Platform Economy : Strengthening into an ecosystem

The concept by itself isn't novel - envision a marketplace where people bartered their wares, that for convenience reasons gave birth to specific roles as players who could get the barter done - intermediaries, middlemen, et al. As ages progressed, marketplaces that were merely a platform to conduct business grew into businesses in themselves.

Flip to the day and specifically in the context of digital environments, 'Platform Economy' is a clearer demarcation of enterprises that enable commercial exchanges in forms manifold further down, than what it was probably known little over a decade ago.

To elucidate, most of the population today are - knowingly or unknowingly, participating and contributing to the phenomenon. Be it to purchase groceries or to pick the most-happening gadget, be it to explore an aspirational career opportunity or to flaunt one's exquisite holiday, be it to enjoy a visual fiction of choice or to read up some forsaken knowledge unknown - all of these are some of the trivial daily activities that individuals have embedded into their lives.

It may be safely summed up that any such avenue that's built by a technological backbone, that has a capability to connect multiple segments of users, that churns out data and patterns in the process, that identifies opportunities to further monetize such behaviors and thus act as a microcosm of a world in itself, is a platform.

For Organizations of various nature and models, it has inherently become a construct element that their enterprise has a compatibility to conduct their business within this larger tech-driven environment than merely supplying-to-demand. Specific to the digital-native Industries - Cloud computing, Online media and content economy, digital commerce, commute and leisure, to name a few, the genesis of modelling their businesses itself revolves today is heavily technology-driven and in the virtual space, than in metal or mortar.

To take a first glance, the supply and demand landscapes for any platform economy are characterized by two underlying principles - on Capacity Building and on Network Effect, respectively.

The former talks about developing such robust supply side for an enterprise's core business offering that stands to all-weather scenarios, while the latter builds on a narrative that the business would thrive basis the users' utilization of the offering - the more the user base owing to 'spreading the word around', the higher is the perceived value of the offering.

Parking the merits and the moralities of the construct aside for a bit, it is interesting to understand the nature of such 'networked' system that acts as a virtual economy in itself.

Let's understand this with an illustration - consider the e-commerce ecosystem, for instance. Any e-commerce platform would have two integrated parts to its consumers - buyers attempting to purchase some commodity from a seller, by utilizing the platform as a stage for either sides - used by the latter to showcase the wares and by the former to explore options to purchase wares.

Over the years, such e-commerce portals have turned into platforms - monetizing on various aspects of the transactions flowing through them. For one, basis the sellers' credibility, there are tailor-made exclusive virtual store-fronts. A multitude of such sellers would never have envisioned a dedicated managed space on the Internet for themselves, much less a webpage of sorts. For the buyers, there are custom-made personalized offers, priority experiences upon paying a premium and product support services, et al.

What would have started as a concept of a mere barter portal in the mid-2000s for such commodities has evolved into an e-commerce Industry today and is garnering about 20% of the overall trade for most of the goods.

With this evolution, as much as the business models and behaviors of consumers have undergone a shift towards being more digital-native, the underlying platforms themselves too are evolving and strengthening as key players in the economy. It is no more prudent to see these as stand-alone business enablers.

While technology-enabled platforms are now maturing into core business propositions in themselves, there are a few themes that stand as the contours to determine their direction ahead:

• Blurring distinction between buyer and seller based personas - it is all about 'users': Picking a leaf from the same illustration above, to enable a transaction on an e-Commerce platform, one would also see associated players plugging in - payment service providers, logistics players, et al. Taking a myopic view, almost all of the participants on the platform are both buyers and sellers, depending on the layer in which they operate across their life-cycle.
• Race to the bottom would not work - 'Value Proposition' is key: The 'stickiness' of customers isn't necessarily driven by price point alone. Especially in sectors such as e-Commerce (from a B2C business angle) or SaaS products (from a B2B angle), the cost of service and post-ownership complexity matters.
• Data, data and more data - how much is too much? : With the layers of transactions for every single move made on platforms, there is a significant footprint laid by its users that generates huge points of data across all of the interactions. What would hold key is to enable an agile user experience with the trends on hand. Sadly, this at times interferes with the user's choice and is being counter-intuitive to the experience. For instance, envision a streaming platform that has both curated and created content. A user's behavior as may be captured in the 'big data' of the platform may not necessarily be the user's preference. To be fair, getting the match right is always debatable.
• Market size versus Market penetration - always a race, neck-to-neck : The usually-pitched narrative around the total market available to be catered to, the specific segment to capture, et al (TAM, SAM, SOM - in the product parlance) may not be as clearly defined in a platform economy. With the innovation cycles seeing much rapid waves and that the competitive advantage isn't as robust on protecting the devised Intellectual Property (simply for the want to have an open market if not for anything else), the time taken to expand from the serviceable market to the available market is much lesser, before the next major shift is seen on the platform's model. The next time one hears of a Billion-bucks opportunity, it may be prudent to pause and reflect as to for how long is the number valid.
• Artificial Intelligence (AI) - not so intelligent yet? : With the quantum of data that's being churned out, it's an often-heard narrative that 'AI' is the next big thing. No mistakes made here - there would be a dent for sure. Having said that, especially in the platform-based economy, there are a couple of fallacies that need to be overcome: one, that of non-existent data and two, that of into which wheelhouse would AI play? On the fallacy of the non-existent data, the current method of constructing most of the AI models is with the data set that's available. While the merit and method being logical, there is often a space where such models may not be capable (yet) to look into - the question of what's not being said! There was a lesser-known story I heard a few years ago, that during one of the wars, an Air Force was evaluating as to where on their aircrafts should they strengthen their structural reinforcements. While those planes that returned from the battlefield had the most number of damages on specific parts, thus, the team thought of strengthening those areas. However, an officer pointed out that this was data from the planes that made it back - you still have planes that never made it back since they were hit at areas other than the ones observed! As to the fallacy around positioning AI in the business schema, the often seen (and in my view, flawed) approach is to position it as a 'vertical'. Truth can never be further! The capability in itself may not hold much water, if not applied as a strength to the core business proposition and if not understood the manner in which it is to be utilized. A much prudent manner to envision the utility is that machine-generated intelligence could actually be the 'horizontal' that cuts across and supports the core business verticals.

In all fairness, there is still a scope to look at these themes in a slightly different lens either - for instance, AI could still be a 'vertical' for a service provider on one of these platforms to enable the technology backbone than a whole 'horizontal', or, the 'network effect' in itself may act both in strength and in deterrence to the platform, depending on the vantage point.

Those philosophical dissents aside, 'Platform Economy' today has a tremendous potential to improve the ease of business delivery and governance at a macroeconomic level - only if modelled right and constructed to the core.

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References:

1. The Platform Delusion : a book by Jonathan A. Knee
2. The rise of the platform economy : as printed in the Financial Times

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Views expressed in this article are in my individual and personal capacity, and are not to be affiliated to any organization, business or body of people.

No ownership or association is being claimed whatsoever to the quoted resources, entities or models.

Neither criticism nor corroboration intended.