In last week’s post on platformization, we defined this somewhat perplexing concept in the context of our own personal interactions with platform business models. Our post also identified the main types of platform business models currently in use and examined potential opportunities for technology companies like AMI arising from increased adoption of platform business models across many different industries.
To close out the second part of our examination of platformization, let’s take a brief look at of the purported benefits and potential pitfalls of business platformization for platform business operators, their consumers and the service providers who make use of these platforms.
Platform enthusiasts are key to point out the numerous benefits that these types of business models offer for both operators and consumers. For platform business operators, whether they are start-ups or veterans, one of the key benefits of utilizing a platform business model is its distributed risk, especially when it comes to equipment or inventory, since these items can often be held by the service providers using the platform, such as with Airbnb hosts.
Also, the lack of a need for upfront capital investment in equipment and inventory leads to low barriers to entry, allowing small firms with a good idea to quickly enter the market. It also increases these small firms’ ability to road test new platformization concepts and modifications quickly.
The ability for fast and direct communication and interaction with users makes platform businesses more capable to respond to user feedback and questions, which is beneficial in all directions. Finally, platform businesses tend to benefit from a steady stream of profits through subscription services, often in addition to the percentage of revenues they receive from their users.
In the same way, users (consumers) who utilize platform businesses appear to benefit from some distinct advantages and benefits as well. Chief among these is cost savings, since platform businesses help customers mitigate the need for ownership of or investment in capital-intensive items such as cars, tuition, vacation homes, etc.
Platform businesses also provide consumers with great flexibility, allowing them to use only what they need, at the time they need it. Additionally, in many cases the lower overhead costs of platform business operators can be passed along to consumers. Finally, the open and distributed nature of platform businesses allows for consumers to be better informed about their options and choices, for greater transparency and satisfaction.
However, just as there are benefits for business operators, service providers and customers, there are also drawbacks and concerns for each. For platform business providers, the low barriers to entry touted as a benefit above often means potential high competition in that market or area of focus.
Because the tastes and needs of consumers can quickly shift away from something previously in high demand, service providers participating in the platform economy run the risk of being stuck with old, undesirable, or out of date equipment or products to promote on the platform.
Finally, when we look at the wider market, we can imagine that those who don’t get on the platform are gradually shut out, unless they are a “platform-proof” business. This over time could lead to monopoly-like conditions, and some complaints are already surfacing in this regard.
If that happens, consumers may ultimately face a lack of choice and options when it comes to selecting providers for certain goods or services. But one of the largest areas of concern with platform businesses is the potential loss of privacy and control over personal data. Often, in exchange for getting the benefit of free or low-cost services, consumers are giving up something infinitely more valuable: highly personal data about their finances, behavior and consumption patterns.
The following quote from the New York Times does a good job of summarizing some of the negative outcomes for platform business models as they continue to spread and grow in influence:
“But the tensions that platforms like Uber create with their customers, their workers and the world that surrounds them will soon become harder to ignore as these companies foment economic and social change, the consequences of which will increasingly be thrust into spectacular display. The [ex-Uber CEO] Kalanick video was a P.R. nightmare not just for Uber but also for the platform economy in general, posing grand questions about the world it promises, or threatens, to create. The zeal for platforms, combined with the technology industry’s internalization of their merits and inevitability, will push them into areas where the tensions they create become starker and the ideologies they carry become more apparent.”
In conclusion, while there are some early signs of pushback against platform businesses that have become increasingly dominant in specific markets, no doubt they are here to stay. It is just a matter of time before business platformization evolves to “platformization 2.0” and a new concept or approach is introduced that will further disrupt the existing order of things. These certainly are interesting times in which we are living, for business operators, service providers and consumers alike!
What are your thoughts about business platformization? Do you have any ideas about where these business models are headed, or how some pushback may curtail its evolution and growth you’d like to share? Drop us a line and let us know in the comments below, and as always, thanks for reading!