Page 20 - IBT August 2021 Issue

The Foundation
By Farhat Zishan August 2021
CONNECTING
THE DOTS
How platform economies are
redefining our everyday lives
While smartphone usage is on a rise
globally, tech-based companies have
also started to emerge all across the
globe. But the interesting pattern to
be noted is that many of the
company’s today are not solely
reliant on selling products or
services that they manufacture on
their own. Instead, they create a
network, where service providers are
enabled to offer the value to the end
customer. And while ensuring the
seamless completion of these
transactions, these ‘intermediary’
companies tend to capture some of
the value for themselves. These are
often termed as “platform
economies”. Companies such as
Amazon, Etsy, Facebook, Google,
Salesforce, and Uber are creating
online structures that enable a wide
range of human activities. This
opens the gateway for radical
changes in how we live our everyday
lives; starting from how we work,
socialize, create value in the
economy, and compete for the
resulting profits. Their effects are
distinct and identifiable, though
certainly not the only part of the
rapidly reorganizing global economy.
The world’s most valuable public
companies and its first trillion-dollar
businesses are built on digital
platforms that bring together two or
more market actors and grow
through network effects. The
18
top-ranked companies by market number of employees to provide in a business to consumer (B2C) to place supply or demand.
capitalization are Apple, Microsoft, their accommodation services. context, it is the business to Examples of this are listing a
Alphabet (Google’s parent
property on Immobilienscout24 or
business (B2B) world that is
Instead, they hugely benefit from
company), and Amazon. Facebook, their external resources (i.e. their currently seeing the most activity posting job advertisements on
in terms of platform adoption. We
Alibaba, and Tencent are not far
hosts). And lastly, the thing that
Monster. Often different packages
are all witnessing the emergence of
separates them from ‘brick and
behind. As of last year, these seven
(5 or 10 packages) are offered in
companies represented more than
addition to the one-time use. The
B2B and B2C platforms in many
mortar’ businesses is their reliance
$6.3 trillion in market value, and on network effects. That is, the sectors globally including retail, admission fee is mainly used to
monetise the supply side and to
education, healthcare, transport,
all of them are platform
higher number of hosts there are
agritech, fintech and real estate.
on the platform, the higher the
businesses.
bring standardised price structures
onto a platform with infrequent,
Global small and medium-sized
These platform businesses vary
number of guests that incur; and it
from one another in terms of their
driven by the growth of platforms
transaction units.
Putting these unique traits of the
operational structure and how they continues as an exponential loop. business trade is on the rise, inhomogeneous or individualized monetization of data generated by persuasive offerings. The
function as entities. Google and platform economies aside, there such as Alibaba, which allow much Transaction Fee: Through actors on the platform serves the streaming platform Spotify for
are fundamental differences in
example also finances its freemium
Facebook are digital platforms that
platform sponsor as a secondary or
smaller enterprises to participate
transaction fees, platform sponsors
offer search and social media, but which they create and capture in global trade, without the need to benefit from every transaction that even primary source of income. For model by monetizing data through
they also provide an infrastructure
is enabled between two or more
invest in their own supply chains.
advertisements in the free package.
the data-generating actors, the use
value from the customers.
on which other platforms are built. Typically, a digital platform that As these platforms scale, control actors. This pattern occurs most of the platform, as in the case of Freemium appears particularly
On the other hand, Amazon, Etsy uses the internet to connect over trade could shift from frequently in the analysis and Facebook for example, is often free promising if the marginal costs for
and eBay are marketplaces for dispersed networks of individuals countries to these digital addresses the supply and demand of charge. By accessing the data, additional actors on the platform
numerous categories of products; to facilitate digital interactions platforms. Many experts even side in similar proportions. In the the platform sponsor enables third are low for the sponsor.
