Five tips for setting up a successful digital platform company
We are still at an early, experimental stage for platform companies, though the rewards are potentially immense
Should you be running a digital platform company?
As consumers, we are used to the benefits of Amazon, Google, Alibaba and Didi Kuaidi, Grab or Lyft. These digital-born companies have used platforms to transform multiple markets and sectors and to create extraordinary new customer experiences at vast scale. But this trend will impact all businesses, large and small, traditional and digital. More than century ago, factories emerged as new platforms that united raw materials, workers, machines and distribution in order to produce goods at scale. Digital platforms are no less significant.
A digital platform is a technology-enabled business model that facilitates exchanges between two or more interdependent groups. Most commonly, platforms bring together end users and producers to transact with each other – again, think of e-commerce platforms such as Alibaba. They also enable companies to share information to enhance collaboration or the innovation of new products and services – think of how Visa has been working with connected devices.
The power of platforms comes from the network effects they generate – the more suppliers, the more customers and vice versa, as a virtuous circle creates new value through scale. The costs and risks of expanding the market lie less with platform owners. Instead they are dissipated among the network of participants. This transforms the economics of reaching new markets.
No wonder there are so many companies trying to copy their models. Platform businesses’ total market value is US$4.3 trillion; directly employ more than 1.3 million, and many more indirectly. More than US$20 billion was invested between 2010 and 2015 in 1,053 publicly announced deals.
For sure, digital platform companies are transforming the way we do business by creating vast markets, compelling customer experiences and new ways to innovate. But while platform businesses are proliferating our analysis in collaboration with the G20 Young Entrepreneurs’ Alliance suggests most new platform businesses will likely fail. That’s right, fail.