Basics of digital platform business

One of the key elements of growth for organizations is the processes by which operations are standardized. Through these, activities can be measured and, by further shaping processes, activities can be made more efficient.

The efficiency and growth of the digital platform and sub-ecosystems is based not only on the digitization of processes, but also on the standardization of many issues such as data structure, technical interfaces (APIs), but above all on standardization of terms of use, standardization (such as Uber).

Instead of negotiating contracts with each customer or supplier individually, certain standard practices are created on the platform, allowing anyone who accepts the terms to join, use materials, provide services, etc., thus creating both significant efficiencies and a better and more predictable customer experience.

Especially in the early stages, from the perspective of validating the platform’s operations, it is essential to focus on assessing customer needs to validate genuine demand and customer experience. Supply is generally easier to enable. The top supply can even be bought or produced by yourself, and only later replaced according to the logic of the platform business. Once a sufficient scale has been reached, the focus of platform growth will focus on a balanced increase in supply and demand relative to platform expansion.

Below is a general description of how the digital platform works and a list of things that the platform needs to handle well and with a good user experience for all parties to succeed.

​Operation and development

The operation and development of the platform includes the following core functions; increasing the number of parties, matching, creating rules and standards, and providing key tools and core services (e.g., user support, payment transactions, etc.). These are the core issues that allow the parties to make transactions.

1. Increasing the number of parties: attracting and getting different parties to the platform in order to build a sufficiently large network so that supply and demand meet sufficiently and value exchanges begin to take place.
2. Confrontation: When you get parties to the platform, you need a confrontation with parties whose content is relevant to each party. Otherwise, all parties are looking for a needle in the haystack.
   
3. Rules and standards: The platform creates rules that define the permitted or prohibited conditions, which, among other things, determine what kind of behavior is encouraged and what kind of behavior is not desired. This comprises two main forms: moderation of access and use. Access moderation takes care of who gets to join, who doesn’t and why. Moderation of use is the monitoring and maintenance of the quality of events, through the accumulation of information and feedback provided by the parties. If this is not taken care of, the quality will deteriorate as the number of parties increases.
   
4. Tools and services: The platform provides key tools and services to the parties, such as technology that supports every step of the core transactions. The tools are self-service type tools and other so-called “Plug and play” solutions. Services, on the other hand, are things that the platform manages centrally itself. For example, insurance, outlets, or customer support.

Platform Transactions

The core transactions that the parties seek to make happen are; create supply, combine supply and demand, use supply and compensation. The platform does not control all phases, but builds an infrastructure that supports and encourages these.

1. Create supply: The parties to the platform must produce content, such as services, products, outputs, etc., that supply will be created for the platform.
   
2. Connect: The platform should help connect demand to the supply produced.
   
3. Uses supply: Platform parties take advantage of supply and experience its value. This can be, for example, a purchase or an application download.
   
4. Compensate: The party who uses the content also generates in return the value they give the content creator to the party in return for the value they receive from the content. This is not necessarily money, but can have value such as liking, reputation, attention, etc.

Versions

If we look at the evolution of platform business models over time, they can be roughly divided into three different version types.
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• Versions 1.0, are more free and open to all platforms, and where the touch and control of the platform owner / operator has been relatively light. More reminiscent of the “marketplace online” type of approach, such as ebay, yellow stock exchange, huuto.net, etuovi.com, etc.
• Versions 2.0, where the platform owner takes a clearly stronger curatorial role in managing the customer experience relative to their own brand, such as Airbnb, Wolt, etc.
• Versions 3.0, in which the platform's own deepen its own regulation even further under its own brand, both in the management of the customer experience and especially in pricing. An example of this type of platform is uber, fiver.

As such, all of these version models are still applicable to numerous of the latest platform businesses, and starting with one version does not mean that the strategic goal with growth could not be to switch from one version to another in any direction.

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