Digital Platforms: Definitions, Strategy, and Business Models

Digital Platforms: Definitions, Strategy, and Business Models

DOI: 10.4018/978-1-5225-5457-8.ch001

Abstract

This chapter reviews the following key aspects of platform research: platform strategy, dynamic capabilities, and business models. The main platform typologies and basic definitions are described first. It provides a brief summary of the literature relating to arguing platform strategy, platform life cycle, platform building blocks, and business models. A platform strategy categorization taxonomy and platform practical strategies of preventing platform disintermediation are developed. The main types of platform business models are introduced. The multi-sided platform business model pattern (MSP BMP) is designed. MSP BMP is used as a basic conceptual framework and knowledge management tool for describing, analyzing, and interpreting non-price instruments used by digital platforms, especially platform intermediaries.
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Defining Platforms

Platforms have lasted for years: offline malls link consumers and merchants; paper newspapers connect subscribers and advertisers, etc. As stated in a global survey, now platforms have become an important economic force with a total market value of $4.3 trillion and an employment base of at least 1.3 million direct employees and millions of others indirectly employed (Evans and Gawer, 2016).

Platforms are increasingly prevalent: sixteen of the twenty-five most valuable brands for 2014 function as platforms (Taube, 2014). The list includes Visa and MasterCard, the credit card companies which function as two-sided platforms and facilitate the interaction between cardholders and merchants; Facebook, which started as a digital one-sided platform (enabling the interaction between one distinctive group of university users) and developed into being a multi-sided platform (connecting users, advertisers and third-party game content providers); Amazon, which adopts a multiple business model functioning as a platform when it offers products that are sold by third-party sellers and as a reseller when it sells items under its own name (e.g. Amazon Kindle) (Hagiu, 2006).

Among the largest IPOs of the last few years, many are multi-sided platforms: Alibaba, the biggest IPO ever, with $25 billion; Visa, $19.7 billion; Facebook, $16 billion; Twitter, $2.1 billion; Google, $1.67 billion; LinkedIn, $1.2 billion; Groupon, $700 million. Airbnb or Über threaten to disrupt well-established industries like taxi or hospitality services using platform as a business model. It is stated that platforms facilitate generation of a potentially very large number of complementary innovations by tapping into the innovative capabilities of many external actors, and function as a technological foundation at the heart of innovative business ecosystems (Tiwana, 2014). Platforms are functioning in Europe, North America, Asia, Africa and Latin America. Evans and Gawer (2016) have shown that platform companies are now a visible global phenomenon: they are discovered not only in advanced industrial markets, but throughout the entire world thanks to the growing availability of mobile digital technologies and Internet.

Study examines platform innovations, platform strategies, platform business models, and the cases that illustrate how these business models could be successfully implemented.

We should distinguish a technology platform from a business platform, which includes technology platform as a main block.

There are different definitions of the term technology platform (Gawer and Cusumano, 2002; 2008; Gawer, 2009; Hagiu, 2014; Evans and Gawer, 2016).

  • Definition 1. (Gawer, 2009)

A technology platform is defined as building blocks that act as a foundation upon which an array of firms (a business ecosystem) develop complementary products, technologies or services, proposing such requirements for a platform:

  • It should perform a critical function of the overall system or should solve a crucial technological issue of an industry,

  • It should be easy to connect to, ‘‘build upon’’ and provide space for new and unplanned usage.

There are two main groups of technological platforms: product/service platforms and network platforms.

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