business insights

There are several definitions of the word platform.

Just like the words “innovation” or “digital transformation”, it seems that the word “platform” is used today to define things or concepts that are often totally different.

So I thought it was time to sort it out …

1. Basic concept

Looking on the Larousse, I find dozens of definitions:

  • Relatively flat area of land
  • A set of logistical facilities
  • Set of tools (software, hardware, operating systems, etc.) for storing and sharing virtual content.
  • Etc. etc.

Therefore:

  • Either a notion of flat physical expanse, with the aim of distributing capacities
  • Or a notion of crossroads and sharing of virtual or technological elements
  • Or a notion of consensus and summary of values or ideas

At this stage, I don’t see anything about the platform company or the platform business model.

In any case, this is about something meant to collect, host and redistribute or accelerate the exchange of value.

2. Technology platform

According to Wikipedia, a platform is “an environment for managing or using application services”.

For example:

  • An operating system or kernel;
    an execution environment such as a virtual machine;
  • A development environment;
  • A web or application server, including a download platform;
  • A web or software application
    It is in this last category that intermediation platforms or video game platforms are listed, for example.

Here we are talking about the tool, the technology that will allow the creation and/or redistribution of value to the different stakeholders.
Let’s say that it is the technological version of the logistic platform, for example: an instrument of connection, collection and redistribution.

3. Platform company

For this 3rd definition, we keep the notion of the platform concept (1st definition: crossroads, distribution, sharing), and also integrate the technologies that will make transactions possible and concrete (2nd definition: the tool); but we go further with the definition of a new business model: the platform “business model”.

The platform company is a company that leverages a virtual and/or physical location to help two or more different groups find, co-create, interact with each other and exchange value.

Its role is to facilitate interactions, connect supply and demand, and orchestrate, organize or create ecosystems:

supply and demand platforms

The platform company will rely on technologies (as described in the 2nd definition) to manage its flows, leverage data, and secure transactions. However, apart from the technology, by evolving from a role of service or product producer to a role of orchestrator, the entire business model changes: 

The value chain is no longer linear: the company does not sell a product or a service, but orchestrates sales or exchange transactions: the value proposition is therefore the orchestration of the transaction between the different parties, not the production itself.

Control and governance are becoming much more complex: the company no longer controls the value chain, since it does not produce itself, and it must therefore focus on organizing control at several levels: technological, legal, operational, transactional, financial, security, etc.

For example, when you buy an item on a marketplace, the seller is legally responsible for the quality of the product, but from the customer’s point of view, his perception, the image, the transaction he made (who did he pay for the product?), it is the platform that is in the front line. And if the quality is not there, from a customer perception standpoint, it is the platform that will be responsible. So how do you ensure the quality of the products, and the quality of the after-sales service in case of a problem? 

Examples: 

  • Backmarket: a “3-way chat”; Backmarket opens a chatbox with the customer, themselves, and the seller, and commits to resolve the issue.
  • La Redoute: sends an email to the customer, telling them that it will be up to the seller to solve the problem and that you should contact them directly.

As a customer, which one do you prefer?

What quality control process can you put in place in the very foundation of the platform?

How can you use technology to measure the actual and perceived quality?

Monetization strategies are multiple, and can be direct and indirect, including on your own products/services, or on products/services very different from your core business. Examples:
  • Citymapper commercializes transit passes, sells data, creates white label services for transit authorities, creates new shared bus or cab services, etc.
  • Airbnb, whose business is accommodation, collects revenues from concierge services, photography, and other “experiences”.
  • Amadeus sells anonymized data from its “live travel space” platform and creates new value-added services for airlines thanks to the data collected.
  • Ping An, which is originally an insurance company, is collecting billions through its 10 platforms on health, housing, car, banking, etc. and is increasing its insurance sales by more than 20%.

Trust and legitimacy are also vital issues: trust in the platform company certainly depends on the company itself, but also on the stakeholders it orchestrates.

Examples:

  • During the Analytica scandal, Facebook’s traffic dropped by 20%
    scams on vacation rental platforms are making headlines in the media, which heavily penalizes players like Abritel.
  • Amazon is accused of harming the local economy and must multiply awareness campaigns on the local economic impact.
  • The French application Tousanticovid has met a lot of resistance because users are afraid that their data will be used for other purposes.
  • The attacks on Uber cabs have turned many women and young people away from this service, and opened the door to alternative specialized services (e.g. Kolett, a women-only VTC service).

We cannot foresee or prevent everything, but in all these cases we can ask ourselves what has been put in place (or not) upstream, to prevent these types of risks.

 The platform company is responsible for operating the infrastructure that enables the transaction, and is not necessarily an active participant in the transaction itself. It is, however, responsible for the quality, security and efficiency of the connection.

Examples:

  • Airbnb has no hotels or accommodations of its own, but the traveler relies on the fact that the platform will offer interesting options for their profile.
  • Kreatize provides access to professional production facilities around the world, but does not own any.

The roles in the ecosystem orchestrated by the platform company can be multiple:

Examples:

  • You can be an Airbnb traveler AND an Airbnb host.
  • GE Electrics acts as an orchestrator of its Predix IoT platform, but also as a service and solution provider.
marketplace business model

The strategic objective to sustain growth is not product performance, but the activation of network effects, and data network effects.

network effect platforms
data and platforms

Success will be measured beyond the usual metrics such as sales increase, margin increase, or cost reduction: we will measure the conversion of reached customers into paying customers, network effects, data monetization, new services, cross selling, etc.

Examples:

  • Ping An is closely monitoring the growth of the conversion rate from “reached customer” to “paying customer” through its Good Doctor app.
  • Doctolib focused on attracting patients and doctors around a specific feature (the appointment), and is now working on a medical practice management software to upsell on its base.

 

——-

 

As you can see, the platform company is a new and radically different business model from what we know.

This model is not yet well conceptualized in Europe, but already more so in the United States; and in China, as Marshall Van Alstyne pointed out at the MIT Platform Strategy Summit 2021, “competition in business model innovation is raging”.

Image source : Baromètre Segeco – Entreprise du futur : des efforts réalisés, des dirigeants confiants, l’Usine Digitale

Click here to discover our other articles.

GET THE LATEST INSIGHTS DELIVERED TO YOUR INBOX

Don’t miss the new analyses of our experts.

This site is registered on wpml.org as a development site.