#68-What are the Business Models for the Platform Economy. What’s Next after Platforms? by Sidhartha Sharma

Sidhartha Sharma- Author and Digital Strategy Expert (views are personal)

All business models move from complexity to simplicity, due to technology-led disruption and the evolution of customer expectations.

Platforms and ecosystems are the simplest and the most dynamic business models that can solve customer pain-points while creating a lot of value through cost-reduction or new growth.

Future of Platforms, Super Apps and Digital Ecosystems: A Series by Sidhartha Sharma

Business Models of Platform Companies

Many winning platforms share several successful business models. The
following are some of the most prominent:

1. E-Sharing or Gig-Economy: Under this business model, platform companies grant users temporary use of a product without requiring them to purchase it. The platform typically authenticates both providers and users are facilitates booking and payment. Airbnb, a platform where owners can essentially rent out their homes by the day, is a classic example. Such platforms have disrupted industries by building a “sharing economy” for goods as services and dramatically reducing friction between renters and providers. They have also significantly reduced the need for customers to invest in assets, products, and inventory.
2. Walled Garden platforms: In this business model, a company builds a massive online user base and locks in its customers or user base. The users are offering goods or services that are exclusive to their platform or are difficult to access through another platform. Even the hardware used in one ecosystem could not be used in another in some cases. To use the maximum features of an apple watch and Apple Airpods helps if they are connected to an iPhone. A classic example is Apple’s iOS mobile operating system. Users can gain access to iTunes only through iOS because the system is inoperable with smartphones using Google’s Android operating system. The advantage for customers is that all major apps downloaded onto their smartphones through the iTunes store are interoperable. Customers can also gain access to music and videos purchased through their other Apple devices. Migrating to a rival ecosystem, however, is time-consuming and costly for the customer. If users want to switch from an iPhone to a Samsung Galaxy, for example, they would have to transfer music and video stored to different Android-based apps. Likewise, Facebook does not give its subscribers access to the Google search engine to categorize content that is generated on its platform. The propriety ecosystem model enables the platform to build powerful brand loyalty among its customers and makes it easier to cross-sell products by a wide range of providers.
3. Subscription-based platforms: In the subscription-based model, customers pay a monthly, quarterly, or annual fee to gain access to goods and services. In some cases, revenue from recurring subscriptions surpass revenue from product purchases. Netflix pioneered this business model for video streaming. Spotify is another example of a subscription platform. As part of their monthly subscription, Amazon Prime customers get free delivery of most goods they purchase through the platform. This model ensures that platforms are constant revenue streams, reducing uncertainty over cash flow, and builds loyalty among customers. SEA e-commerce player Lazada also offers its members Live Up membership for Amazon prime like services- expedited delivery and free shipping. MMT black by Makemytrip and Zomato Gold club by Zomato are all examples of offering better services to subscribed customers.
4. Freemium and premium models: Some platforms have built substantial businesses by offering basic versions for free. After creating a huge user base, they then make their money by selling advertising or charging for extra features. TikTok, Facebook, YouTube, and LinkedIn are good examples. By offering free basic versions, a platform can acquire customers. The platform can amass data on customers’ behavior and feedback, and leverage those insights to strengthen their relationship with the customer and dominate the market. Platforms can also monetize this information by selling data. Freemiums also offer a means for getting new
   customers to try brands on a trial basis.
5. On-Demand: Some platforms succeed by pioneering more effective ways for customers to gain immediate access to goods and services, when and where they need them. Because pure online platform operators have to invest in a few physical assets, they can drive down the cost of meeting customer needs. SEA Grab and Go-Jek are on-demand transport providers. In other countries- Uber, Lyft, Yandex, Ola are examples of ride-sharing platforms that operate as on-demand business models.
6. Online Marketplaces: Some of the most successful platforms are simply the best at connecting buyers and sellers of goods and services. Online marketplaces — such as Amazon, Alibaba, Lazada, Tokopedia, and eBay — can offer a virtually unlimited supply of products without the platform company having to carry any inventory. The company can also charge its supplier partners for value-added services, such as low-cost shipping and logistics.
7. Multi-Platform aggregator or Super-Apps: Amazon Alexa is an example of a platform aggregator, where multiple platforms that participate in Alexa’s or Amazon's ecosystem can be accessed by the user. The platform aggregator is a complex model that only the big technology companies can orchestrate. A platform with multiple partner offerings or integrated partner-platforms can also emerge as the super-app.
8. Cloud-based platforms especially SaaS Platforms: CSPs (#cloudserviceproviders) like Google cloud, Microsoft Azure, AWS provide complete infrastructure to the companies to build their digital products and applications (IAAS, PAAS, SAAS). These are in a way platforms as well, for the developers depending upon the end-product goals.

Image-Gartner

Software as a Service

SaaS offerings like Xero, ZenDesk, DocuSign, EventBrite, Paychex even Gmail are platforms that can scale exponentially. They do have overlaps with the subscription or the Freemium model, but wanted to highlight them separately as the SaaS category is going to grow at the rocket speed as more an more companies build SaaS solutions with the customer pain-points.

What’s next once the platforms and ecosystems mature? Just notice the following trends as they unfold over the next 5–10 years:

1. CENTRALIZED PLATFORMS WILL EMERGE IN INDUSTRIES WHERE TRADITIONAL OR PHYSICAL CHANNELS HAVE DOMINATED.
2. PLATFORMS WILL MATURE IN INDUSTRIES WHERE THEY HAVE ALREADY SCALED.

3. CENTRALIZED PLATFORMS (ONE-ORCHESTRATOR) PLATFORMS WILL BE DISRUPTED TO BECOME DECENTRALIZED OR CONVERT TO MULTI-ORCHESTRATOR (based on SMART-CONTRACTS). THE DECENTRALIZATION-DISRUPTION WILL BE POWERED BY THE BLOCKCHAIN-TECH.

I will write some more articles and decentralized-economy. Startups and developers' community will take charge to build new applications and business models that operate on the principles of ‘digital trust + decentralization +disintermediation’.

Best regards,

Sidhartha Sharma

Is the digital transformation and strategy expert

Sidhartha S. - Director, ASEAN- Digital Strategy & Transformation - BIG FOUR | LinkedIn

Sidhartha Sharma's Digital Event Horizon

Sidhartha Sharma

view are personal