What are digital platforms, and can they emerge in my industry as well?
A platform is any type of system that facilitates many-to-many interactions (M2M). An example of a platform in the physical world is a marketplace, as it lets multiple sellers interact with multiple buyers. This is quite different from a store that works on a one-to-many basis.
Digitization has enabled a variety of platforms to emerge in cyberspace. These digital platforms are M2M systems that intermediate between participants, helping them to connect and exchange something of value.
The Digital Platform Map differentiates between six types of digital platforms, based on the forms of exchange these platforms facilitate. Each of the six types is illustrated by a number of well-known examples.
The six digital platform categories all facilitate a different type of matchmaking:
- Digital marketplace. In a digital marketplace, multiple buyers are matched with multiple suppliers. Booking.com connects guests to hotels, while Uber links travellers to drivers. Note that Amazon started off as a one-to-many online store but has developed into a real platform by allowing other suppliers to use their system to sell.
- Digital search. On a digital search platform, multiple people that are looking for information are matched with multiple sources of information. As a search request activates the system to go in search of the wanted information, it is also called a search engine. Google, Bing and Baidu are ‘all-purpose’ search platforms, but there are also many specialized platforms such as Foursquare that helps you to find services nearby.
- Digital repository. In a digital repository, multiple suppliers ‘deposit’ their materials into a type of library, to be retrieved by users at a later moment. In other words, the matchmaking is not immediate. It can take days, weeks or even years for people to watch a YouTube video, listen to a song on Spotify or download software from GitHub.
- Digital communication. A digital communication platform is a system that allows multiple users to send messages and/or documents to a variety of other people or to interact in real time by voice or video. While some of these digital communication platforms have their own technical networks, companies like Skype, Snapchat and WhatsApp are internet-based.
- Digital community. On a digital community platform, people who want to stay in touch over a longer period of time can look each other up, connect and exchange information. Facebook thus lets you build your own network of friends and facilitates ‘groups’, while LinkedIn does the same, but in a professional context.
- Digital payment. On a digital payment platform, matching takes place between those owing money and those wanting to be paid. Some of these payment platforms, like Adyen, work ‘behind the scenes’ on behalf of companies, while others like PayPal and Apple Pay interact directly with online consumers. Note that an increasing number of community and marketplace platforms such as WeChat and Amazon are growing into payment platforms as well.
- New form of intermediation. With the rise of the internet many people thought inter-mediaries would be cut out (disintermediation), but in reality a whole new category has emerged – digital platforms – based on the concept of many-to-many (M2M).
- The value of matching. The digital platform map shows that the value of digital platforms is in their capacity as matchmakers. They cut out inefficiencies by linking supply and demand.
- Basis of a business model. If a digital platform creates value, it has the potential to grow into a business, provided it is supported by a suitable revenue model to capture that value.
- Strength of network effects. All platforms profit from the cycle of many buyers drawing many suppliers, which in turn draws more buyers, etcetera. They create and sustain their own ecosystem, which grows ever more powerful as its size increases.
- Platforms branching out. While most companies started out in one digital platform category, network effects are driving them to invade other categories and become platforms of everything.
This blog is part of a series, if you want to see all the blogs, then click below