The Democratization of the Platform Economy — The Necessity of a Central Marketplace (3/6)
With decentralizing transaction platforms, we have the potential to democratize the platform economy using distributed ledger technologies and to fairly allocate revenues. In this article, we are going to elaborate further the distinction between the marketplace and its operating platform in order to shed light on their specific functions.
By Nicolas Gilgen & Kilian Schmück
In the past two articles of the joint Medium series of the Institute for Technology Management at the University of St.Gallen (ITEM-HSG) and Share&Charge on the democratization of the platform economy, we have already discussed both the relevance of Decentralized Platforms (first article) and the Platform Initiation process (second article). In this article, we will take a closer look at the Marketplace.
As argued in our last two articles, Decentralized Platforms can establish Marketplaces, which provide transparency and reduce transaction costs for the two participating sides — the Marketplace User and the Marketplace Complementor — without having to grant central Platform Owners disproportionate advantages eventually leading to the exploitation of network effects. At this point, it is important to differentiate between the Marketplace and its Platform. A Transaction Platform (two-sided markets, such as Airbnb, Uber, Amazon Marketplace, eBay etc.) is the result of a combination of both, whereas a Decentralized Platform is not necessarily a single unit consisting of a Platform and an associated Marketplace.
The Marketplace is the part of the Transaction Platform that mediates between Marketplace User and the Marketplace Complementor and generally offers an industry specific products and services (e.g. retail, mobility, living). Rather than technical infrastructure, it is the conceptof the matching of supply and demand existing in the network. On a Marketplace, Marketplace Complementors provide products and services, which are subsequently purchased by Marketplace Users. The more Marketplace Users and Marketplace Complementors meet on the Marketplace, the more transparent and diverse the offering becomes and the lower the transaction costs fall. This is largely due to the resulting network effects. Once the critical mass of Marketplace Users and Marketplace Complementors is achieved, the Marketplace becomes dominant. This is often referred to as “the winner takes all” principle.
The Platform, however, is the underlying infrastructure that operates the Marketplace — very much like an urban marketplace that uses a physical square as its infrastructure. The square usually belongs to the city, which for a fee allows vendors to set up a stall on market days and sell their products to the locals. This is also the case in the digital world: The Platform must be understood as an infrastructure that carries out the processes needed for the operation of the Marketplace. With Centralized Platforms, the Platform Owner is firmly connected to the Marketplace operated on it. If the Marketplace is scaled by the activities contributed by Marketplace Complementors and Marketplace Users, the platform operator benefits accordingly. The exponential growth structure of the generated network effects creates a dominant Marketplace and unsurpassable competitive advantages for the Platform Owner.
With Decentralized Platforms, the lock-in effect created through the firm connection of Platform Owner and Marketplace is resolved. The operation of the Marketplace (ideally) happens through a decentrally established, managed and developed Platform — a Decentralized Platform. The decentralized approach based on the concept of a Decentralized Platform ensures that the network profits equally and that there is no dominant entity exploiting the Marketplace. However, just as democracies needs a constitution, Decentralized Platforms need a functioning (on-chain) governance system that regulates value-adding activities through associated incentive mechanisms — and thus ensures the maintenance and further development of the Marketplace.
Share&Charge’s Marketplace
Share&Charge’s Marketplace consists of a network of CPOs (Charge Point Operators; Marketplace Complementors) and MSPs (Mobility Service Providers; Marketplace Users). Hence, it is a B2B market where end users (EV drivers) are connected to an MSP offering access to Share&Charge’s network. Apart from offering EV drivers access to the network, MSPs also facilitate payments for EV charging through payment tokens — meaning, that for the charging of their EVs, end users pay CPOs the respective value in payment tokens via their MSP. CPOs, on the other hand, provide the required infrastructure, such as charging stations, parking spaces (often sourced through third party Marketplace Modulators) and access to electricity.
This is a multi-part post. Links to the other parts can be found below:
