How business platforms can create new value?

From the economic perspective, platforms are “special kinds of markets that play the role of facilitators of exchange between different types of consumers that could not otherwise transact with each other”. (Gawer, 2014)

In most cases, there are two types of consumers operating on the platform in two different contexts: “a business side (B2B), which very often is the business customer (they pay for a service) and an end-user side (B2C) who is the consumer of the service, and who may or may not pay for the service”. (Muzellec, Ronteau, and Lambkin, 2015) For example, this pattern is very common for the modern Internet platforms.

The innovative impact of the platforms is done in the forms of “governance” and “structure”. Platforms innovate “by linking activities in novel ways” and “by changing one or more parties that perform any of the activities” (Amit and Zott, 2012). These changes contribute to developing new business models, which results in the value creation. But the important attribute of the platforms is the mechanisms for creating this value.

Even though the platforms form value proposition for the both (or more) sides, their key feature is that they do not purely create that value themselves. Instead, they provide the environment for these sides (or at least one of them) to contribute and co-create the value. However, without platform existence this value does not appear either. Thus, “platforms fundamentally create value by acting as conduits between two (or more) categories of consumers who would not have been able to connect or transact without the platform” (Gawer, 2014).

Almost any Internet service can be given as an example to demonstrate the platforms. AirBNB operates on hospitality domain linking guests and accommodation providers. Unlike other aggregators, it is targeted not to the hotels but to ordinary people providing their homes for temporary renting. This way, AirBNB links two sides, which previously never acted on the same area, and propose a new value — an experience of “living like a local” for the guests and flexible and easy way or earning for the homeowners. This illustrates how “each side generally derives positive externalities from the participation of members on the other side” (Muzellec, Ronteau, and Lambkin, 2015). Even though AirBNB faced some legal challenges in many cities, in general, they have changed the industry patterns and have developed a new market.

Another aspect of the platforms is that besides being innovative themselves, they also provide opportunities for further innovations for their actors. This is mostly applicable to social networks like Facebook and Twitter. Having developed the right environment for their end users, they do not guide them towards any direction. Instead, the options what exactly to do is completely up to the people whereas the platforms only provide opportunities and tools. As a result, these platforms grew into whole eco-systems. Users’ activity on Facebook led to a major of groups (forums) and finally turned the social network into a knowledge bank. Driven by network effect, the Facebook content groups now provide more information than regular websites on a specific topic. In turn, this content attracts more and more users, who are very interesting for the advertisers. Being a platform, Facebook did not actively participate in this value creation. Moreover, it did not even rule the groups where end users contribute. Platform’s openness made it for the users to create the environment and later operate in the very same environment. Thus, Facebook offers a platform for value co-creation and also the opportunity to co-create the platform itself. Such “domino” attribute in the value creation aspect makes Facebook role even stronger. As we have already evidenced its affection onto the news market, the disruptive effects to the others are yet coming.

Both AirBNB and Facebook are game-changers. As the platforms, they are complex modular systems mostly providing opportunities. In the platforms, the value creation is made by the parties involved whereas the role of the platform is to provide the environment and ensure the linking.

References

Amit, R., & Zott, C. (2012). Creating value through business model innovation. MIT Sloan Management Review, 53(3), 4.

Gawer, A. (2014). Bridging differing perspectives on technological platforms: Toward an integrative framework. Research Policy, 43(7), 1239-1249.

Muzellec, L. & Ronteau, S & Lambkin, M. (2015) Two-sided Internet Platforms: A Business Model Lifecycle Perspective. Industrial Marketing Management, 45 2015, pp.139-150. Available at: http://hdl.handle.net/10197/5630 DOI: 10.1016/j.indmarman.2015.02.012

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