If you haven’t yet heard of the customer-to-customer (C2C) economy, you’ve almost certainly participated in it. It’s where customers connect with other customers to communicate or trade goods/services, usually via an intermediary platform like Facebook, Uber or Etsy.
The C2C economy has made platforms very powerful. Indeed, look at a list of the world's most valuable companies at any one time, and I bet the majority of them will be platform businesses: Alphabet, Amazon, Facebook, Tencent, Alibaba… Organizations that have created a safe, easy way for relevant parties to connect, communicate, or trade have seen enormous growth. These days, it pays to be a platform business.
What exactly is a platform business?
This notion of facilitating exchanges between users (typically consumers and providers, although I use the term “users” as a catch-all) lies at the heart of the platform business model. The platform business doesn’t typically create or own inventory, like a traditional business does. Rather, the asset is the platform itself (including proprietary software, user data, etc.).
Platform businesses aren’t new as such. A shopping mall is effectively an old-school platform business because it connects retailers with consumers and facilitates a pleasant shopping environment. What’s different about the new wave of powerful platform businesses is the interactions and transactions are facilitated online – and, importantly, this means exchanges can be facilitated on a huge scale.
Therefore, the platform adds value by creating enormous networks of users that other users can tap into – whether it’s a craftsperson looking to tap into a large pool of potential customers (Etsy), a freelancer looking for contract work (Fiverr), a business looking to target its adverts at specific customer groups (Google), a podcaster looking to release their podcast to the masses (Apple Podcasts), or simply someone looking to connect with friends and likeminded folk (Facebook). Platforms, in other words, build communities and markets that users can access on demand.
As well as building a huge network, platforms create value by matching relevant users together, perhaps through recommendation engines. Platforms also ensure transactions and interactions take place in a safe, easy and secure space; for example, by providing a payment mechanism, setting community rules and standards for users, and monitoring for offensive content.
Quick case study: Instacart
Founded in 2012, Instacart connects shoppers with a range of local grocery stores, all in one place. With the Instacart app, you select your favorite grocery store, and the items you want to purchase, then an Instacart worker will go and buy those items for you and deliver them to your door in as little as one hour. For shoppers across the US, Instacart allows them to shop online for groceries from a wide range of local stores, not just the huge supermarket chains – and order from multiple stores at a time. And for smaller grocery stores, the platform allows them to provide a delivery option without investing in their own e-commerce platform and delivery infrastructure.
Instacart itself earns revenue through delivery fees, service fees, membership fees for Instacart Express (which provides unlimited free one-hour delivery), and marked-up prices on goods from certain retailers. And the workers who do the shopping earn a by-the-hour wage, and often a tip.
Platforms and the sharing economy
The rise of platforms and the rise of the sharing economy – in which people can access goods and services for short-term rentals – are inextricably linked. These days it’s possible to rent anything from a car, bike or scooter to a whole house for a short period of time, and there are many platform businesses out there, such as Airbnb, who promise to facilitate these exchanges.
Take Zipcar as an example. The company gives more than one million members access to over 12,000 vehicles in around 500 towns and cities across the world. Members can access a car (or van) on demand, from around $7 an hour (depending on location), and gain easy access by simply tapping their app-based digital key against a reader located on the car.
It’s not just Western economies that are embracing the sharing economy; in fact, it’s particularly popular in China, where 94 percent of people are willing to embrace shared goods and services.
But we’re not a platform business…
Even if your business is a traditional linear business, with a typical inventory and supply chain, it’s worth paying attention to this trend. Certainly, all businesses should consider how the platform business model could improve – or potentially threaten – your business. For instance, there may be an opportunity to pivot to a platform model, or introduce a new business built around a value-adding platform.
Scratch the surface and you’ll find many traditional businesses are embracing the platform business model. The Zipcar example I mentioned? The company is owned by car rental firm Avis Budget Group, which goes to show how existing organizations can successfully add a platform business to their revenue stream.
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