either directly sold by the platform between people. Therefore, within suggest that in a world dominated case of very dominant platforms parties, among other things, to Service and product sales: The
or by third-party sellers. Airbnb the platform economy there is a by platform companies that offer such as AirBnB, both parties carry access relevant actors or valuable platform sponsor’s activity as a
and Uber are the newest additions triangular relationship between ways for customers and companies part of a combined transaction fee. information. For platform sponsors complementary actor on its own
in the league of platform three parties - the This pattern is particularly useful who use data monetization for platform is particularly interesting
businesses; where they use these platform, the worker in cases of high transaction value capture, the value capture if the respective company already
newly available cloud tools to force and the customer. It is frequencies, with similar potential increases with increasing has the necessary expertise and
deep changes in a variety of the job of the platform transaction sums and with little richness and relevance of the infrastructure and sets up a new
incumbent businesses. Gone are to connect people with manual effort for the platform collected data from interactions platform to include other players
the days of staying at a fancy demand (the customer) sponsor to drive the respective and transactions between the from its own industry. Companies
resort during a holiday or waiting to people that provide transaction to success. actors. such as Amazon initially act as
to hail a taxi for the daily supply (the worker). Arbitrage: In the arbitrage model, Membership fee: In a platform sponsor, generate an
commute. Instead, these Traditional linear the platform sponsor exploits a membership model, actors pay for information advantage over the
companies have built the systems business models create very widely separated relationship a particular or unlimited use of the suppliers on the basis of their data
that enable home owners to value through creating between actors on the platform, platform infrastructure. The sovereignty and then compete with
become rental home owners, while products and services often associated with physical Fitness Startup Urban Sports Club, their own complementors in
enthusiastic commuters with that are sold to a products, and creates its own for example, offers its members promising product categories. The
private cars can share the available customer. Platform position of power controlling the three packages of services with latter approach is often seen as
seats of his or her vehicle. based business models on the to connect, countries that want to access between the actors. different membership fees. This inadequate use of the
So what makes these platforms other hand, create their value by act as global trade hubs must Although this position can also be pattern is particularly interesting infrastructure operator’s market
have a competitive edge over their connecting users (both consumers think like a platform nation. recognized for most other patterns, for models in which the number of power and is rightly
‘traditional’ counterparts? Firstly, and producers) on an online Now many might think that the arbitrage model actively emerging transactions per actor controversially discussed.
these companies are very asset network. The platform does not platform economies operate as contributes to maintaining the can be reliably predicted or the As the world continues to evolve,
light, which allows them to scale own the means of production, but intermediaries and facilitate position of power to the extent that transaction goods can be technology backed companies are
at an unimaginably fast pace. rather creates the means of seamless transactions. So, the the platform sponsor takes on not efficiently scaled. radically changing how we operate
While hotel companies will be connection. The strength of the revenue models are supposed to only an orchestrating but also a Freemium: Freemium is a in our everyday lives. Platform
spending billions on infrastructure platform economy lies in its ability follow a similar pattern. But in price-setting role on the platform modified form of membership in economies are not only making our
and constructing the hotels to to eliminate trade barriers by using reality, there are multiple ways in by acting as an intermediary. The which a certain part of the lives more connected and
accommodate their rising number increased information sharing which platform economies can model seems to be particularly platform products and services are seamless, but are also redefining
of guests, Airbnb simply increases between different players and capture value from the ecosystem applicable for physical goods that made available to certain actors how human species act, live and
their number of hosts in a new circulation of data to its that it has established. Some of the are not subject to a short-term free of charge. An initially free interact as a whole. For now, all we
country – thus expanding in a way advantage. This creates a much various types of revenue models decline in value. The access for the activity on the platform lowers the can hope is that these radical
that is simultaneously faster and more open economic system, with adopted by platform economies supply side to the demand side entry barrier and creates the differences can lead to
cost-effective. These companies much greater participation of its have been mentioned below - often appears to be the strongest opportunity to convince actors to transformative positive impact in
also have zero marginal costs. For users. Admission fee: In the Admission sales argument for the platform access the full range of services the days to come, as we implement
example Airbnb does not have to While many might think that fee model, the platform sponsor sponsor. associated with the payment of a technology to unlock a better
recruit, train and onboard a large platform models are only relevant charges a fee for individual actions Data monetization: The indirect membership fee through future for us all.