The platform business model is in vogue in the digital space and comprises of three main segments: Displaying the resources, rules and regulations, and focussing on ecosystem value. Together, the three segments enable the platform business to grow significantly.
The term ‘platform economics’ has become popular in the last few years but what exactly does it mean? Going by the definition, a platform is a business model that creates value by facilitating exchanges between 2 or more interdependent groups. Examples of famous platforms include Amazon, Facebook, Uber, and so on, revolving around three key factors mentioned above:
Displaying the resources
In a platform, there are many producers that feed the platform with their respective products or services and hence, the platform owner displays their products or services to the consumers on the platform. For instance, Amazon offers numerous products on its platform but it does not own the products infact it works together with vendors (producers) and then brings the products onboard and showcases it for the consumer. Similarly, the car app Uber offers many types of cars to the consumer but it does not own any of the cars.
Rules and regulations
As there are many participants involved in a platform, it becomes important to govern and set out clear rules and at the same time it also has to be approved by all the ecosystem players involved. For example, if a driver wants to get himself enrolled in Uber, he should follow the rules which can include factors such as possessing a valid driving licence, the driver should be above 21 years of age, he should not have a criminal record, etc.
From this, we can understand that the rules are simple and clear. However, if the rules were made difficult such as depositing a huge amount of money as surety or getting paid less for their services then the platform would face problems as there would be less number of drivers registered with the app and this would mean lesser number of cars and ultimately lesser consumers visiting the platform. As a result, this would reduce the value of the whole ecosystem.
Focus on ecosystem value
Conventional business models follow a very structured format to achieve value for their ecosystems. Platforms on the other hand, focus on the lean start-up methodology cycle in which one learns-builds-measures-learns-builds-measures and the cycle continues. This means that the cycle enables one to learn fast from their mistakes and make the right business decisions in a short period of time.
Platform economics is transforming the very nature of businesses in the digital world. With the emergence of more and more platforms, producers as well as consumers are also exploring new avenues to meet their requirements.