Lays out four strategies for turning regular products or services into platforms, and a guideline for when this transformation makes sense.
Why am I using this example?
Platforms are not just a piece of technology, or a suite of software products.
An easy example of a traditional (pipe) company growing into a platform business by acquisitions is Walmart.
Car manufacturers from Ford and GM to even Jaguar have made large investments in ridesharing companies like Uber and Lyft over the past five years.
Now ask yourself, its 2022, can you really afford not having a platform strategy considering that the 6 most valuable companies in the world are platforms? %PDF-1.7 %
The same goes for Airbnb, which may not own one single hotel, but amassed an inventory of one million rooms a staggering 50 years faster than Marriott did. 0000130869 00000 n You dont have to be the next Amazon (that ship has long sailed), but without a platform strategy, you could be left behind.
Companies like GoPro are engaging their customers through Instagram and encouraging them to post videos of their own adventures taken with their cameras.
Both in the B2B and B2C space.
Fragmented value chain.
We explore the implications for competitive dynamics of three new features of such learning compared to traditional learning-by-doing: (i) learning increases willingness-to-pay rather than reducing marginal cost, (ii) firms can improve their products for each customer based on their individual usage experience, (iii) products can improve while customers are still consuming them.
accounting, lending, payroll and insurance e.g. Here the Gym becomes the enabler, allowing Gym Users to set project costs, and Fitness Trainers to bid for projects on the basis of their own rates. First, we start with the linear or Pipeline Model, which is NOT a platform model but a model based on subcontracting. These companies are still linear businesses selling stuff. They all followed a pipeline business model where the flow of value was linear from producer to consumer, like water flowing through a pipe.
In such cases, the word platform is just used as a marketing term.
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Artemis Releases 2020 State of Indoor Farming Report.
People typically confuse a platform with a mobile app or a website. If you are also working at the intersection of service design, business modelling and technology, Id like to know you.
White Label: Sell/license a platform that a company can customize and us e.g.
Embedded Finance: A platform charges for additional financial services e.g. Not that long ago, the worlds most valuable companies offered goods and products that were spread across multiple industries, including automakers, manufacturers, oil and gas companies, and brick-and-mortar retailers.
Lets have a look at them. All of this digital matchmaking is made possible thanks to algorithms and cloud computing and, of course, through some really smart and inventive people who took risks to create services a lot of us cant imagine living without. There is still a lot of room for growth and innovation from both sides as the big players reach further into new industries while traditional businesses learn to adapt and develop into hybrid business models, hopefully combining the best of both models. In this model the Gym becomes the orchestrator because it deals with multiple entities in the ecosystem who are participating in the transactions. Lead Fee: Customer posts a request on the platform, and suppliers pay to bid for the job/project e.g.
Remember typically you should charge the side that needs the other one more. Walmart also lets sellers fulfill their own orders or rents out its own infrastructure to enable such fulfillment.
getable. In other words, platforms enable people to get what they need from each other! When the retail giant purchased Jet.com in 2016 and invested in Flipkart in 2018, it quadrupled the number of SKUs (stock keeping units or unique items for sale) from 15 million to 60 million.
In most instances people grossly overestimate the advantage that data confers.
0000004087 00000 n API Monetization: Charge third parties to publish their services or ads on the platform e.g. When the CEO of General Electric began its own digital transformation to create Predix, he said it required new talent throughout GE, not just in IT. Who is the Best Auto Insurance Company in the U.S.? Token Based: Decentralised platforms with crypto payments and a blockchain infrastructure e.g.
Should Amazon be allowed to sell on its marketplace?
Open Bazaar.
Instagram is a free service and when your customers are happy enough to tag your company in their posts, it can lead to a lot of free advertising when you have the platform working for you. 0000013825 00000 n
Andrei Hagiu, Tat-How Teh and Julian Wright, May 2020.
Reddit.
Platform businesses do not exist only to make things but also to push them out to users and consumers. With our history of innovation, industry-leading automation, operations, and service management solutions, combined with unmatched flexibility, we help organizations free up time and space to become an Autonomous Digital Enterprise that conquers the opportunities ahead. Usually the Gym User does not even know the Fitness Trainer is an independent service provider.
Its the realization that you cant always own all the resources and control everything.
0000011567 00000 n Lessons from Disney, Delta, and Nordstrom.
Finding the Platform in Your Product by Vijay Govindarajan and N. Venkat Venkatraman Weve all seen the signs in front of McDonalds announcing Over X Billion Served and [ More ], View our calendar of events and watch recordings of past events here.
You cant find a parking space in your busy town?
Using mechanism design, it causes advertisers to either internalize their negative externalities or to signal that they are untrustworthy.
For example, think of cable TV (pipe) and YouTube (platform) or Encyclopedia Britannica (pipe) and Wikipedia (platform). A research report by McKinsey suggests more than 30% of global economic activitysome $60 trillioncould be mediated by digital platforms in six years time. If you want third parties to develop new products and services for you, the question is, how much can you experiment and open the process, so third parties can deliver that value? Essentially everything we buy comes to us via a pipe.
Consumer platform services are more commonly known for use in streaming, rideshares, and ecommerce business types.
This misunderstanding is very common with some SaaS companies, which like to claim they have a complete platform solution for XYZ.
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Fitness Trainers and Gym Users are in direct contact with each other, before the project starts.
To achieve this goal, we work closely with companies on sponsored research projects, which will build upon and feed into our academic research. This is the business model of netflix or spotify.
Building a better mousetrap isnt enough.
The Gym collects the Fitness Trainers fee from the Gym User, and then releases the money to the Fitness Trainer once the job is done, charging the Fitness Trainer a commission fee from the transaction, or sometimes the commission is split between the two parties (the business model of airbnb, where both guests and hosts are charged for a transaction).
The hidden traps in building an online marketplace, How to compete with platforms that ignore the rules. And dont forget that algorithms cant lead.
More often than not, this assumption is wrong.
0000002631 00000 n WTM Bulletin #4: From Wall Street to Care Street. If you need a ride, Uber finds you someone willing to give you a ride home for a fee.
The Harvard Business Review suggested three ways a traditional business can go from pipe to platform at its own pace. CEO at Euro Freelancers | I help organisations create portfolios of digital business models leveraging the power of #marketplaces, #platforms and #gigeconomy, How I Rebuilt My Childhood Lego Sets Into the Ultimate Side Hustle: Part 3.
Why will Pix change the financial services market? The Unique Value of Crowdfunding Is Not Money Its Community, You Dont Have to Be a Software Company to Think Like One, How Platform Businesses are Transforming Strategy, The On-Demand Economy Is Growing, and Not Just for the Young and Wealthy, To Manage a Platform, Think of It as a Micromarket, Why Platform Disruption Is So Much Bigger than Product Disruption, Transitioning Your Company from Product to Platform, The Truth About How Ubers App Manages Drivers, Pipelines, Platforms, and the New Rules of Strategy, Dont Try to Be a Publisher and a Platform at the Same Time, Three Elements of a Successful Platform Strategy. Re-Sale: Buy unwanted good and re-sell them at higher value e.g.
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This happens where one suppliers services are indistinguishable from anothers and demand doesnt care which ones they receive as long as it is above the standard that the platform sets. This symposium brings together a panel of leading scholars at the intersection of economics, strategy, and technology management to (1) highlight recent advances in platform research, emphasizing both strengths and limitations, and (2) outline critical next steps for the burgeoning body of research on the management of multi-sided platforms. Amazon, Apples Appstore, and Walmart) act as resellers on their own marketplaces. These companies also have the chance to create their own platforms. Many companies have already embraced and incorporated the easiest way to integrate platform business practices into their own companies by using preexisting digital tools to engage their networks.
Platforms are beginning to change the dynamics of entire industries.
Whats important about this model is that (unlike the one before) the Gym gets out of the way and Fitness Trainers and Gym Users are in more direct contact, choosing prices, and negotiating the terms of engagement with each other. Also this model displays potential for a full scale network effect, although it may take longer to scale as it is more complex to work out.
1-Sided Model: Platform where suppliers are also customers and the other way around e.g. Realize the potential of SaaS by: - Leveraging innovative, intelligent automation technologies - Addressing the lift and shift approach - Learning how SaaS delivers business outcomes.
