Platform Business Model explained…in under 100 words
Everywhere we look today, platform businesses are in the news. From the most valuable start-ups that are disrupting traditional markets, to established companies that have shifted their business model from a traditional linear to a platform based approach.
Why platform businesses are nothing new
Platform businesses are taking over every industry and are already a part of our everyday lives whether we realise it or not, from reading on our commute to work (e.g. AmazonKindle), to borrowing money to opening a small business (e.g. LendingClub).
Auction house D.Art (“platform business”) organises its yearly modern art-painting auction in Zürich. The auction (“infrastructure”) is a well-known event that will help to make the paintings of young talented artists (“producers”) and art collectors (“consumers”) more accessible to each on an as-need basis. Experts (“agents”) are present to advise groups of collectors on relevant artists (“trust”).
As D.Art does not own the paintings, it simply lays out the rules of interactions (“eliminate friction”) to enable the information exchanges (“value creation”) between the artists and collectors followed by compensation through money, goods and/or services, and fees for D.Art (“monetising strategy”).
The explanation above is only one type of a platform business, what we call an aggregation platform that focusses on enabling short-term transactions among participants. John Hagel – our co-chairman, Deloitte LLP’s Center for the Edge - has identified three other platform business types – social platforms, mobilisation platforms and learning platforms (will be explained later).
The concept of a platform business is not a new phenomenon. Think about the old ancient marketplaces or the massive American shopping malls or even exhibition centres. The types of businesses have mostly used brick-and-mortar approach to enable interactions and to facilitate value exchanges. Nowadays platforms are increasingly supported by global digital technology infrastructures that help to scale participation and collaboration, but this is an enabler, rather than a prerequisite for a platform.
As case in point - with the auction house example in mind - think about the e-commerce company eBay. Through its platform, eBay facilitates consumer-to-consumer and business–to-consumer sales by enabling interactions between 170+ million buyers and 25+ million sellers across the globe 24/7.
So, what is a platform business?
What we mean with a platform business is a business model (not a technology infrastructure) that focuses on helping to facilitate interactions across a large number of participants. These interactions could take the form of short-term transactions like connecting buyers and sellers or they could involve formation of longer-term social relationships, longer-term collaboration to achieve a shared outcome or sustained efforts to accelerate performance improvement of participants by helping them to learn faster together. The role of the platform business is to provide a governance structure and a set of standards and protocols that facilitate interactions at scale so that network effects can be unleashed.
Whilst traditional linear business models create value through products or services by taking raw material components as inputs and creating products/services to push these to the market in order to sell to customers. The platform business model does not own the means of production, but rather creates and facilitates the means of connection.
What are the different types?
Platform businesses are becoming increasingly integral to business value creation. However, not all platforms are created equal, with some platforms having far more potential to trigger powerful forms of increasing returns that will ultimately marginalise other forms of platforms. It’s important to understand not just the structure, but the dynamics, of different kinds of platforms. John Hagel¹ has distinguished four different categories of platforms that are becoming increasingly prominent in the business world (and elsewhere).
- Aggregation platforms bring together a broad array of relevant resources and help users to connect with the most appropriate resources. These platforms tend to be very transaction- or task-focused: Express a need, get a response, do the deal, and move on. Marketplace and broker platforms like eBay and Etsy are well-known examples. Aggregation platforms tend to operate on a hub-and-spoke model, whereby the platform owner and organiser brokers all of the transactions.
- Social platforms are similar in that they also aggregate a lot of people—Facebook and Twitter are leading examples—but rather than supporting the completion of a transaction or a task, they support engagement among people with common interests. They also tend to foster networks of relationships rather than hub-and-spoke interactions—people connect with each other over time in ways that usually do not involve the platform organiser or owner.
- Mobilisation platforms move people to work together to accomplish something beyond the capabilities of any individual participant. They tend to foster longer-term relationships rather than focus on isolated and short-term transactions or tasks. In a business context, the most common form of these platforms brings together participants in extended business processes like supply networks or distribution operations.
- Learning platforms facilitate learning by bringing participants together to share insights over time. They tend to foster deep, trust-based relationships, as participants have the opportunity to realise more potential by working together. Business leaders who understand this will likely increasingly seek out platforms that not only make work lighter for their participants, but also grow their knowledge, accelerate performance improvement, and hone their capabilities in the process.
As with social and mobilisation platforms, learning platforms critically depend on the ability to build long-term relationships rather than simply focusing on short-term transactions or tasks. Unlike the other platforms, though, learning platforms do not view participants as “static resources.” On the contrary, they start with the presumption that all participants have the opportunity to draw out more and more of their potential by working together in the right environment.
The good news is that any of the three forms of platforms—aggregation, social, and mobilisation—have the potential to evolve into learning platforms. The companies that find ways to design and deploy learning platforms will likely be in the best position to create and capture economic value in an increasingly challenging and rapidly evolving business environment.
Our message to you is, a platform business is not opportunity, it is an imperative!
We hope that this blog gives you some insights in the world of platform businesses.
1. John Hagel, The Power of Platforms – Deloitte University Press, 2015 - Read the PDF