We believe in a strong transformation of the model of the firm due to the decrease of information costs (transaction, treatment, hosting, computing, etc.). We call it platformization. Sector after sector we witness the emergence of massive networks built in the form of platforms, where supply and offer match together.
And daphni is not only a VC firm writing about platforms: it’s a new model of VC. We too are building our own digital platform to benefit from the incredible power of this kind of structure: network effects, scalability, collective intelligence and horizontal communication.
Read below why we adopted this new model of organizing performant investments in digital startups.
The platformization of the economy
What do AirBnB, BlaBlaCar, Spotify and Amazon have in common? They share the same business model: the platform model. There must be a reason.
From a sequenced value chain to a platform
Traditionally, the economy is structured around organisations whose role is to design, produce, assemble, distribute, sell or consume goods and services. In this model, the unidirectional approach is predominant: value is created by a set of sequenced actions.
Digital has allowed the elimination or merge of certain sequences as well as the incorporation of a new tool, the platform, in the value creation chain. Platforms are open intermediary interfaces through which suppliers and customers meet. They bring together an internal and external offer which can concern economic exchanges, as with Amazon, and/or social interactions as with Twitter or Instagram.
A platform is multi-facial organisation fed by its users and its suppliers
For users, ease of use and the fact that most of platforms are free of charge accelerate the inclusion of a maximum of users on the one side, which in turn is the main value offer that attracts the other side, the suppliers (for example game designers on Facebook) to use the platform.
On the supply side, this is how suppliers benefit from a market they would not otherwise have access to. The principle of externalisation was historically based on outsourcing. It is now based on what we call ‘insourcing’, in which supply is combined transparently on the platform. Take retail for example: Amazon brings together outside suppliers on its platform, who offer their goods on the site thus complete its traditional e-commerce offer, at the same time enriching the value offer delivered to its customers. Amazon can then capture part of the value emanating from the transactions generated on the Amazon site by taking a commission. PriceMinister is in the same vein, but has positioned itself as a total platform, acting simply as a trustworthy third party that puts the two sides in contact without itself selling any products.
The platform, a growth accelerator
The platform model makes it possible to widen the breadth of the markets where it is present. On the supply side, platforms favour an increase in catalogue size and the number of sellers, professionals or private individuals. On the demand side, lower prices brought on by internal competition and reduced operating costs boost demand.
This amplification of demand is further supported by the possibility of reaching a wider public due to the brand-platform and new usages it makes possible (for example, the sale and purchase of previously owned goods).
In a context like this, the network effect is essential. The more the number of contributors to the platform increases, the more the value offer is enriched. For example, the value of the service offered by BlaBlaCar increases simultaneously with the number of active members on the platform. Massive and rapid growth hinges on this virtuous dynamic.
New assets, new measures of enhancement
In a platformization economy, value moves around: the enhancement of interactions supplants the value of assets. Uber owns no vehicles, AirBnB does not possess real estate, Facebook produces no content. Assets have taken on new forms: they make it possible to channel interactions through the capture and enhancement of data with algorithms that enrich the user experience.
This new development model, freed from the problematic of financing infrastructures, has made possible a rapid jump in scale as well as rapid internationalisation. Platforms like Kickstarter, for example, are built to offer a unified service across countries, with marginal and decreasing costs. What they are betting on is their ability to pull in the greatest number of buyers and sellers.
Toward a new economy of platformization
The ‘uberisation’ of the economy is only an illustration of the in-depth change that platforms generate, in this case, in the transportation market. It would probably be more appropriate to speak of the platformization of the entire economy and perceive this movement as a new vector of value creation for suppliers and users.
Apart from sectors that have already been through upheavals (music, hospitality, distribution, travel, media, transport,…) all markets could potentially be platformized, from the most improbable like politics, to the most conservative like education, and the most established, like finance.
This movement is also making inroads into the hardware industry. Manufacturers, like Withings and its connected scale, enrich the user experience by connecting objects on platforms that offer related added-value services. This movement marks a first phase in the platformization of personal health care and hence of the healthcare market.
Platformization ≠ guaranteed success
But not all attempts at disruption will meet with success. Questions that have arisen about the models of Groupon, Flickr or Twitter are a reminder that the platform must allow all the players gravitating toward it to build a viable economic model or or to profit from an offer of durable value.
In the end, the secret of platformization rests on a change in the paradigm, which requires a considerable effort of open-mindedness and willingness to question established principles. The customer becomes the supplier. Your competition becomes your customer. Users develop commercial relations among themselves. The user becomes both the producer and the consumer.