book.chapter Platform power dynamics

In the contemporary digital economy, platforms have emerged as a revolutionary business model by orchestrating connections among users, who often play dual roles as both producers and consumers. These platforms facilitate the creation of value without the need to own or directly control the resources involved, which enables them to expand at a pace that outstrips traditional business models. The platform business model has already precipitated significant transformations across a multitude of industries, and it is anticipated that this trend will continue to accelerate and broaden its impact. Platforms are a relatively novel concept in the realm of business models. They operate by consummating matches between users, who may simultaneously act as producers and consumers, thereby generating value. These platforms do not exert control over resources; instead, they create value for all participants by providing an open and participative infrastructure that fosters the generation of these matches. A number of platforms have captured the public's attention and have become household names. For instance, Airbnb, which was conceived in October 2007 by two aspiring designers in San Francisco seeking to supplement their income. They began by offering air mattresses and guided tours to conference attendees. This modest inception has since evolved into a global enterprise, with Airbnb now operating in 119 countries, boasting over 500,000 property listings, and accommodating more than 10 million guests annually. The company's valuation has soared to $10 billion, surpassing that of many of the world's most established hotel chains. Uber, which originated in San Francisco in March 2009, has experienced a meteoric rise in value to $50 billion within just five years. It has disrupted the traditional taxi industry in over 200 cities worldwide. Uber has become a dominant force in the transportation sector, all without owning a single vehicle. Facebook, with its more than 1.5 billion subscribers, generates approximately $14 billion in annual advertising revenue by monetizing access to content created by its users. Other successful platforms include Amazon, YouTube, eBay, Wikipedia, Upwork, Twitter, and many others. These platforms represent transformative business models that are reshaping industries, the economy, and society at large. There are several reasons why platforms outperform traditional pipeline businesses across various industries. Firstly, platforms can scale more efficiently by eliminating gatekeepers who traditionally slow down processes. For example, anyone can publish on Amazon's Kindle platform without the need to secure a publisher, which consumers appreciate as it provides them with a wider array of choices. Platforms also move away from bundled offerings, which often require consumers to pay for unwanted services in order to access high-demand ones. Secondly, platforms can tap into new sources of value without incurring the traditional overhead costs associated with running a company. Airbnb, for instance, does not own any properties but offers sophisticated pricing and booking systems comparable to those of Hilton or Marriott, allowing for rapid growth that traditional hotel operators, which require decades of investment and effort, cannot match. Thirdly, platforms have shifted from a just-in-time inventory model to a not-even-mine inventory approach, which brings previously untapped supply into the marketplace. This enables consumers with infrequently used items to rent them out, thereby recouping their sunk costs. Fourthly, platforms leverage data-driven tools to establish community feedback loops, enabling quick assessment of the reputation of users. This market-driven approach replaces the need for traditional managers, editors, or supervisors to oversee transactions. Fifthly, platforms invert the traditional firm structure by focusing on external rather than internal business operations. Functions such as marketing, IT, operations, and even strategy development can be outsourced, allowing for greater efficiencies to be reintroduced into the firm. Lastly, platforms are highly sensitive to market dynamics. They rely on market signals generated by the consumer community rather than on the subjective judgments of gatekeepers or managers, making them data-driven entities. For these and other reasons, it is expected that platforms will continue to emerge in virtually every sector of the economy and society. New platform providers are appearing almost daily, and the scope and influence of platforms are set to expand in the coming years. The ascent of the platform has thrown traditional business management practices, including strategy, operations, marketing, production, research and development, and human resources, into a state of flux. This period of disequilibrium is affecting every company and business leader. The emergence of the platform economy is a primary driver of this transformation, making platform expertise an indispensable skill for business leadership. However, many individuals, including numerous business leaders, are still grappling with the implications of the platform's rise. Platforms have already altered the lives of employees, business leaders, professionals, consumers, and citizens, and they are poised to bring about even more profound changes in the near future.