Value Co-Creation in the Platform Economy
Amazon, Etsy, Facebook, Google, AirBnB, Linked-in and Uber are just a few names featuring at the top of the “aquatic ecosystem” of economic platforms.
They are all found in different industries (e.g. social media, search engines, application stores)or business models (e.g. paid, subscription, advertising, freemium), but one thing they all have in common: they are shaping and driving a new era of digital disruption that breaks down with the traditional business models.
What is a Platform?
“A platform is a plug-and-play business model that allows multiple participants (producers and consumers) to connect to it, interact with each other and create and exchange value.” — Twitter
Platforms allows participants to create and capture value from using them, while also yielding strong returns for the platform owners. The biggest platforms already encompass millions of participants, who benefit from enhanced leverage, specialisation, and flexibility.
It’s by using and interacting that humans co-create and co-capture value, resulting most of the times in new systems of products, services. Having said that, the success of a digital platform is dependent on its external ecosystem and there are three essential factors crucial in this process; connection, referring to the simplicity for partners to plug in, share and transact; gravity, the capability to attract producers and consumers; and flow the promotion of co-creation and exchange of value.
Focusing on the promotion of co-creation and exchange of value, platforms intrinsically involves a relationship between different participants such as end-users, platform owners and providers, and more which result in offering a system of products, services or both.
Multi-sided Platforms (MSPs)
We are all participating in systems that interact with each other and this is the reason why we consider Multi-sided Platforms (MSP).
LinkedIn, for example, the world’s leading professional networking service, currently runs a three-sided platform that connects individual users (professionals), recruiters and advertisers.
MSPs are technologies, products or services that create value primarily by enabling direct interactions between two or more customer or participant groups.
Platforms are certainly efficient in their flexibility, transactional speed and ability to scale up. The benefits accruing to all participants are mutually reinforcing, creating network effects that grow the Platform exponentially with each new transaction. Take as example, Amazon started off as a pure retailer but has moved closer to a MSP model over time by enabling third-party sellers to trade directly with consumers on its website.
Digital platforms and systems are diverse in function and structure. Google and Facebook offers social media, but they also provide an infrastructure on which other platforms are built. Amazon is a marketplace, as are Etsy and eBay. Airbnb and Uber use these newly available cloud tools to force deep changes in a variety of incumbent businesses. Together they are provoking reorganisation of a wide variety of markets, work arrangements, and ultimately value creation and capture.
Most successful Platforms began as standalone products and subsequently transformed into platforms by adding a second distinct group.
Platforms have captured the imagination of business leaders in part because they enable pull-based approaches(1), which have long been seen as the future of serving customers profitably. In the past, sellers have been limited by the economics of production and distribution to push-based approaches, meaning they simply made an efficient batch size of what they sold and foisted it onto the marketplace.
Pull allows each of us to find and access people and resources when we need them, while attracting to us the people and resources that are relevant and valuable, even if we were not even aware before that they existed. Finally, in a world of mounting pressure and unforeseen opportunities, pull gives us the ability to draw from within ourselves the insight and performance required to more effectively achieve our potential.
Platforms reorient operations such that nothing happens until actual demand signals are received from real buyers — value in exchange(3). Value is contingent on the integration of other resources and actors and consequently is contextually specific. Value creation occurs by changing rules and resource relationships. Providing rules and resources that assist individual actors in their own value-creation activities, through exchange. Market-spanning platforms offer ways to take pull-based approaches to scale.
Platform orchestration is crucial for efficiency, development and innovation, it is the process of integrating two or more applications and/or services together to automate a process, or synchronise data in real-time. Often, point-to-point integration may be used as the path of least resistance.
Networks
Orchestration refers to the manner that the network actors are connected to each other with relationships, and any given central actor lacks hierarchical authority towards other actors, which means that the network cannot be managed in command-and-control types of management methods.
Orchestration is facilitating the processes that lead to and promote relationships and activities among the participants.
Another important aspect on value co-creation is Network Effects.
As more users join a platform and a critical mass is reached, network effect emerges and becomes “stored value”.
For example, consider the very first user of Facebook. The value of Facebook to her was zero since there was no other user to network with. The second user increased the value of Facebook to the first user. The millionth user dramatically increased the value of Facebook to herself and to every other user before her. This means that the value of adding another user to a platform dramatically increases its potential value to every other user.
The logic is simple: Every additional user dramatically increases the number of other users that he or she can interact with.
The value of the system increases exponentially once such network effects are triggered - the platform can enter a self-reinforcing cycle.
Conclusion
As we look to the future of business ecosystems, platforms provide opportunities to increase capabilities and collaborate more seamlessly than ever we believed. Platforms success rely on this premise — their potential to scale users and their interactions, and in order to do this there should be no failures.
We should expect the Platform phenomenon to disrupt all, or certainly, most existing industrial sectors while creating many new ones that better capture economic value at scale in an increasingly challenging and rapidly evolving business environment.
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About me:
I’m Margarida da Marça, a Senior User Experience Designer at OutSystems and a Service Innovation and Design MBA student at Laurea. I live between Helsinki and Lisbon and work with a bunch of amazing clients and partners worldwide.
References:
Lecture presentation by Anssi Smedlund’s
Platform Ecosystems: Aligning Architecture, Governance, and Strategy by Amrit Tiwana
The Future of Jobs, Platform Business Model and Technology — IfWhenThen.com by Adam Dorfman
1. John Hagel III, John Seely Brown, and Lang Davison, “A brief history of the power of pull,” April 9, 2010, Harvard Business Review, accessed March 12, 2015.
2. https://hbr.org/2010/04/a-brief-history-of-the-power-o.html
http://deloitte.wsj.com/cio/2015/05/27/the-power-of-platforms-to-create-new-value/
https://financialit.net/blog/banking/banking-platform-baap
http://apprize.info/usability/ecosystems/3.html
