Insights on “Digital Platforms” – A Clive Angel Blogpost
What is a digital platform business?
A platform business as opposed to a product pipeline business is a digital environment with near-zero marginal cost of access, duplication and distribution.
Platforms provide free, perfect and instant 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, which in turn further increases demand for these services.
- In a platform economy the nature of services are free and instant this increases user engagement and interactions creating new revenue opportunities by way of charging for functionality, services and capacity.
- 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 result in two-way reputational systems whereby users rate each other creating trust and reliability amongst all platform members.
- Network effects are a key factor in platform economies creating liquidity and switching costs leading to enhanced customer loyalty.
- All 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:
- Platform owners have both control and influence over the user experience. This positively impacts the owner’s ability to generate new revenue streams from all platform users.
- 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.
- 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.
- Platform economics provide an environment whereby owners can foster Innovation this in turn creates choice which drives new customer acquisition.
- Platform owners benefit from access to multiple revenue opportunities from the various platform users.
Benefits to digital platform users / customers:
- Customers using a platform experience “economics of choice” as a result of a highly customer centric environment.
- Customers using a platform experience “economics of price” as a result of having access to free or near free functionality.
- Customers using a platform enjoy Immediate or near instant service delivery as a result of the digital and viral nature of the platform economy.
- Customers using a platform benefit from revenue opportunities as a result of platform engagement.
- All platform customers benefit from self-regulation by way of managing user generated ratings and curation.
- 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.
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