Platform — the new (old) marketplace
The term Platform is overshadowed by the hypes of Passive Income, the Platform Revolution and Ecosystems, and the dizzying successes of Facebook and Google. If we break away from these urban legends, we can see an old idea: the more or less public marketplace.
The interconnectedness of the world with ICT shrinks geographical distances to a click. Everyone who has access to the Internet is part of this network. The result is a vast choice of offers. Providers strive actively for their personal gain from the net. PR work is thereby a part of EVERY biz.
Serious providers ensure how they can reliably handle their firm. Until now, there has been a lack of global stipulations and matching bodies for negotiating and enforcing rights. In the past, marketplaces proved their value by setting the rules and supervising their compliance by public officials and by offering safety — financed with taxes and fees. Nowadays, platforms provide a similar setting.
On the following pages, we look at platforms from an organizational point of view: where they come from; what building blocks exist; on which layer they can be conceived; what propels them; what makes them a sustainable playing field.
Platforms — an old concept
Since we stopped living hand-to-mouth, humanity is developing. Long before writing was invented, people specialized and did no longer do everything by themselves but exerted special skills — hunting, gathering, farming, doing carpentry, laying bricks, blacksmithing, baking, cooking, building tools and instruments, and so on. With this specialization, they produced more than they could consume. At the same time, they needed things that were made by others. To exchange the goods, they needed a new occupational group, the dealers. Eventually, the local market became saturated, and the itinerant tradesmen began to move from place to place. As the number of vendors and customers increased, so did the required space. Market towns evolved at conveniently situated locations, followed by villages and towns. A prominent example is Heuneburg Castle, aside from the Danube. These towns and the scope of trades grew over time, and all kinds of goods changed hands — by bartering and after introducing neutral currencies for money. Amber from the Baltic Sea, gold jewelry from the Near East, tin and spices from the East, weapons from Thuringia, and salt from Hallstatt were traded. Marketplaces mainly evolved along waterways, coasts, passes, and main traffic routes and thus contributed decisively to the importance of a site.
Today’s trading places are created on the Internet. They connect sellers and buyers without geographical and timely restrictions. These platforms resemble the past marketplaces and ensure regulated exchanges by assessing participants, providing the necessary infrastructure, promoting cultural diversity and executing all economic activities, and regulating them through adequate governance.
Access control
A protected space determined the trustworthiness of a marketplace for the trade of various offers — e.g., food, meat and fish, livestock, hay, wool, and grinding, writing, hairdressing. For permission to deal, vendors had to follow specific rules and pay market duty. The market bailiff supervised compliance with the regulations.
Today’s platforms are also structured according to subject areas and stakeholders. The portal to the platform opens to all those who have a corresponding account, i.e., having a user ID and password, agree to abide by the respective rules, and whose compliance is monitored by an administrator.
Infrastructure
In a medieval town, residents used common facilities in the heart of a settlement — from the town hall to pubs to prisons to execution sites to the marketplace. The market bailiff assigned a market booth to a merchant for a reasonable fee. A banner on the town hall indicated market day, which attracted not only residents but also customers and merchants from outside.
A general infrastructure is also provided in virtuality — from account administration to marketplaces, workflows, training areas, entertainment corners, and features to punish extreme misbehavior. The infrastructure ensures stakeholders a reliable place to trade.
Cultural diversity
The town’s residents and tradespeople and traveling merchants from other regions and countries got together in the marketplace. The visitors met unfamiliar customs, tastes, and requirements or offers of different cultures and professions. The market was a melting pot of different spheres of life — patricians, craftsmen, merchants, servants, day laborers, hangmen, and whoever could enter the market. The various communities had to obey the respective market law.
Today’s platforms are also made up of diverse participants who belong to one or more groups — suppliers, consumers, and platform brokers. They are united by their interest in the economy — possibly in multiple languages, with different mentalities and cultural backgrounds, and different customs to trade.
Economic hub
The marketplace was the town’s official hub for economic activities. Goods were offered for sale, fabricated, and delivered in the city, the region, or far away. New ideas could be presented or discovered. The cross-regional distribution by traveling merchants boosted the mass production of any goods. Exotic offers reached the individual economic regions due to the constantly longer sales routes. Our shopping centers, the malls, come close to the varied hustle and bustle of the early trading places.
The virtual platform is also used primarily for the regular exchange of arbitrary deliverables. Market operators provide a place for producers and consumers to exchange deliverables in return for appropriate compensation. The producers also show their offers to those who are not even aware of their needs. Thus, in addition to sales, the platform also serves and advertises to present its offerings. Therefore, today’s platforms offer insights and opportunities to learn about offers and exchange content without obligation.
