The Platform Economy: Spurring Shared Value In The Digital Age
Just a few years ago, it would have been unthinkable that the world’s largest taxi company would not own a single car, or that a hospitality provider without a single room to its name would offer more accommodation than all the rooms at the top 5 hotel chains in the world put together. Yet this is exactly what the platform business model has made possible.
Platform companies are not just successful in themselves but are also sources of immense value for business and society at large. Research by the World Economic Forum’s Digital Transformation Initiative (DTI) estimates that digital platforms could unlock US$10 trillion in value over the next decade. This makes the platform a metaphor for mass value creation in the digital age - a business based on enabling value-creating interactions between external producers and consumers. And, the platform’s overarching purpose: to consummate matches among users and facilitate the exchange of goods, services, or social currency.
That’s why the platform business model stands out for the following:
Creating inclusive prosperity at scale: Traditional business models typically generate economic value at the top of the value chain, within the four walls of the provider organization, and trickle it down to the consumer. The platform model turns this on its head to generate value continually throughout an extensive ecosystem, and particularly downstream, at the node of the business user or consumer. And while naysayers may blame the model for concentrating power among a few, or disrupting steady-state business, the platform economy is equally responsible for sharing profit across the long tail of distribution and delivering higher returns than traditional models.
Let me cite the case of Airbnb, which besides opening up a means of livelihood for about 650,000 hosts – with seniors being the fastest growing host cohort – is distributing economic value to neighborhoods that never enjoyed the benefits of tourism. In fact, 53 percent of hosts claim that the income from hosting has allowed them to retain their homes.
Another example of the inclusive nature of the platform business comes from Uber, where women drivers make up 14 percent of the total in the United States; in comparison, taxis in New York City employ only 1 percent, female drivers.
Generating disproportionate value: The network effect takes over in platform businesses to generate disproportionate value rapidly as the number of users – both producers and consumers – increases. This value is shared among network participants. Along with the web and other digital technologies, the platform has shifted economies of scale from the supply to the demand side. Currently, the best example of the platform’s network effect is the mobile app ecosystem, which has set off a virtuous cycle where developers, operating system/ platform owners, and hardware manufacturers share revenues accruing from downloads, while consumers benefit from apps offering utility and entertainment. But I also see health and wellness platforms that take user-generated data – from implanted sensors or wearable devices for instance – to predict health risk or improve outcomes making a big impact on population health in future.
Building trust: The open and decentralized nature of the platform engenders trust between the members of its ecosystem, who understand that the only way to make the model work is through good self-governance. The benefits of this are visible in all the Blockchain use cases that have sprung up in the past couple of years. Let us consider a use case in the area of public utilities, one that will resonate strongly with anyone who has suffered through a property transaction in India. About a year ago, the Swedish National Land Survey, along with Fintech startup ChromaWay, piloted an initiative to put land title records on Blockchain, bringing trust, transparency, and security in property dealings. In India too, the Aadhaar (Unique Identification) initiative is working to restore trust in the public distribution system by transferring benefits directly to citizens over its digital platform.
These characteristics make the platform a powerful tool that governments, regulators, and policymakers can exploit to empower local communities, with better access to basic services, such as health, education, and banking, regardless of location or resources, and help both individuals and small businesses to share in the prosperity of the platform economy.
They will no doubt face several challenges, including protection of labor rights, ensuring fairness in competition and evolving the right regulatory framework, which while ensuring that the platform ecosystems act responsibly, will not stifle their capacity to innovate.