The Democratization of the Platform Economy — Establishment of a Platform Ecosystem (5/6)

Centralized transaction platforms orchestrate supply and demand between Marketplace User and Marketplace Complementors on the marketplace. This dominant role is often exploited in order to earn disproportionately high fees through data sovereignty. Through decentralized platforms, marketplace orchestration can be automated and democratized allowing marketplace participants to profit to a greater extent. For this purpose, the Institute of Technology Management at the University of St.Gallen (ITEM-HSG) developed a framework to support the development of suitable platform governance models.

By Nicolas Gilgen & Kilian Schmück

In the past four articles on our Decentralized Platform Framework, we have already discussed the core activities and roles for operating a marketplace on top of a decentralized platform. We have described Platform Initiation, the marketplace, as well as Platform Curation and Marketplace Modulation. This article describes the emergence of a resulting platform ecosystem as soon as the marketplace of the decentralized platform has achieved network effects.

The Platform Initiator (1) develops the platform in a centralized manner and is mainly incentivized by the network’s investment in the platform. Part of the platform development is the launch of the marketplace with all its related activities as well as the implementation of a functioning (ideally on-chain) governance model, which ensures the continuous decentralized development of the platform and the optimal implementation and support of the marketplace. Many of these activities are carried out by the other roles, namely Marketplace User (2), Marketplace Complementor (3), Platform Curator (4) and Marketplace Modulator (5). The incentive and governance model as well as the initial embedding of the minimum required roles until the network effects appear must be defined and implemented by the Platform Initiator (1). If the platform and the marketplace operated on top of it are successful, more and more Ecosystem Complementors (6) will be attracted to them and hence increase the overall value of the platform.

An important distinction, which has to be made right at the beginning, is that all activities up to the construction of the marketplace on top of the decentralized platform, including the generation of network effects, are controlled and strategically conscious decisions, whereas the attraction of Marketplace Complementors happens organically without pre-defined processes. If the newly set up marketplace prospers sufficiently, it attracts new and complementary participants (Ecosystem Complementors), which add additional, complementary features and services to the already existing ones on the marketplace.

The attractiveness derives from the decentralized characteristics of the operating platform and in particular from the decentralized data management. The data of the Marketplace does not belong to a central entity, but rather to the actual data originators who can monetize their personal data in a micro-incentivized way. Instead of having a platform owner who takes sole advantage of data sovereignty by offering complementary features and services, data can be acquired by third parties (Ecosystem Complementors) and thus be used in a more creative and variant-rich way.

For instance, while Amazon makes sole use of data sovereignty to achieve the highest possible profits through price dynamics, with free data access, an Ecosystem Complementor could use the same data set to advise the customer on price dynamics that are particularly favorable for them, enabling them to buy as cheaply as possible. However, additional services may not only be created specifically for the Marketplace but also for other areas.

Especially for machine learning, it is essential to train algorithms with large amounts of data. Through a decentralized approach, Ecosystem Complementors can acquire data sets in order to train their algorithms and develop machine learning models. The resulting services do not necessarily have to be in line with the original offerings of the Marketplace. Usually they rather offer value promises that are clearly heterogeneous compared to the ones of other services offered on the Marketplace. This is an important difference between the Ecosystem Complementor and the Marketplace Modulator: the complementary features and services offered by the Marketplace Modulator serve the value proposition of the Marketplace directly and are absolutely necessary.

For instance, the Amazon Marketplace cannot be operated without the Marketplace Modulation by logistics service providers. It is absolutely essential to have a parcel delivery service integrated into the value proposition of the Amazon Marketplace. Services offered by Ecosystem Complementors, such as the information of when a customer can expect particularly favorable prices, are not indispensable to ensure a consistent Marketplace operation. However, if such services and features become so important to the Marketplace that it cannot properly function without them anymore or users became so accustomed to the additional benefits that they would otherwise not accept the Marketplace anymore, Ecosystem Complementors become Marketplace Modulators.

As an analogy, let’s have a look at highways. Highways serve as an infrastructure and thus as a platform for cars. In order for a highway to properly function, petrol stations (Marketplace Modulators) are required to ensure that the cars can continue their journey at all times. However, the more frequented highways became, the more complementary offers such as McDonalds, gambling shops, additional petrol stations and hotels complemented the highway system. Particularly, the additional food offers increased the value proposition significantly in the beginning and are now expected by drivers.

Ecosystem Complementors using the Example of Share&Charge

In the current stage of Share&Charge’s Decentralized Platform (Platform Initiation) there are no Ecosystem Complementors yet. However, first pilots with potential Ecosystem Complementors are conducted, for example a green energy certification provider, to initiate the development of the Ecosystem. In the future, however, once the Platform gained scale and acquired a critical mass of users, more Ecosystem Complementors will be attracted to the Platform and incentivized to offer supplementary services. Ecosystem Complementors benefit from the decentralization of data, which allows them to use the available data to create and offer complementary services. Another example for such services could be intelligent routing algorithms that optimize the travel (and EV charging) route based on user preferences.

As mentioned above, Ecosystem Complementors eventually become Marketplace Modulators if the offered services are perceived indispensable from the customers’ perspective. The service from a particular Ecosystem Complementor then becomes a de facto standard of the platform. Generally, this is an iterative, non-guided and naturally occurring process within the Platform ecosystem and network, which follows the principle of the “survival of the fittest”.

This is a multi-part post. Links to the other parts can be found below:

• Part 1: Introduction
• Part 2: Platform Initiation
• Part 3: The Necessity of a Central Marketplace
• Part 4: The Supporting Activities of Platform Curation & Marketplace Modulation (this article)
• Part 5: Establishment of a Platform Ecosystem (this article)
• Part 6: Rethinking ROI