Governance
Strict laws applied in the market — e.g., market peace, compulsory markets and routes, uniform weights, regulated prices, and rules for disputes and penalties for violations of the market regulation. The craftsmen formed specialized groups, so-called guilds, which laid down regulations regarding training, tools, and quality for their field. Non-members of the guilds were not allowed to practice an established craft.
Virtual platforms also set rules to ensure the quality of market activities. Participants and their deliverables are certified according to official criteria — e.g., ISO standards. This confirms that outputs are provided based on clear procedures and responsibilities and that the results meet clear criteria. Membership fees, commissions, and donations finance the virtual platform.
Enhancements
The market well-being was the city’s responsibility, which was governed by members of the upper class. They decided on governance, infrastructure expansion, the influx of people, and promoting certain trades.
Accordingly, today it is mainly the platform brokers who take care of the continuous expansion of IT, the management of new and existing members, and the definition of new scopes of offerings and standards.
The jurisdiction of a medieval market was defined by the city walls and the boundaries of the marketplace. The worldwide availability of the Internet determines the scope of action of a virtual platform — you are just a click away from any platform. Today’s hurdles come from the familiarity of the web address and the mastering of the local language to search, understand and find offers in the platform (see this multilingual example). Market access on the Internet is made through access control, which protects the platform from unauthorized use. Within, diverse cultures can settle and deal as long as they follow the common rules. All benefit from continuous development, which always provides new features and offers. Even a medieval city had the building blocks that now make up a virtual platform.
The necessary building blocks of a platform
The pervasion of the economy with computers and networks is enabling new business models. Uber, AirBnB, Alibaba, Youtube, and many more are changing with platforms how trade is done, where vendors can meet and agree with interested parties. The new self-image of providing a basis for others leads to these deliverables poaching in established business fields of cab companies, hotels, department stores, and media groups without adhering to their rules of the game. Of course, these platforms do not feel they are competing with traditional providers. No drivers are employed, no hotels are operated, no goods are moved, and no content is generated. As a result, they are not subject to existing regulations, such as those that cab drivers must adhere to a police clearance certificate without traffic and other criminal offenses; a medical fitness certificate; compliance with technical standards for vehicles; the provisions of passenger transportation law. The current platform providers are not comparable commercial service providers in the above sense. They only establish a place where suppliers and buyers can meet.
Let us look at different building blocks that make up a platform.
Protagonists (roles)
A platform connects three groups of people. 1) The producers who offer certain products or services. 2) The consumers who search for such deliverables. 3) The brokers bring producers and consumers together by providing a platform for a fee.
Added value for the protagonists
The sales argument of brokers, the USP (Unique Selling Proposition), is the exceptional added value of creating a place to interact for offerers and demanders. There is a common interest in the respective industry (e.g., passenger transportation, accommodation, consulting, and coaching for companies). Producers and consumers secure access to the functions they need (e.g., content exchange, event organization, reliable contact data). They find an extensive selection of similar merits bundled under one roof. The brokers derive their value-add from the network operation, expanding over time to include additional free or paid offers.
Marketplace as a sales point
At the Point of Sales, deliverables become visible, comparable, and obtainable. Therefore, booths are set up where providers offer their output for sale, as in a conventional market. The brokers set up the marketplace to make it easier for the providers to present themselves and for the demanders to see their outputs in one place. This includes measures that make the offers comparable, enable the exchange of content and opinions, ensure the reliability of offers and ensure trustworthy payment transactions.
Information hub
In virtuality, everyone lives from available data. This can be e-books, brochures, whitepapers provided by the protagonists regarding their topics. In addition, information brokers, whose offers are creating, acquiring, and preparing content, offer thematic, paid content. This increases the appeal of the hub. Eventually, the platform’s appeal is increased by state-of-the-art interactions: e.g., forums, surveys, and the like.
The platform provides the basis for the new business models and, at the same time, a hub for a wide variety of industries. Producers, consumers, and brokers exchange their contributions under one umbrella. Like traditional marketplaces, they feed the needs of those authorized to access: to sell/buy deliverables and exchange information. The multitude of tools, the satisfaction of the interests of all protagonists, and the unlimited possibilities of networking on various layers make membership in a platform desirable.
Platforms at all layers
In the past, there were a manageable number of business models: Baked goods, meat, vegetables, general merchandise, etc. The suppliers have differed by exceptional manufacturing procedures and recipes. Nowadays, business models are designed, operated, and replaced by new ones. There are many hurdles to overcome before the actual dealing starts. Henry Ford had taken care of all parts of his value chain — e.g., coal mines, rubber plantations (see Fordlândia), assembly lines, dealers.
