Pandemic Stress-tests Platform Power
Many platforms took a hit when the economy shut down; which will bounce back?
By Peter Evans, Geoffrey Parker, Marshall Van Alstyne
How resilient are platforms? The current economic crisis is testing their mettle.
In their relatively young lives, platforms have emerged as fierce competitors, roaring past solid incumbents in markets as diverse as music, retail, lodging, and transportation. We saw the swift rise of disruptive newcomers Airbnb, Spotify, and Uber and felt the pervasive presence of Amazon, Google, and Facebook.
In just three months, however, COVID-19 and the resulting economic shock have challenged platform models –like all businesses — to prove their grit and resilience. Can the disruptors pivot as quickly as they began? Which will grow, and which may not bounce back? Is this the time for incumbents to ramp up platform capabilities?
The answers are mixed. Our research shows that platforms are definitely not immune to extreme demand fluctuations, but there are bright spots. Specifically, we see three general patterns emerging among the demand shocks:
- Demand implosion: Platforms such as Uber, Airbnb, and Eventbrite saw demand evaporate, and they could not easily pivot. Their transportation, hospitality, and conference services required too much human contact to endure social distancing and shelter-in-place mandates. Both Uber and Airbnb attempted to diversify as logistics providers — Uber Eats, for example, and Uber experiences — but both firms saw revenue largely vanish. Uber laid off more than 6,700 employees (about 25% of its workforce) in an effort to save $1 billion in costs since the COVID-19 pandemic hit. Airbnb also cut its workforce by 25% percent, about 19,000 employees, as travel ground to a halt.
Uber reported that demand for rides plummeted by 80%. “We are going to see a lot of [ride-share] companies shift away from robo-taxis in the near term and move to goods delivery,” according to Sam Abuelsamid, an auto analyst with consultancy Guidehouse LLp. Illustrating the shift, on June 30 Uber offered to buy food delivery competitor, Postmates, for $2.6 billion as it seeks new revenue to offset the decline in its core ride-hailing business. Demand is greater for delivery services, Abuelsamid said, and “it’s an easier market to address.”
Another hard-hit category is experience platforms like Placepass. The three-year-old platform built a digital marketplace of more than 250,000 tours and travel destination activities boosted by funding from Marriott. Placepass was among many travel platforms at enjoying investments and M&A activity in the past few years. Others, such as Booking Holdings, acquired FareHarbor, and TripAdvisor purchased Bokun. Now, all of their futures are in jeopardy as in-person commerce fades.
2. Quick Pivots: Meanwhile, other platforms that saw demand evaporate quickly shifted gears and jumped into adjacent markets. In the simplest cases, demand pivots are successful when executives can shift the business from one demand model to another. Nimble platforms can quickly detect changes in demand and can better match their supply and demand sides, even in the face of disruption.
In the case of Bandsintown, the platform successfully transitioned from a physical presence to a digital one. The concert platform — with 58 million users and more than two million events listed each year — created new digital experiences to help music fans connect with their favorite artists while they quarantined.
Beginning on March 26, when Bandsintown enabled livestreams, the platform supported 10,336 artists hosting 28,000 livestreams. It now offers daily access to about 3,000 livestreams. More than on-air conversations, the streams are special musical events programmed by the artist. “We’ve been overwhelmed by the creativity,” said Bandsintown managing partner, Fabrice Sargent. “We can see emerging artists getting 100,000 views — which is stronger than what they could get in a physical space.”
Another example of a quick pivot occurred in the lunch-truck market. The online platform Best Food Trucks, which matches trucks with customer locations, shifted supply by moving from one geographic location to another. The platform wasn’t always welcomed by truck operators because it added an intermediary between customers and delivery and operators had to pay the platform. Once COVID-19 hit, however, the traditional office lunch business collapsed and Best Food Trucks quickly offered a new market: Suburban diners.
While individual trucks were not well-positioned to serve the distributed nature of this demand, the platform could direct trucks to the right locations in effect, becoming the fish-finder. In some cases, food trucks experienced greater demand than before the pandemic.[1]
When demand shocks are negative, survivors are those that can quickly pivot to adjacent digital markets, as Disney has done going from theme parks to Disney+ subscription video. Or, survivors meet short-term markets as when Hilton and several other hotel chains provided single room occupancy dormitories to virus-affected universities in Boston, Chicago, and Phoenix.
3. Demand Explosion: A third group has seen surging demand and thriving operations during the pandemic. Before the COVID-19 crisis, Instacart had about 130,000 full-service shoppers and 12,000 in-store shoppers to fulfill online grocery orders for same-day delivery or pickup. In April, when consumers were forced to shelter-in-place, Instacart moved to hire 250,000 more personal shoppers — beyond the 300,000 hired in March — to help meet skyrocketing demand for grocery delivery.
That meant Instacart expanded its shopper community to more than 500,000. At the time, it reported that order volume had jumped more than 500% year-over-year, with the average customer basket size growing 35%. Instacart raised $225 million in new financing amid an “unprecedented surge” in consumer demand since the COVID-19 outbreak.
And, as anyone working from home now knows, Zoom Video Communications has become a lifeline connecting workers to jobs, students to classes, and businesses to businesses worldwide. With upward of 300 million daily participants , Zoom’s stock has more than tripled since the start of January this year.
Identifying New Markets
We also are monitoring trends among the platform giants. In our book Platform Revolution, we explained that market fragmentation, low regulation, and high information intensity would cause incumbent businesses to be disrupted by the rise of platforms.
We didn’t anticipate how much these forces would play out during a pandemic where the bottom falls out of many markets.
For example, high information intensity — in other words, high volumes of data and traffic — not only facilitated disruption, but also immunized some platforms to the disruptions that physical systems faced.
Some global platforms seized the pandemic’s needs for healthcare, research, and verification to scale existing capabilities, while other platforms built new capabilities in these much-need sectors in a matter of weeks. Companies offering platforms-as-a-service are establishing medical equipment exchanges to meet demand and leveraging platforms’ advantages of scale, network effects, and efficient matching.
Researchers are crowdsourcing funds as well as sharing ideas via Kaggle and GoFundMe, and AWS is hosting diagnostic development on a new platform that benefits all. (See table 1).
Clearly, neither products nor platforms are exempt from the laws of supply and demand. Some of the economic pain, however, was matched by newfound strengths allowing platforms to adapt when demand collapsed.
Early-stage market shakeouts are common, and platforms are no exception. Nevertheless, the dominant pattern appears to be resilience — especially among large, well-funded competitors — that will keep platforms ascending and growing.
Despite setbacks, we believe that platforms will become even more resilient, especially compared with standard incumbent firms, because of their ecosystem strategy. One reason is that their production takes place largely outside of the firm (what we call the “inverted firm”), which makes them adept at working with a diverse set of changing partners. This built-in agility allows them to more swiftly switch to new partners and customers, should the need arise. And as we now know, that can happen very abruptly!
[1]https://www.marketplace.org/2020/06/04/why-well-connected-suburbs-are-suddenly-the-best-place-to-run-a-food-truck/
We will be exploring these compelling trends with experts in the field at our upcoming MIT Platform Strategy Summit on July 8. See the full agenda and register here.
The authors are the co-chairs of the MIT Platform Strategy Summit. In addition, Peter Evans is the Managing Partner at the Platform Strategy Institute; Geoffrey Parker is a Professor at Dartmouth College and an MIT IDE Digital Fellow; Marshall Van Alstyne is a Professor at Boston University and Visiting Scholar, MIT Initiative on the Digital Economy.
