Digital platforms

• In this blog, we shall discuss on Digital platforms and whether Platforms have equally disrupted all the industries. We will further discuss which industries are more prone to get disrupted by Platforms than others.
• Platforms have rapidly changed many markets.Some industries are more prone to regulatory demands than others.Industries like Banking and Healthcare are some examples.

Evolution of Digital Platforms Strategy

• Platform strategy has swept through the business landscape because Platform business model enables interaction between customers and other players.
• Successful Platform companies like YouTube, Uber, Airbnb, Amazon and Facebook have set the benchmark for other players in the industry to emulate its model for Platform economies.
• Inspite of disruption of Platform business models across industries, not all industries have been affected equally.Some industries like Retail has undergone transformation rapidly compared to Aerospace.
• Platform transformation works best in industries with precise output and low regulation. When designing Platform strategy, business leaders should analyse how platforms would reshape industry ecosystems.Important points to analyse would be whether the users can create value in the ecosystem.

Understand whether business is ready for Digital Platforms Transformation

In order to understand, whether a business/company is ready for Platform transformation, following questions needs to be answered.

Digital platforms step 1 – What is the source of the business value?

• A platform business is different from a conventional business model where companies provides product/services to its customers.
• Industries that derive value based on collaboration and sharing information can be easily digitized and distributed.These industries are best suited for Platform transformation.These industries are the first to get disrupted.For instance disruption of music industry from iTunes to Streaming movies and disruption of news industry from print to digital media/platform models.
• These industries have transformed their value from physical assets to digital.For instance, we do not need a printing press to read news or a CD player to watch a movie.
• There are some industries which still rely heavily on the physical assets.These industries are harder to disrupt.For instance, companies in Construction sector, Chemical plants or in Oil refineries/pipelines.These companies cannot be disrupted easily with a distributed platform.
• There is lot of value that can be added to these physical supply chains using information.If the additional information creates value, then this gives an opportunity to reorganize these supply chains into broader platforms systems.

Are Transactions in Digital platforms modular or interdependent?

• Simple and well defined transactions are suitable for Platform transformation because they are simple to track and can be curated/outsourced to third party.Transactions like booking a room in hotel can be easily tracked.All the players in the ecosystem agree when the transaction has started and completed.
• For example in Amazon, a buyer can view all products displayed by the third party providers who are outside the control of the platform.These third party providers can still track their transactions executed through the platform from beginning to end.
• On other hand, products/services that are interdependent and complex like buying airplanes cannot be outsourced.Consumers want a trusted provider network for these complex purchases.
• Airplanes require highly complex spare parts to work together and require a long service after the sale is completed.

How regulated is the industry?

• Industries that are not regulated or less regulated are the best bets for Platforms business.Due to the lack of any compliance costs, these industries can afford to experiment with their business models.
• Popular platforms like Twitter, Facebook, Instagram, YouTube and Amazon are largely self regulated.These platforms allow users to both create content and at the same time flagging problematic information.
• Regulators are needed when there is a high cost for a failure.When cars, airplanes or banks fail, then the user’s life and money is at stake.Hence regulators are required to review these industries.
• Hence industries like banking, healthcare and education have seen little platform transformation. New players looking to enter into these industries face high entry barriers because users do not want to experiment with their health and finances.
• Of late things are changing.For instance, there has really not been much public outcry when Tesla driverless cars have caused fatal accidents.This might be because users realize that there shall be some teething problems associated with new technologies.

Scarcity or Availability of resources in Digital platforms

• Platform companies have taken the concept of shared economy to another level.Using Airbnb, users can rent their extra room to the guests.Platforms like Olx can allow users to sell items which they no longer require.Hence platforms have made it possible to turn spare capacity to value by connecting users and providers through a digital transaction system with low transaction costs.
• Platforms reduce the transaction costs for the capacity to be brought to market and then sold.Warehousing, Manufacturing and shipping all have pockets of underutilized capacity which are ripe for Platform transformation.
• Other products/services cannot be shared.For instance, a CEO of a company is unlikely to freelance.Surgeons are also an expensive asset and cannot be redeployed to other locations outside their home base. This would have an impact on the patients residing in the home base.

Asymmetric Information of the Market in Digital platforms

• Markets that have information discrepancy between the buyers and sellers are ripe for Platform transformation.
• For instance there might be pockets of businesses where buyers and sellers do not have access to same data.Car portals like cars.com can provide information on all types of cars and its features to users which is not available in a specific website.
• Another example is the Fasal initiative in India which highlights the Platform revolution.Fasal initiative is an online platform that connects the rural farmers in India with information about their crops along with its prices in nearby markets.Farmers can use this information to negotiate a better price for their harvest.

Conclusion

• Digital Platforms have disrupted all businesses due to its business model that facilitates interaction between consumers and producers.
• Yet Platform strategy has not equally affected all industries. Industries that are heavily regulated, rely on Physical assets for information value, have scarce resources, complex and interdependent are least prone to Platform disruptions.