Meanwhile, the pendulum has swung in the opposite direction — e.g., low production depth, personnel leasing, outsourcing. One hundred percent vertical integration is now being replaced by low vertical integration. Digitalization will reinforce the trend towards shallow vertical integration — e.g., call centers at low-cost places accelerated development through global collaboration (24/7 — follow the sun), automation of administration. The new agility becomes possible when tasks are distributed on many shoulders. Platforms provide such shoulders. It does not matter whether we talk about different platforms or one that contains all the necessary building blocks.
The platforms’ offerings range from brokerage to the provision of technologies, areas of expertise to niches and business models. This allows tomorrow’s entrepreneurs to focus on their actual affairs.
Technology
The fourth industrial revolution, Industry 4.0, is driven by the promises of network-based ICT technologies — Cyber-Physical Systems, Big Data, Cloud Services, 3D Manufacturing, Embedded Technologies, etc. Without this high-tech, it will be challenging to remain competitive in the future — even in non-IT branches, they will be needed to improve business processes. The platforms assume the corresponding tasks, which are available as different delivery models — e.g., Supercomputer-as-a-Service (SCaaS), Robot-as-a-Service (RaaS), 3D-as-a-Service (3DaaS). In principle, all technologies are offered on different platforms with suitable payment models.
Operating system
An operating system combines ICT components into a smooth whole. Application-related platform potentials can be found at all levels of IT — from an infrastructure (Infrastructure-as-a-Service — IaaS) and production facilities to platforms (Platform-as-a-Service — PaaS) and other applications (Software-as-a-Service — SaaS). With increasing network availability, security, and stability, more and more companies are entrusting their ICT to cloud-based solutions. They delegate operations to third parties and only pay for the services used — the payment models range from Rent-instead-of-Buy, to subscription, to pay-per-use.
Subject areas
Fields of expertise are subdivided into economic sectors, professions, scientific fields, or a mix of these. The individual fields provide a vast amount of knowledge and practical experience that can be reused in the long term. This counts for the age of the steam engine, the profound changes due to electricity, and the new possibilities of computerization. The fourth revolution, digitalization, will lead to more skilled people offering their knowledge as a service to any company. In addition to the provision of media, micro-consulting, and coaching, Massive Open Online Courses (MOOCs) and virtual events will gain importance. Internal education will be completely externalized.
Network
The current networks connect producers with consumers, provided by a broker — e.g., UBER, Airbnb, Paypal, Ebay, etc. In the future, exclusive biztopes will emerge where chosen, paying members to support each other’s trade across the boundaries of the firms. The Henry Ford of today shares production resources on a platform with his competitors and then outperforms them through his speed and ideas and individual adaptability to new trends. This creates a new meaning for the term networking — no longer the casual exchange with small talk, but the forthcoming, reliable form of collaboration across corporate boundaries.
Market
The place where people negotiate has always been delimited by the goods and services that are exchanged. An overlapping of markets rarely happened. This is still visible today in the Arab gold, spice, and household goods souks. The virtual markets are not only one click away from each user but also from each offer. This allows any mix of goods. Thus, one quickly moves from one site to another. The price, however, is a flood of platforms that often have similar offerings that differentiate a little from each other. For this reason, the platforms complement their functionality by extending the advantages of the classic marketplace with its hints, virtual advisors, and regulations. In these exchanges, sellers and buyers meet to sift through offers, exchange news, buy or bid on deals — e.g., Covisint, SupplyOn.
Niche
The little sister of a market is the niche that forms at the edge of a market and in which unusual offers can be found that are not promising a lot of sales or are traded en masse. Thanks to the Internet, such niches form independently of significant marketplaces since they remain just as easily accessible as a niche platform and do not get lost in the large market’s comprehensive offerings. When the first personal computers appeared, they had just a few possible uses. Customers were some nerds who had fun exhausting these machines — in the beginning turning a few lights on and off and making sounds, later hacking the telephone network and programming computer games (e.g., Pong and PAC-Man). It was not until 1979 that PCs stepped out of their niche and into the mass market. Dan Bricklin and Bob Frankston had developed VISICALC (the first spreadsheet program), making the PC an affordable calculation host for everyone. Even the most specialized offerings can build their niche market and rapidly conquer a market depending on its success through platforms.
