Giving names to tech company business models which provide a “product” to users, and forecasting these models.
A Platform is a company upon which individual companies sell their products to users. A company chooses a platform to leverage their success. This is unknown (irrelevant) to users — because to a user how a company leverages themselves is an implementation detail. Platforms are a leverage only in allowing the company to sell their product — the company still drives the traffic to their entity built atop the platform. Shopify is a great example of a company which is strictly (at least for now) a platform. Companies are able to create an e-commerce store upon the Shopify platform. Users don’t know (or care) that an online store may be using the Shopify platform.
A Marketplace is a company within which individual companies sell their products to users. Unlike with platforms, marketplaces are known by customers — marketplaces key is their ability to attract customers to them. A company chooses to be part of a marketplace to expand their reach. From physical “marketplaces” (ie, retailer stores) to online marketplaces, companies want to be where people are, and are willing to give up some of their margin to be there. Amazon (at first glance) is a marketplace. Users turn to Amazon to find things to buy.
A Service is a company through which users receive their product. Like marketplaces, service companies are known to users. But unlike marketplaces, there is no choice on the part of the user. A solution is determined by the company, and the user may buy it or not. Uber is a great example of service. Because users cannot look at all nearby drivers, see reviews, and read details about the driver — it is not a marketplace. It’s a service: Uber pairs you with a driver.
Also, as you would expect, there are hybrids.
Etsy is both a platform for companies to create shops (where companies drive their own traffic to their individual store), as well as a marketplace (where Etsy spends money generating traffic) for users browsing.
Amazon as you may expect from second U.S. public company to ever cross the $1 trillion valuation threshold, tried to operate in all three models. In addition to being a marketplace, Amazon is a platform with its stores for and has been working hard to be the platform of choice for new businesses online presence. Amazon also operates as a service with its Alexa shopping application, pairing you with a brand.
Forecasts for these models
Marketplaces will be squeezed thin to just the artistic. Platforms and Services will eat the pie.
I believe products will dramatically converge on one of two possibilities: a simple commodity, or a beloved brand.
Services will win big when products are nameless commodities: toothpaste, socks, etc. Platforms will win big when products are part of a beloved brand: Patagonia bag, Brooks running shoes, etc. Marketplaces will win big when a product is neither: when it is something esthetic or artistic and browsing is important.
Traditionally, physical marketplaces (retailers) were the center of it all: able to make a trip to a single store and could stroll through the aisles sure any product seen was legitimate and integrous. But given the exploitation of the barely legal — given over-marketing, dis-satisfaction, dis-trust, and a race toward the barely-legal — consumers turn to toward products as brands: brands which are authentic and relational and participants themselves in the experience (that “get it”). And when they do, marketplaces are just a more expensive middleman for the product they already know they want. The death of physical marketplaces will be followed by a death of online ones.
So, how is Amazon a trillion dollar company then? Well, its time has not yet come as a marketplace, but it will. But it has done some things to ensure it will be the last non-artistic marketplace in the world. The biggest thing it has done is become itself a Brand more than a marketplace. It has beat almost all the product brand companies down their own path — of being integrous, helpful, “in it with them”. And (amazingly) it has done it with the small margin it extracts from these brands. What do I mean by this? That when a user knows they want Nike shoes, they often go to Amazon. Not as a a marketplace — they already know what they will buy, but as a Brand. As a brand who values the customer and treats them exceptionally well.
But, sorry Amazon, this won’t last forever. Middlemen all have a clock. While traditional brands have been bad at this, almost all new Product Brands have made the customer experience a hallmark. And these companies can do it with a larger margin. While is why Amazon will fiercely into the service model — which they will have to pioneer for products (not one-off services like Uber rides).
As for services? While platforms (hosting Brands) eat the “product as not a commodity” pie, services will eat the “product as a commodity” pie. If a customer just wants batteries, the experience of a marketplace is overkill. There is a finite set of things a customer cares about with a commodity product, and these are easily automated. If I just want a grill cover, why do I have to browse all the options just to perform a costs vs review calculation. I’d love to set a preference, and let the service buy the thing for me.
Products will converge into three buckets: commodities, brands, and artistic. Services will dominate commodities; platforms (hosting brands) will dominate brands; and marketplaces will dominate the artistic (whose size is orders of magnitude smaller than the current marketplace size).
