From Marketplace to Platform – Driving Value from your Technology Investment
Whichever technology marketing executive it was that first decided to re-use the word “platform” did a very thorough job indeed. An already overloaded term has been stretched in all directions and has wrapped itself around most of the digital world, creating a decent amount of confusion in the process.
What is a platform business?
Simply put, platform businesses are those that create value by enabling exchanges between different communities of stakeholder. They attract relevant audiences in each community and provide services that allow those communities to engage and interact in a way that generates value for all parties in the exchange. Common examples include JustEat, Etsy, Uber, and Airbnb.
Platforms differ from traditional ‘linear’ business models where value is delivered as part of a series of transformations of resources that are typically owned by the organisations involved. Instead a platform’s role is to mediate between resource owners, make relevant connections, and provide useful services to orchestrate transactions between those parties. In doing so they open up the market in which they operate, enabling a broader range of suppliers to connect a broader range of services with a broader range of consumers.
This is massively challenging for established businesses who have built competitive positions by developing products and services, investing in assets and resources, and building sales and marketing channels around their brands. These businesses now find their markets opening out and their core product or service becoming relatively more commoditized as platform businesses, and digital services in general, give consumers easier access to options and improved information advantage. Platforms enable market efficiency and address existing scleroses: has the rise of the many online retail platforms undermined the sustainability of the UK high-street; or replaced inefficient and expensive services with cheaper, better and more convenient alternatives, whilst also giving the delivery industry a massive boost? – in reality it has done all of these things.
Is it not just a marketplace?
This might sound more or less like a description of how a marketplace operates, and certainly in the early stages of a platform business there may not be much to differentiate the two. Building a platform business is a process of evolution, and establishing the structure of a marketplace is one important aspect of any minimum viable offering. However as the operational model develops a couple of key distinctions between straightforward marketplaces and true platforms need to emerge.
Firstly, platforms will develop intelligent, data-driven approaches to matching and connecting actors across their various sides. In many ways it is this brokerage or agency role that is the core value-add of the platform; without this capability the transaction costs for the user (in terms of time and effort spent searching for and evaluating the relevance of candidate services and resources) detracts from the value and useability of the platform.
An analogy with traditional physical marketplaces is still of some use here. If the marketplace is stuffed with hundreds of stalls and many shoppers it will take some time to find what you’re looking for, assuming it’s there at all. You do not generally find someone providing brokerage services at a marketplace, having mapped out and understood everything on offer, and able to interpret your needs, make suggestions, and point you in the right direction. However that is something a genuine platform must provide. The data and technology implications to make this possible are significant.
Secondly, platforms act as a catalyst for market innovation by enabling third parties to extend and customise the services provided. This brings additional value-creation to the various communities that engage with each other ‘across’ the platform. As this innovation occurs it will extend and diversify the interest in the platform, generating further network effects and fortifying its market position. It is this aspect where the “platform” metaphor becomes most relevant – others are able to build on top of the original construction. Access to the technology and architectural patterns needed to build open infrastructures and support services that orchestrate and facilitate value exchange is an essential aspect of building a platform business.
Successful platform businesses are fundamentally about network growth and transaction volume. To be of any business value at all a platform technology strategy must have a relentless focus on driving that growth. Two of the key technology challenges are in generating high quality matches between stakeholders, and in building a platform that is open for others to build upon.
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Unsurprisingly given their prevalence and the scale of success and disruption platforms have generated, much has been written about them, the business model and their economics. For a deeper look at platforms check out the following resources, or simply Google “digital platform strategy” for an extensive list.
HBR, Marshall W. Van Alstyne , Geoffrey G. Parker and Sangeet Paul Choudary. 2016. Pipelines, Platforms, and the New Rules of Strategy. [ONLINE] Available at: https://hbr.org/2016/04/pipelines-platforms-and-the-new-rules-of-strategy.
HBR, Feng Zhu and Marco Iansiti, 2019. Why Some Platforms Thrive and Others Don’t. [ONLINE] Available at: https://hbr.org/2019/01/why-some-platforms-thrive-and-others-dont.
HBR, Mark Bonchek and Sangeet Paul Choudary, 2013. Three Elements of a Successful Platform Strategy [ONLINE] Available at: https://hbr.org/2013/01/three-elements-of-a-successful-platform
HBR, Feng Zhu and Nathan Furr, 2016. Products to Platforms: Making the Leap [ONLINE] Available at: https://hbr.org/2016/04/products-to-platforms-making-the-leap
David L. Rogers, The Digital Transformation Playbook: Rethink Your Business for the Digital Age, Columbia Business School Publishing, 5 Apr 2016 (Ch. 3).
Sangeet Paul Choudary’s excellent site at http://platformthinkinglabs.com/