Business model
In a podular world, new forms of collaboration, known as pods (i.e., small, independent units that generate added value), can enable business models that were not feasible with the sealed-off silo company. They arise needs-oriented, jointly fulfill their purpose, and dissolve when they have fulfilled their purpose. The necessary resources are drawn from platforms based on effort (pay-per-use) or other payment modes. The expenses arise when the technology, the operating system, the area of expertise, the network, the market, and, if applicable, one’s niche are linked. If the results are correct, then different platforms evolve into an overarching meta-platform, which in turn evolve into a meta-meta-platform, and so on.
Today, launching a new business model no longer requires considerable efforts to build the necessary means, a coherent operating system, the required expertise, the lengthy development of a network, the development of a market or one’s niche. Platforms allow start-ups to focus on shaping their core competencies. The kit offered to provide solutions at a fraction of the development costs that would otherwise be necessary. And who would nowadays be able to develop Trello, Conceptboard, Office365, or SAP S/4 HANA just for oneself.
The fuel of a platform
New business models come from the available IT solutions that can be accessed via platforms. Whereas a trade had to create the necessary infrastructure itself in the past, today, you can use facilities and bodies to implement your business idea.
· Authors use offers such as print on demand to release their books entirely without a publisher.
· Freelancers find their assignments via corresponding online platforms.
· Small business owners can hire hotlines that allow customers to reach the small business or schedule appointments.
· Repair meetings or repair cafés use platforms such as the Repair Initiatives Network to reach users.
Fab labs are already being used to manufacture one’s goods or at least the prototype (without building the corresponding production facilities). The possibilities are limitless, and their use depends primarily on the inventiveness of the entrepreneurs. What are the drivers for such platforms?
A platform behaves like a natural organism that continuously fights in its environment for survival. The following driving forces support this.
Natural network effects
Thanks to the Internet, everyone is latently in contact with everyone else. It creates network effects that can be harnessed. All the protagonists of a platform have a vast amount of knowledge at their disposal: Publications, events, contacts, and market data. This extends to the widespread availability of insights from the many, e.g., in forums and virtual events. To achieve the full effect of network effects, there should be not only selectively one-sided offers available but also complementary assortments that even offer contradictory solutions. The more exciting and diverse the platform is, the more providers and clients are attracted, and network effects are triggered — the convenience increases with the number of users: the more complete the offering, the more users, the more enhancements.
Activated users
The entry barrier of a platform should be as low as possible. This can be done with a free membership (freemium) that allows using and discovering the offering without restrictions within one month. To get protagonists to participate, user contributions should be rewarded with bonuses and other incentives. Constantly changing contests and special offers bring interested users repeatedly back to the platform. Once a user recruits new members, this should be acknowledged with monetary or non-financial incentives to encourage further referrals. Passive participants slow down the unfolding of the platform’s impact. The same applies to the urban legend of Passive Income. Especially in the case of platforms, the following applies No pains, no gains.
Seducing choices
Once users understand the platform and get used to it, a wide variety of offers is promising: e.g., not only accommodations in one country, but all over the world. The platform also becomes more enticing with real contacts, as this makes the stiff websites more personal. Besides, the structuring of the platform is an essential explanatory brick, as it has an indirect influence on the formation of mental models among users. With appropriate search engines, glossaries, and wikis, users get subject-focused information that draws them frequently back to the platform. Hyperlinks allow individual navigation. It is valid: all roads lead to Rome.
Early tipping point
The first users of a platform find only a few contacts and offers. Think about the first telephones. In 1881, the first telephone network with 48 connections went into operation in Berlin; by 1914, there were already 1.5 million telephones; today, there are four billion connections worldwide. Every new platform has to grow in the beginning to fulfill its purpose. Over time, the network effects emerge. The point from which the number of users evolves exponentially is the so-called tipping point. Facebook reached this point after three years. Until then, patience and dedication are required from everyone involved so that the platform does not collapse prematurely due to a lack of users. To avoid this, platform providers are doing everything they can to get interested parties to join the platform with the lowest possible hurdles: free membership, significant gains at little cost, and an exciting starting package that is provided through collaboration with content providers, as long as there are not enough member contributions.
Continuous further development
All three protagonists must make efforts to enhance the platform. The providers should continuously expand their existing offerings and their assortment. The takers contribute to the success with their contributions and the sharing of experiences. The brokers are responsible for continually enhancing the platform with additional options and the linking of content. The more dynamic the platform becomes, the more protagonists are drawn by the club.
Platforms achieve the desired impact due to the efforts of the brokers. The tasks platform providers have to face are: Harness network effects, mobilize users, offer a wide variety of choices, get over the tipping point, and continuously enhance the platform. Only proactive steering will take brokers beyond the tipping point.
