In the "good old days", the ultimate aim of a business was to dominate their respective market, through whatever means necessary. However, the digital revolution of the past two decades – and the subsequent rise of Industry 4.0 – has significantly disrupted that paradigm, giving rise to new possibilities. Tech startups such as Uber, Airbnb, and Facebook have reached billion-dollar valuations not by dominating their marketplaces – but by creating new ones.
As a result, we now live in the era of the platform-based business model. With companies that adopt this strategy, the onus is no longer on delivering products or services – but rather on enabling other enterprises to do so.
Given the breathtaking pace at which some of these companies have grown in just a matter of years, this model is fast becoming the go-to strategy for new startups in the digital era. But what exactly are the benefits and potential of a platform-based business model, and why should you – as a business owner or entrepreneur – care?
What Is a Platform-Based Business Model?
To get to the heart of what makes a platform-based business model successful, consider the common denominator of companies such as Uber, Airbnb, and YouTube. Sure, they are all internet-based businesses with millions of users across the globe, but more importantly, the primary service they provide is that of a matchmaker between two parties.
In the case of Uber, for instance, that connection would be between taxi drivers and their passengers, while Airbnb matches people looking for temporary accommodation with landlords or homeowners. YouTube is less direct in this way, but ultimately no different, providing content creators with a chance to connect with their target audiences.
Even mainstream companies that started outside this platform paradigm have successfully adopted it in order to drive growth. There is no better example of this than Apple, which has implemented online marketplaces and ecosystems (such as iTunes and the App Store) into its existing products.
Indeed, by allowing third-party companies to use its marketplace, Apple has achieved two things: they have increased their value proposition in the B2C segment, while simultaneously opening new revenue streams in the B2B sector (it receives a commission for every single transaction that takes place on its platforms). This business strategy has enabled Apple to diversify its products and services beyond simple consumer goods, turning it into one of the most successful brands in the world.
The Potential of Platform-Based Business Models
Adding to the allure of the platform model is its potential for universal application; it has already been successfully employed in fields as diverse as entertainment, retail, food service, transportation, and healthcare, for instance.
Consumers flock to these platforms due to their availability and accessibility. Virtually all enterprises that use this model exist as apps on smartphones and other mobile devices, giving them easy access to millions of users across the world. This is something traditional businesses could not even dream about in the past.
Just take a look at some of the services provided by digital platforms at present; the model has penetrated many different sectors of the economy, disrupting every single one of them. The best part for you, as a business owner, though, is that with many areas of the economy still untouched, this is one juggernaut with a long way to go.
The Allure of Exponential Growth
As you are probably beginning to realise, the benefits of a platform model can seem irresistible. If – and, of course, that is a big ‘if’ – you have a disruptive service in a hitherto untouched sector of the traditional market, your potential for rapid growth can be almost limitless.
It's not just about increased exposure, either. As already mentioned, platforms can unlock access to millions of customers around the world, but users are only one part of the equation: you are also facilitating the business of companies who provide a particular service or product. With the global digital economy registering double-digit growth, there is massive potential for the foreseeable future, especially when you consider that it has taken traditional corporations decades to achieve what the likes of Uber and Facebook have claimed almost overnight.
Access to Big Data
Given the digital nature of platform-based models, there is another obvious benefit; cash is not the only king in the digital marketplace, after all. For many startups, the real value lies in big data, with platforms allowing you access to massive troves of data and information about users and businesses. This raw data is like unrefined petroleum, and there are many useful nuggets hidden inside, just waiting to be extracted.
Of course, big data comes with its own set of challenges. Users are wary of privacy issues, and as a result, governments are cracking down severely, with the European Union's GDPR policy the most high-profile example to date.
The key for businesses, therefore, lies in figuring out how to remain compliant and respect the privacy of users while simultaneously monetising it. That sounds like a tall order for sure, but certainly worth it: while it is no longer the wild west of a few years ago, data analytics is still a highly lucrative field.
Take Uber as an example. The company has recently experienced a torrid IPO, and profitability is still nowhere to be seen on the horizon, yet confidence remains high not just because of their pre-eminent status in the global rideshare market, but because of the treasure trove of data they possess in their coffers.
How Realistic is the Model for New Businesses
Another advantage of digital platforms is their relative accessibility when compared to traditional business models. Given the glut of funding tech startups across the world, access to finance is available if you have an enticing business proposition, while many governments and institutions also run startup incubators and accelerators to provide guidance and access to support networks for innovative tech startups.
The current market is not without its challenges, though. The entire tech startup scene is a high-risk high-reward arena, and when it comes to platforms, getting your business afloat is just the start of the battle. This is a winner take all contest, unlike traditional markets.
You cannot hope to compete with established brands, either, unless you have something that trumps their offering. On the plus side, though, given the constant push for innovation at larger organisations, tech giants such as Facebook and Google are always on the lookout for new acquisitions.
If you have a promising business idea, then a few years down the road, an exit from your startup is a realistic possibility. It all depends on your business idea and the viability of its USP in a very crowded marketplace.
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The platform-based business model is the future of enterprise in the digital sphere, whether you are willing to accept it or not; even the United Nations Conference on Trade and Development (UNCTAD) thinks so. The question is, where do you see the future of your enterprise? Do you aspire to create a platform and lead from the front, or are you satisfied with becoming a follower? Either way, your business will have to deal with platform-based businesses, and that is unavoidable.
What are your thoughts on platform-based models? Are they the future of business? Join the conversation, and let us know in the comment section below.