What is a digital platform business?

Digital Platforms Economics explained

A platform business, as opposed to a product pipeline business, is a digital environment with little or no marginal cost of access, duplication and distribution.

Platforms provide cost-effective real-time services to all users. In effect, the platform owner creates a marketplace for service providers and customers to engage in. The result, the aggregation of supply and demand.

The resulting outcome, product innovation and personalized customer services. Additionally, this generates network effects which further drive innovation and customer acquisition.

New revenue opportunities are created for both the platform owner and suppliers. Whilst, offering customers instant, customized and reasonably priced services.

Digital Platform Strategy Explained

Mckinsey-the-right-digital-platform-strategy

Key features of a digital platform economy:

Digital platforms economics, result from open-source marketplaces. As a result, contributions from a variety of outside users. Resulting,  in innovation and increased choice for all users of the platform.

Platform economics create a consumer surplus and push the demand curve outwards increasing the market opportunity.

Markedly, digital platforms equally create an environment of complementary offerings for all users. Consequently, this stimulates and drives demand. Thereupon, increased demand positively impacts supply as well as the services available to users. As a result, increasing demand for these services.

In a digital platform economy, services are free, fair and instant. Accordingly, this increases user engagement and interactions creating new revenue opportunities for all.

Digital platform economies are based on user-generated content and real-time curation thereof. Therefore, curation by users creates quality control and maintains the integrity of the marketplace for all users.

User interactions on digital platforms result in two-way reputational systems. In a word,  users rate each other creating trust and reliability amongst all platform members.

The relationship between different users in turn creates network effects which give rise to liquidity and switching costs. Ultimately, leading to enhanced customer loyalty.

Digital platform economics are driven by user personalization. On balance, this customer-centric focus creates user engagement which in turn enhances platform liquidity.

Benefits to the digital platform owner:

Digital Platforms – Opportunities for Platform Owners

Digital platform owners have both control and influence over the user experience. Thereby, positively impacting the owner’s ability to generate new revenue streams from all platform participants.

Digital platform owners, benefit from the economics of bits by offering cost-effective, high quality and instant services. Accordingly,  pushing out the demand curve and increasing the opportunity to be a price maker and therefore profitability.

Digital platform owners have access to significant Data Mining opportunities. Consequently, they use data generated by machine learning to track and analyse customer preferences. Leaving them,  well-positioned to drive effective recommendations and pricing.

The economics of digital platforms. Furthermore,  provide an environment whereby owners can foster innovation this, in turn, creates choice for users. Therefore driving new customer acquisition.

In summary, digital platform owners have the benefit of being able to leverage the diverse interests of platform users to generate new revenue opportunities.

Benefits to digital platform customers:

Digital Platform Customer Benefits

Customers accessing a digital platform experience “economics of choice” as a result of a highly customer-centric environment. As well as, experiencing “economics of price” as a result of having access to free or near-free functionality. In addition, members of a digital platform enjoy instant service delivery as a result of the digital and viral nature of the platform economy.

All users on a digital platform benefit from revenue opportunities as a result of platform engagement. Specifically, all customers benefit from self-regulation by way of managing user-generated ratings and curation.

Digital platform customers have control over the service offering owing to their ability to generate instant feedback. In order to, dictate the nature of the ultimate customer service offering.

Platform Economics explained:

In summary digital platforms provide all users with the “Economics of Choice” meaning all participants in a platform have the power to operate as buyers, sellers, customers and / or service providers. Platforms also create a centralised market environment conducive to generating “Economics of Price” whereby the middle man in a transaction is dis-intermediated allowing buyers and sellers, service providers and users to negotiate directly with one another. This significantly reduces transaction costs and results in pricing efficiencies for all participants.

All users of digital platforms benefit from the “Economics of instant” by engaging in a real-time environment for the immediate and instant transmission, sharing and usage of products and services.

Digital platforms provide diverse revenue opportunities as a result of direct and indirect transactional user engagement. Network effects between different users drive platform membership and usage, stimulate liquidity and give effect to platform diversity.

Digital platforms provide a self-regulating form of curatorship whereby users can comment on and engage with other users in a transparent and real time environment.

From the authors of the best-selling The Second Machine Age, a leader’s guide to success in a rapidly changing economy.

We live in strange times. A machine plays the strategy game Go better than any human; upstarts like Apple and Google destroy industry stalwarts such as Nokia; ideas from the crowd are repeatedly more innovative than corporate research labs.

MIT’s Andrew McAfee and Erik Brynjolfsson know what it takes to master this digital-powered shift: we must rethink the integration of minds and machines, of products and platforms, and of the core and the crowd. In all three cases, the balance now favors the second element of the pair, with massive implications for how we run our companies and live our lives.

In the tradition of agenda-setting classics like Clay Christensen’s The Innovator’s Dilemma, McAfee and Brynjolfsson deliver both a penetrating analysis of a new world and a toolkit for thriving in it. For startups and established businesses, or for anyone interested in what the future holds, Machine, Platform, Crowd is essential reading.