The platform as a sustainable playing field
Markets of the past evolved because local economic opportunities were exhausted, and interest in new things grew. As soon as a market is saturated, entrepreneurs are looking for new sales markets — until today. This development is promoted by the consumer’s curiosity and greed for things that are locally not available. Rare raw materials to this day are amber, primarily found in the Baltic States, or frankincense, which is mainly obtained in East Africa, the southern Arabian Peninsula, and India. Alloys, recipes, and procedures are still kept confidential. The correct mixing ratio of copper and zinc has characterized a whole age — the Bronze Age. The Chinese had a monopoly on the production of white gold until porcelain was reinvented in Dresden in the 18th century. The need to find new customers for offerings continues to require trading places that originate wherever access to the WWW is available.
The following general conditions apply to all types of platforms.
Common principles
Cooperation on the various playgrounds is governed by principles agreed upon by brokers, producers, and consumers. The brokers take care of the technical platform, the contents, and the personnel who ensure its operation. At the same time, they make the trading place interesting for suppliers and consumers so that transactions can be carried out securely without delays. This includes internal transparency and connectivity and the user interface for everyone to interact and participate. Suppliers and buyers commit to the available guidelines. Ideally, a code of ethics is formulated that describes the platform’s principles, binding for all.
Clear guidelines
With the lack of global jurisdiction, legal difficulties arise with the worldwide scope of a platform. Therefore, brokers determine rules concerning the applied laws, norms, and standards. This regulates the form of cooperation and the transactions. With the increasing dependence on platforms, ways and means become possible to sanction misconduct.
Recognized decision-making bodies
The growing number of users will lead to voting bodies taking over control from the platform founders. This is where brokers, producers, and consumers will then find each other to define technical, professional, and legal aspects and negotiate in disputes.
Simple roles
There are the three roles discussed: Consumers, Producers, and Brokers. In addition, platforms have the usual IT roles: User, Administrator, 1st- and 2nd-level Support, Expert, Process Owner, etc. Unnecessary bureaucracy must be avoided, as this makes the platform less appealing.
Bottom line
The playgrounds of the economy always had visible boundaries, rules, administrators, and an increasing number of suppliers, customers, and assortments. Globalization began with the traveling merchants and has now reached anybody via virtual platforms connected to the Internet. We must face the cultural diversity that grows out of it.
At the same time, established organizational formats are losing their advantages. Since anyone can and wants to collaborate with anyone anywhere at any time, the Extended Enterprise is the starting point. In the future, the wall around the company will no longer protect against intruders and, unfortunately, prevents value-adding cooperation with other companies or individuals.
The new platforms provide a framework and architecture for transactions. They are provided by brokers who take care of the operations and the other protagonists.
Consumers are the buyers of the producers’ output. They meet on the platform to find deals, get info’s and make agreements. Deals are agreed at every conceivable layer and revolve around technologies, operating systems, subject areas, networks, markets, niches, and business models.
In addition to the thematical values of bundling certain topics in one place, users can take advantage of networking effects, member engagement, and the continuous development of the platform.
They need to agree on common principles, clear rules, accepted decision-making paths, and clear-cut roles. Platforms are the new hubs where the economy exchanges information, just as the former marketplaces did.
Collaboration of the future will be characterized by loose networks, agility, and radical de-bureaucratization. The playing field for this will be created by platforms at all layers — with the necessary rules to ensure the security and reliability of the interactions. This means that companies and public authorities will, on the one hand, offer more new platforms and, on the other, increasingly seek out membership and use it for the sake of a business model.
Further sources:
Reillier, Laure Claire; Reillier, Benoit; Platform Strategy; Routledge; 2017;
ISBN 978–1–4724.8024–8.
Choudray, Sangeet Paul; Platform Scale; Platform Thinking Labs; 2015;
ISBN 978–981–09–6758–1.
Jaekel, Michael; The Power of Digital Platforms; Springer Vieweg; 2017;
ISBN 978–3–658–19177–1
Parker, Geoffrey; Van Alstyne, Marshall; Choudray, Sangeet Paul; Platform Revolution; mitp; 2017;
ISBN 978–1–4724–8024–8 (English: 978–0393354355).
Tiwana, Amrit; Platform Ecosystems; Morgan Kaufmann Publishers; 2014;
ISBN 978–0–12–408066–9.
Roth, Alvin; The Art of Designing Markets; HBR; October 2007 Issue; ISSN 0017–8012.