Data Monetization: A platform charges customers for giving access to its transactions data sets e.g. Questrom Professor in Management, Professor, Information Systems, Deans Research Scholar, Associate Professor, Information Systems, Data-Enabled Learning, Network Effects and Competitive Advantage, Andrei Hagiu and Julian Wright, June 2020. Its clear to everyone that Amazon, Facebook, Uber and all the others above are extremely successful companies.
0000019084 00000 n Rather than an outright ban, we show that policies that limit the imitation of highly innovative third-party products and prevent steering of buyers to the intermediarys own products would lead to preferable outcomes. That includes sessions on revenue models, platform design, ecosystem mobilisation, platform addons (eg APIs) and growth hacks tips & tricks. Andrei Hagiu and Julian Wright, Management Science, September 2017. This model works best once the number of Fitness Trainers increases on the platform. There are many other platform revenue models and some platforms even combine several revenue models at once, which is what you should also do as well when your platform scales. Amazon.
The Gym does not own any inventory but owns the platform, as it sets rules regarding openness, governance, logistics and pricing. Seven of the 10 most valuable companies globally are now based on a platform business model.
This model bears one major risk which is called bypassing, also called platform leakage. It is the fully developed platform model which displays potential for network effect and for becoming extremely defensible. So, remember, whatever your business is, you are or you will compete with or build on top of existing platforms.
Heres why you should build a sales-assisted product-led growth motion, Introducing: Hybrid Work Toolkit for Digital Sales. The toughest option is taking an existing company and devoting a lot of time, manpower and money to building a digital platform yourself. New data shows a rapidly expanding consumer base. But how can someone without the financial backing of Walmart get started on their silicone road to becoming a participant in this platform economy?
Our analysis shows that an outright ban tends to benefit third-party sellers at the expense of consumer surplus or welfare, even after allowing for innovation by third-party sellers. 0000015066 00000 n And on the chart below you can also understand why platforms are such profitable businesses, why they perform so much better than any other traditional company.
0000030892 00000 n foodora. Get in touch at @MarcoTorreg or in the comments below. You dont know where to leave your cat during the holidays? You know that getting married is a very complex experience. This short article proposes a market for truth that would allow social media platforms to take political ads, guarantee the ads are lie free, and at the same time absolve such platforms of responsibility for deciding whats true.
Say you need a dress, a photographer, a caterer, someone to put flowers in the church. So, you can sell products on Amazon, services on Upwork, content on YouTube, or apps on the IOS App Store and the platform takes a piece of the pie in the transaction. Multi-sided platforms (MSPs) have revolutionized competitive dynamics across a wide array of markets.
Business-to-business platform services may include software-as-a-service, or SaaS. 216 0 obj <> endobj xref 216 30 0000000016 00000 n Combine Audience Engagement with Conversion at Every Step of the User Journey. Through rigorous research, corporate partnerships, conferences and executive education, we seek to become a nexus where academic research meets the practice of managing platform businesses, such that both inform and build upon each other. Pipeline businesses have been around us for as long as weve had industry and were always the dominant business model until the digital revolution of the last few decades.
Freemium: Basic offering is free, but after users get hooked, platform offers paid value-adding features e.g. Whos using this model besides gyms? Homogeneous supply. But this game needs to be played with platform rules!
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Research shows what algorithmic management looks like. The red line shows the revenues in million of dollars of platform companies compared to all other traditional companies listed on the stock exchange.
Now, this is a variation of the model before. Here the Gym charges Gym Users either a flat or a variable fee per month or per year according to a subscription plan based on frequency of use, on specific Fitness Trainers services or number of Fitness Trainers requested.
They encourage their users to create, share, and consume while providing for interaction and commerce with each other. Despite significant advances in MSP strategy research, many challenges and ambiguities about the emergence and effective management of platforms remain. Facebook, Twitter, and Instagram are prime examples of these tools, and all offer opportunities for two-way, collaborative communication from buyer to seller.
It turns out that new normal is not the most annoying phrase I have heard over the past few. 0000012334 00000 n This model (unlike the one before) is no longer based on fixed costs set by the Gym, but on variable costs set by Fitness Trainers. second hand or recycling platforms. This shows the power behind creating a platform.
Controlling Versus Enabling It also provides a business model that should make fact-checking scalable and profitable.
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Now lets have a look at the first model where gyms can start dipping their toes in the platform economy, the Listing Fee Model (the business model of eBay, Alibaba and Amazon). So here the platform charges a fee from suppliers when they post new listings or when they want to promote their listings (the so called featured listing model).
