Economic Platform: A Rising Trend in the Modern World
Every industry always loves a trend. Even economists appreciate a trend. The truth is, almost everybody loves and appreciates a trend. But, if there is one thing that people love even more is the buzzword being used to describe that specific trend. In the past several years, the business trend has become two-sided or even multi-sided markets. The buzzword for describing it is none other than Platforms, which is often written with a capital P.
Based on the recent report of the World Economic Forum, the shift underway from producer-driven, resource-heavy, and linear industrial model to the multi-sided and demand-driven Economic Platform model is irresistible and profound at the same time.
Platforms are no doubt efficient in terms of their ability to scale up, transactional speed, and flexibility. The advantages that all participants accrue are mutually reinforcing which create network effects which grow the Platform to greater heights with every new transaction.
A good example is the #PokémonGO phenomenon that hit the world not too long ago. If not for the existence of the different ubiquitous platforms like Apple’s iOS and Google’s Android, it could have been hard to imagine how that hype could have spread as quick as it had, which initially led to an almost double valuation compared to that of Nintendo.
The reality is that these market models are no longer new as these have been around for several centuries. There is Bazaar, which, since ancient times, has brought merchants together, and can be considered as a platform. The key distinction of the model today is proliferation of the connectivity as well as the growing power of data analytics and data. Reinforced by the Moore’s law, the platforms depend on the interconnections and on the availability of the cloud-based, low cost processing, tools, and storage.
The tough competition, played out by Google’s GCloud and cloud behemoths of IBM, Microsoft, and Amazon, is providing good tools and services and reduce the prices on a monthly basis. Indeed, such companies are benefiting from being the platform owners and experiencing the perks of attendant network effects. As more and more users migrate parts and all businesses in the cloud operated by such giants, people witness scale’s classic economies.
The top players may invest more on developing cheaper, better, faster, and bigger resources and pull away further from their small competitors. Herein lies the platform mode’s potential pitfalls. The effects of network that generate scale and dynamism tend to consolidate the markets quickly. In many cases, these reduce the different providers to few players. There are times that only one is actually left standing.
However, what’s interesting is that while the competition is very concentrated at the owner level of the platform, the platform’s competition is vibrant. Indeed, Platform itself stimulates the competition. The transactions wouldn’t have take place in the past are happening thousands of times. The new value is constantly being created and the efficiencies are realized. There’s a proliferation of the new businesses made globally and most with an owner-employee.
- Globalie Blog Team