still relatively new and offers tremendous socioenonomic opportunities for everyone. If you are a new entrant or couldn’t get your platform right the first time, there’s still time to fix things and unlock value. However, considering the noise and clutter around Digital Platforms, it could be frustrating to understand the simple and logical practice one could apply to reduce risk and increase Digital Platform success. The commercial success of companies such as; Amazon, Google, Airbnb and Uber can be attributed to a simple yet powerful strategy; creating a role and digital business model around a fragmented or saturated market by aggregating services into a single, universal Digital Platform.
In principle, all successful Digital Platforms fall into one of the below three categories;
i. On-Demand Platforms / Sharing Economy
ii. Matching Platforms
iii. E-Commerce, Cloud and Digital Payment Platforms
While all Digital Platforms shall offer commercial return, it’s critical for a Platform Owner to clearly establish the nature and type of their Digital Platform before investing in it. The below Digital Platform Characteristic Model may help to speed up the efforts.
After identifying the nature of a Digital Platform, the Platform Owner shall look at the key attributes that enable a platform to acquire critical mass and become valuable for its owner, users and partners. A Platform Owner could follow the below three simple success metrics to build their Digital Platform and unlock commercial value faster.
1. Promote Inclusion:
Before the Digital Platforms arrived, some interactions were so expensive that a market for them simply did not exist. Two types of interactions fall into this category. First is when two parties to a potentially beneficial interaction simply didn’t know about each other and faced tremendous search and information costs. Second is when one party had a lot more information than the other and in the absence of trust and transparency interactions didn’t take place. Consider a small company that cannot connect with a potential buyer in another country and does not know whether to trust a new business partner. Or a freelancer willing to perform tasks for a fee. Or a homeowner looking to rent her spare room to local visitors. By reducing the cost of acquiring information and making more information available transparently, Digital Platforms help to overcome these information barriers. While they make the market more efficient, the biggest benefit seems to be their market creation effect; expanding trade, creating jobs, and increasing access to private and public services – and thus promoting inclusion.
Successful Digital Platforms offer three-sided inclusion. First they remove the information barrier for demand side users (buyers) and open access to new markets through enabling new interactions. Second they open new trade opportunities to supply side users (sellers) through opening access to new relaible customer interactions. Third they offer new social and commercial opportunities to external industries (partners) to enrich the platform and fulfil the needs of demand and supply side users.
Waze the world’s largest social data based traffic and navigation app, which was bought by Google for $1.1 Billion, demonstrates how three sided inclusion can help a platform unlock growth and commercial value. Waze improves the journeys by providing drivers (demand side users) real-time, proprietary incident and slowdown information directly from the source – drivers themselves. It offers businesses (supply side users) to reach new customers by providing location based local advertisements. And through its free connected citizen programme, it enables cities, departments of transportation and first responders (partners), to develop new road management and measurable congestion reduction solutions.
For example, Waze partnered with EENA to help understand if, and how, using traffic data could help improve emergency response operations. In an incident causing high traffic disruptions due to a fire in the middle of motorway, EENA helpline was receiving a lot of calls and the information obtained from the calls was not useful. The EENA operators decided to share the incident information on Waze and the number of received calls decreased instantaneously.
2. Promote Continuous Mass-Innovation:
Digital technologies are changing our lives faster than ever before. Each day, we send 207 billion Emails, watch 8.8 billion YouTube videos, perform 4.2 billion searches on Google, complete 15 million trips on Uber and make 36 million purchases on Amazon. It’s clear the true value of digital technologies comes from changing the lives of masses and not some. One should carefully examine and refine their Digital Platform proposition before commencing any work. A Digital Platform proposition promoting continuous mass-innovation attracts more demand side users, supply side users and partners, thus creating virtuous value effects for all ecosystem participants. Not every Digital Platform needs to be or could be a trillion dollar enterprise, there will always be a handful of those. However, developing a Digital Platform that offers continuous Mass-Innovation could certainly help unlock significant growth and commercial value.
For example, South Africa’s eHealth Platform RecoMed, identified a patient need by observing 1M+ monthly doctor related searches. The company saw the mass opportunity of assisting patients to find and make appointments with quality healthcare providers 24 hours a day, seven days a week without any phone calls or paperwork. RecoMed applied further innovation to its platform by integrating it to large scale healthcare solutions, such as use in wellness screening days, chronic disease management programmes, and coordinating insurance medicals. The company has become South Africa’s largest and fastest growing online healthcare booking platform with over 100,000 patients and 1,500 providers connecting with each other every month, whilst delivering an annual revenue of over $19 Million.
To develop a Digital Platform proposition promoting mass-innovation, a Platform Owner may use the below Digital Platform Continuous Mass-Innovation Framework.
3. Promote Personalised Experiences:
In an age of decreasing spare time and increasing amounts of choice, companies are only as good as their last customer interaction. Think about the products or services you use most often. Are they the same you were using five or ten years ago? Chances are that they’re different. Your loyalties have probably shifted. The meaning of customer loyalty is changing. In the past, loyalty meant two things: how you bought something and how much you valued it. Now, we want more. It’s not just about the product or the service, it’s the entire experience the brand provides. It’s being treated as an individual, being a valued customer, being entertained and being delighted.
Digital Platforms are brands of the Digital Age and come with their unique characteristics. Their growth and success depends on their ability to tailor, automate and personalise the Platform Experience according to user’s real-time needs. The aim should be to understand user intent, then target them through tailored experiences across all channels, using past and real-time customer data to anticipate needs and offer bespoke experiences.
Airbnb, which records more than 15 billion events on its platform and handles over 15 petabytes of data each day, uses big data and machine learning to design new services, features and tailor experiences for hosts and travellers. For example, the platform uses a pricing algorithm model based on machine learning to help hosts get more bookings and make more money. The model predicts the likelihood of a lodging listing getting booked for a certain day at a certain price based on factors like demand, listing location, listing type and quality. Airbnb uses this model to recommend how much hosts should charge every night for their listings on its platform.
Building the correct Digital Platform Experience Architecture is the key to enabling mass personalisation. However, with all the complexities involved, it could be a challenging task for Platform Owners. Using the below Digital Platform Experience Architecture could help simplify the job, allowing Platform Owners to efficiently develop their own Experience Architecture.
To conclude:
Digital Platform is certainly not a hype word. The socioeconomic value offered by Digital Platforms to users, societies and businesses simply can’t be ignored. Today, the top 6 global companies by market value are Digital Platform companies (Apple, Microsoft, Google, Amazon etc.), whether they have a fully functional ecosystem or not.
There is still a lot of work to be done to develop and transform companies as true Digital Platforms. Both in theory and practice, most of the companies are still somewhere in between a Physical and Digital Platform. They are taking most of the Digital Platform responsibilities themselves. They are offering little room for rule-based but permission less inclusion, innovation and personalised experiences.
The future success of existing and new Digital Platforms will be dependent on their ability to offer Digital Platforms as an open architecture. To win in the Digital Platform economy, vertical business owners would need to consider their role as horizontal Platform Owners. They would need to build Digital Platforms based on an open architecture, offering value to the entire ecosystem (demand side users, supply side users and partners). Digital Platforms which will master inclusion, innovation and personalised experiences for the masses, faster and better than the rest, would be eligible to unlock the maximum share of multi-trillion dollar Digital Platform economy.
