Building a digital platform business
There is no single formula for building a successful platform business, but comprehensive basic information, tools, and examples are available to build platforms.
The construction of the actual technical platform is certainly successful from several start-ups, even relatively easily to get moving. Depending on the resources, one can be obtained in many different ways; install and modify open source platform software, purchase ready-made software, or build a completely custom platform solution from a digital solutions vendor or with your own resources coding.
Activating the actual activities, attracting parties, generating transactions, etc. - in order to make the platform evolving, expanding and ultimately commercially viable - therefore already requires considerable strategic, long-term and systematic attention and development; through experimentation, analysis, and continuous learning all the way to the top management level. Of particular importance is the management of lessons learned and the full utilization of the team working on the platform.
The driver of the platform economy is the economics of scalability of growth in demand and supply, ie the network effect. These are strengthened by creating efficiency by using e.g. social networks, aggregation of demand from different sources, application development and other methods that expand the network and further enhance the network impact. In the platform economy, firms that achieve a higher user volume compared to competitors (i.e., attract more and more efficient platform players) offer a higher average value per transaction. This is simply because the larger the network, the better the platform will be able to meet supply and demand, as the richer the data available to make the encounters. Economies of scale generate more value, which in turn attracts more players to the platform, which in turn generates new value.
This is the cycle of interaction that gives rise to modern monopolies.
The construction of the actual technical platform is certainly successful from several start-ups, even relatively easily to get moving. Depending on the resources, one can be obtained in many different ways; install and modify open source platform software, purchase ready-made software, or build a completely custom platform solution from a digital solutions vendor or with your own resources coding.
Activating the actual activities, attracting parties, generating transactions, etc. - in order to make the platform evolving, expanding and ultimately commercially viable - therefore already requires considerable strategic, long-term and systematic attention and development; through experimentation, analysis, and continuous learning all the way to the top management level. Of particular importance is the management of lessons learned and the full utilization of the team working on the platform.
The driver of the platform economy is the economics of scalability of growth in demand and supply, ie the network effect. These are strengthened by creating efficiency by using e.g. social networks, aggregation of demand from different sources, application development and other methods that expand the network and further enhance the network impact. In the platform economy, firms that achieve a higher user volume compared to competitors (i.e., attract more and more efficient platform players) offer a higher average value per transaction. This is simply because the larger the network, the better the platform will be able to meet supply and demand, as the richer the data available to make the encounters. Economies of scale generate more value, which in turn attracts more players to the platform, which in turn generates new value.
This is the cycle of interaction that gives rise to modern monopolies.
Key differences between traditional and platform business operation logics
As platforms require new strategic approaches, they also require a new way of leading and thinking. The skills required for tight control of internal resources do not apply to the management of the external ecosystem. This also helps explain why some of the top experts in traditional management have failed to build a successful platform business.
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From resource management to resource orchestration
Competition in the traditional business model is based on companies gaining the advantage of controlling their limited and valuable sets, such as mines, real estate, or intangible rights such as patents.
On platforms, the most valuable things that are hard to copy are the community of actors, the things they own and the supply they produce - be it the rooms that are rented, the cars or ideas and know-how. In other words, the network of producers and customers / users is the most important “asset” of the platform. |
From internal optimization to external interaction
Companies in the traditional business model organize their staff and resources to create value by optimizing the value chain of a product or service, from material sourcing, to production, sales, and value-added services.
Platforms create value by facilitating the interactions of external producers and customers / users. In this way, the nature of the activity changes from dictating and managing the process, motivating the actors to the parties and managing the platform ecosystem becomes an absolute competence requirement. |
From customer value focus to ecosystem value focus
Traditional business models aim for the amount of return on value over the life cycle of individual customers of products and services, and thus they are at the end of a linear process.
Similarly, platforms seek to maximize the overall value of a growing ecosystem through continuous analytical and intensive iteration based on ongoing stakeholder behavior and feedback. |
