Insights on “Digital Platforms”

What is a digital platform business?

A platform business as opposed to a product pipeline business is a digital environment with little or no marginal cost of access, duplication and distribution.

Platforms provide cost effective real time services to all users. The platform owner effectively creates a marketplace for service providers and customers to engage aggregating supply and demand. The result of this engagement leads to product innovation and personalized customer services. This in turn generates network effects which further drive innovation and customer acquisition. Revenue opportunities are created for both the platform owner and suppliers while offering the customer immediate, customized and reasonably priced services.

Key features of a digital platform economy:

Digital platforms are open source marketplaces driven by contributions from a variety of outsiders. This results in innovation and increased choice for all users of the platform. Platform economics create a consumer surplus and push the demand curve outwards increasing the market opportunity. Digital platforms create an environment of complementary offerings for users, this in turn stimulates and drives demand. Increased demand positively impacts supply and hence the services available to users, which in turn further increases demand for these services.

In a digital platform economy the nature of the services are free and instant, this increases user engagement and interactions creating new revenue opportunities by way of charging for functionality, services and capacity. Digital platform economies are based on user generated content and real time curation thereof. Curation by users creates quality control and maintains the integrity of the marketplace for all users.

User interactions on digital platforms result in two-way reputational systems whereby users rate each other creating trust and reliability amongst all platform members. The relationship between different users in turn creates network effects which are a key factor in digital platform economies creating liquidity and switching costs leading to enhanced customer loyalty. All digital platform economies are driven by user personalization. This customer centric focus creates user engagement which in turn enhances platform liquidity.

Benefits to the digital platform owner:

Digital platform owners have both control and influence over the user experience. This positively impacts the platform owner’s ability to generate new revenue streams from all platform users.Digital platform owners benefit from the economics of bits by offering cost effective, high quality and instant services. This has the effect of pushing out the demand curve thereby increasing the opportunity to be a price maker and therefore profitability. Digital platform owners have access to significant Data Mining opportunities. Using data generated by machine learning to track and analyse customer preferences and needs owners are well positioned to drive recommendations affect user functionality, customer services and pricing. The economics of digital platforms provide an environment whereby owners can foster Innovation this in turn creates choice for users which drives new customer acquisition. Digital platform owners also have the benefit of being able to leverage the diverse interests of platform users to create and generate new service and revenue opportunities.

Benefits to digital platform customers:

Customers accessing a digital platform experience “economics of choice” as a result of a highly customer centric environment. Customers interacting and purchasing with a digital platform experience “economics of price” as a result of having access to free or near free functionality. Customers who are members of a digital platform enjoy Immediate or near instant service delivery as a result of the digital and viral nature of the platform economy. Customers on a digital platform benefit from revenue opportunities as a result of platform engagement. All digital platform customers benefit from self-regulation by way of managing user generated ratings and curation. Digital platform customers are in control of the service offering via their ability to generate instant and real time feedback to dictate the ultimate customer service offering.

Platform Economics explained:

In summary digital platforms provide all users with the “Economics of Choice” meaning all participants in a platform have the power to operate as buyers, sellers, customers and / or service providers. Platforms also create a centralised market environment conducive to generating “Economics of Price” whereby the middle man in a transaction is dis-intermediated allowing buyers and sellers, service providers and users to negotiate directly with one another. This significantly reduces transaction costs and results in pricing efficiencies for all participants.

All users of digital platforms benefit from the “Economics of instant” by engaging in a real-time environment for the immediate and instant transmission, sharing and usage of products and services.

Digital platforms provide diverse revenue opportunities as a result of direct and indirect transactional user engagement. Network effects between different users drive platform membership and usage, stimulate liquidity and give effect to platform diversity.

Digital platforms provide a self-regulating form of curatorship whereby users can comment on and engage with other users in a transparent and real time environment.