Scaling The Heights: Digital Platforms And The Marketplace Of The Future
If you are not convinced that digital platforms are upending the traditional paths to success and scale, take a look at the valuations of digital platforms against their nondigital counterparts. In industries as disparate as automotive and travel, digital platforms are equaling—and often outstripping—the market capitalization of some of the biggest and oldest names in their respective industries. And they did it in a fraction of the time with a fraction of the staff.
What is it about platforms that has enabled these businesses to reach such scale in such a short time? And perhaps more importantly, what does it mean to businesses that have not yet embraced digital? According to Platforms and Ecosystems: Enabling the Digital Economy, a new report by the World Economic Forum in collaboration with Deloitte and distinguished academics Michael G. Jacobides, Arun Sundararajan, and Marshall Van Alstyne, understanding digital platforms and ecosystems—and their potential—is quickly becoming a competitive imperative. The average business needs to understand how platform-based business models work and apply them to how they create value.
A new kind of model
On the surface, digital platforms may seem like just another channel in which to deliver a product or service. But whereas a traditional business reaches scale by selling more and more for less and less of that product or service, companies with platforms create value with outside users, in a sense shifting production from the inside to the outside. The more participants in the platform ecosystem—which facilitates the exchange of value among multiple parties—the more valuable it is for all its participants. And without the staff, production, and infrastructure costs of traditional players, these companies have managed to create network effects that build value at a previously unheard of speed.
And what’s made some of the platforms so disruptive—and successful—is their ability to identify an unmet customer need and capture the potential of excess capacity in the marketplace. Cars that weren’t being driven, guest rooms that weren’t being used. The digital age made it possible to access this capacity. But figuring out where that capacity is in a market may not necessarily be the strategic focus of more traditional players. This is where an ecosystem can help.
The role of ecosystems
In its loosest sense, an ecosystem involves a range of players that are engaged and connected to effect certain actions. What has made ecosystems so valuable today is that these players are now digitally connected. This means businesses can offer more than a product but an entire solution to their customers—solutions that involve partners outside of their business. Customers have more choice, businesses have more opportunities.
So is it feasible for a business to build an ecosystem? According to the World Economic Forum report, it is—to an extent. What’s important to recognize is that the digital platform giants out there have based their growth on network effects—that is, users create value for other users who in turn attract more users and so on and so forth. Their ecosystems can be boundless. And while that is essentially the function of a platform, not every business can or should function that way.
Rather, most businesses should expect to engage with a range of ecosystems as strategic partners. Finding the right relationships is key to any ecosystem and digital platform strategy. For those businesses that do choose to build an ecosystem and platform, the right culture and talent will be key. Ecosystems mean ceding a certain amount of control to outsiders—something not every C-suite is inclined to do.
The bigger picture
What is becoming increasingly clear, however, is that the rise of digital platforms and ecosystems has also caused users to cede a certain amount of control. And that’s where things are getting sticky.
Twentieth-century notions of governance are running up against the new realities of the digital age. As such, there’s now a growing expectation that digital governance should not just be the province of the platform but of the government as well. Just look at Europe and the GDPR to see how this can play out.
Is government intervention the only answer, then? Not necessarily. According to the Forum’s report, a platform is only as effective as the trust placed in it. And when participants feel the risk to their privacy outweighs the value the platform provides, they are less willing to participate. For a platform to build and sustain trust it must back up transactions with transparent guidelines that include due process as well as mechanisms to guard against algorithmic bias. The strongest brands will also rely on traditional safeguards such as government verification and human intervention.
The future of platforms and ecosystems
The digital platform giants of today have their own particular set of challenges in front of them—from charges of propagating fake news to looming antirust action. But there are many lessons to be learned from their success for the more traditional, nondigital platform businesses. Many of these businesses have already advanced their digital platform and ecosystem strategies. And while the big names may dominate the headlines, the growing platform presence outside of these few could mean the true impact of digital platforms and ecosystems is still yet to be felt.
Courtesy : Forbes