Making Sense of the Platform Economy
Just a few decades ago, businesses operated very differently.
Back then, the business models that reigned supreme worked in a “pipeline” — a product or service is created on one end, and customers receive it on the other. While this model thrived for a long time because of our exponential ability (and the necessity) to manufacture and sell at scale, companies are now seeing new growth with a model that changes the way we do business with our customers.
This new model is based on the creation of online platforms which creates and facilitates interactions with customers. Imagine the physical marketplaces, shopping malls and exhibition halls all around us, but revamped for the modern, online consumer. Instead of physical infrastructures, platform-led companies develop and curate digital spaces in which a number of merchants and buyers can not only have increased visibility, but additional chances of connecting and collaborating with one another. And, whether we realise it or not, this way of doing business is already a part of our everyday lives.
These are known as the digital era and platform economy, and it all began with the internet’s inception 30 years ago. More than just a place for sticking ads, the internet, compounded with digitization, has created whole new markets and industries. It’s also evolved our traditional methods of doing business to dynamic ones that learn and evolve at every turn — and for good reason. The distributed nature of the platform economy has proven to be far more efficient for both businesses and consumers as it doesn’t require the same supply-side economics, but instead leverages demand-side economics.
Zooming in to Asia Pacific, we can see how this new economy has taken root. Here, the rise of the digital era and platform economy is accelerated by what appears to be an insatiable thirst for the online marketplace. According to Nielsen, about 77% of survey respondents across the region attest to the fact that online marketplaces can help them to find products, services or goods that they wouldn’t otherwise find, with those in Singapore and Hong Kong coming in higher — at over 80%.
Consumer Model Changes Business Approach
This undoubtedly drove the sudden wave of platform-led business models that we have seen over the past few years. Platforms such as WeChat, Kakao, Grab and HonestBee have transformed their respective B2C markets’ access to a myriad of products and services — including shopping, banking, courier services and laundry.
At first, many of the B2C industries that adopted the platform business model were those in media and telecommunications. Since most had started their digitization efforts over 20 years ago, migrating to a platform model was a breeze. This was also the next logical step, as they were then able to provide their customers with the greatest number of offerings under their own ecosystems, such as access to additional content, apps and value-added services.
As more of these consumer applications started popping up, B2B or business-facing platform companies also started gaining traction — most notably from the commerce sector, such as AliBaba. These platforms’ ability to connect businesses across seas and industries were such an accelerant for growth that today we see a whole slew of traditional sectors such as healthcare, finance and aerospace embracing the platform touch, and are racing to be a part of this new economy.
The platform economy leads to an experience where customers can initiate conversations and feedback loops with merchants — forming lasting and loyal relationships.
It also enables the evolution of a business, since an open platform makes way for collaboration within the industry. Companies can now extend and share information, skills and technologies in varying fields across a wider ecosystem — thus giving consumers better products and services in the long run.
That said, it’s easy to write off participating in the platform economy by thinking that it’s only for industries where B2C companies are used to buying and selling online. However, it’s important to realise that ‘platformification’ can — and will — benefit all types of businesses. Even those that appear to be very traditional and B2B pipeline based.
For instance, in the traditionally linear security industry, Milestone Systems launched its own platform, Milestone Marketplace, to connect buyers and sellers in a completely new way. Companies in the video technology sector from anywhere in the world can add their own products or services, and buyers can browse and connect with vendors.
Platforms like this, that modernize old business models, will increase companies’ opportunities for growth while giving buyers more options and helping them better meet their needs.
Five years ago, businesses could ignore the platform economy and assume it was something their industry was not moving towards, but today’s world offers no such luxury.
Companies that have yet to consider the movement need to choose the role they’ll play in the new world economy. Whether this means setting up their own industry platform or participating in infrastructures that already exist in their arena, all businesses will need to discover how they can leverage the shift to grow and form long-lasting relationships, while adding their own unique value to the market.
By Benjamin Low, VP APAC for Milestone Systems
This article first appeared on The Business Times website July 2, 2019.