On a macro level, seven out of the top ten largest companies in the world are a platform model, but only a small fraction of the top thousand can be considered a true platform. The key winners today are vertical and B2B platforms which operate in niches and which then expand in other adjacent sectors.
In this model platforms typically only facilitate the discovery of Fitness Trainers for Gym Users without establishing complex payment gateways or offering logistics support or allowing bidding.
0000009479 00000 n When it comes to platform business models, theres no one size fits all approach.
The company developed new leadership and culture designed around understanding their customer base. A business model that creates value by facilitating transactions between buyers and sellers in an ecosystem, with the aim of capturing part of that value.
The simplest way to describe an online platform is to think of it as sort of an online matchmaker. Its also an example of a sector ripe for disruption where digitalisation is low and opportunities to do things differently are abundant.
0000001711 00000 n After reading about all these examples you may wonder: what are the common denominators in monetizing a platform?
Getting married anyone? Explains how marketplace startups can deal with four key issues: growth, trust and safety, disintermediation, and regulation.
How online marketplaces are changing the face of business. The final platform model is the Subscription / Membership Fee Model. Fon. What seems like a great model in theory is tough to pull off in practice. Experts agree that even though there are challenges with data sharing, privacy and information selling, the platform economy isnt going away anytime soon. Now Walmart has a system much like Amazons that allows sellers to plug into its platform (walmart.com) and sell their goods to Walmarts masses of customers.
0000053692 00000 n Affiliates & Referrals: Let third parties promote your platform or let existing members refer new members to your platform e.g. Instead of mass producing goods to sell to consumers, these multifaceted technology driven companies offer frameworks that allow users to interact with each other and even use these frameworks to build their own companies. Summary Harvard Business Review: Insightful work by our own Professor Venkat Venkatraman!
Platforms are hot these days and all over peoples mouths.
There will be technology and skill gaps to overcome, and it will take years of effort to create the right team to build the right platform.
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Well, because its easy everyone gets it, and to show you that even your local gym nowadays makes much of its money not by what it sells but by facilitating the interactions or transactions of others just like farmers markets or stock exchanges already do since a century. Network Effects Arent Enough
Here below are some indicators that should tell you that you may be ready to develop a platform.
Shopify.
For instance think of the construction or retail industry with complex value chains and millions of independent suppliers.
Pay attention that unlike the previous models, in this one its the demand side, so the Gym Users, who is usually charged and not the Fitness Trainers. hb```VBAe964MqoFB~Ek=N_4AQA@tKW0F!bQs|MTPYdBArS.
Our goal is to study the most pressing challenges facing platform businesses and to provide tangible recommendations on platform strategy and policy to entrepreneurs, executives and policymakers. Andrei Hagiu and Simon Rothman, Harvard Business Review, April 2016. Please let us know by emailing blogs@bmc.com. Since the retailer itself doesnt have to inventory these items, they do not have to carry the risks and costs that come with the extra product while sellers get to participate in global trade on one of the most visited shopping sites on the internet. How much its regulated.
See an error or have a suggestion? Tinder. The Next Great Digital Advantage
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Effective strategies for platform launch and growth, Platform design and governance rules to create and maintain trust, Strategies for complementors to effectively engage with the platforms they engage in, Strategies to turn regular products and services into platforms, Regulatory concerns raised by powerful platforms. For instance with Uber, the customer does not have to search for an offer, the platform and matching algorithm solve the problem for her.
If you need a cabin in the mountains on short notice, Airbnb sets you up with someone willing to rent theirs to you and your family.
0000001967 00000 n Uber, Pay-As-You-Go: A platform charges users for the costs of something when they occur rather than before or afterwards e.g. 0000000896 00000 n
0000012053 00000 n BPM vs Workflow Management vs Case Management: Whats The Difference? The fee taken varies across platforms (from 5% to 40%) depending on the value of the transaction and the support services provided. Whats not clear to everyone is that theyre platform companies, what exactly a platform business model is and why it is so powerful.
The Gym Users and Fitness Trainers may decide to circumvent the Gym and its payment system, and make their own arrangements separately.
But there are some rules Ive listed below.
The Gym again acts as the enabler.
