Digital platforms create value within the ecosystem within which they exist and monetise this through various business models including advertising, supplier payments, sale of data, and other methods. Services can be frequently “free” for consumers, with the platform generating revenues from fees from suppliers of services.
True platforms tend to be “asset light”, with no inventory – these may however run alongside competing retail businesses which do carry their own stock (e.g. Amazon marketplace vs. Amazon retail).
Digital platforms make it easier for companies to find customers, use underutilised assets, reduce transactions costs, and enable supply to react faster to increases in demand. They frequently enable smaller SMEs to economically gain visibility with much larger audiences and transact with customers outside of their own geography.
Pricing can be dynamic on platforms (e.g. Uber’s surge pricing when there is high demand), which means supply can respond more quickly to meet demand. Propositions can also be personalised for individual users (e.g. Amazon’s understanding of purchaser’s intent, driving recommended purchases).
There is a “winner takes all” tendency for these markets due to scale benefits for suppliers & consumers, so any smaller players need to really consider how they can differentiate. Benefits of scale, particularly through having access to more and better data, can significantly benefit the largest players. Where the use case is very broad (e.g. LinkedIn, eBay), then marketplaces can become extremely large globally.
Key risks to any marketplace type model business include the relative concentration of the supplier base: A heavily concentrated supplier base can diminish the importance of the marketplace / and suppliers may re-consider their channel strategy and go direct. Success can also attract competitors, however it is usually hard to dislodge an incumbent once firmly established.
Examples of digital platforms include:
- Free for users (advertisers or companies pay)
- Social media platforms e.g. LinkedIn, Facebook, Twitter, Instagram
- Communication platform e.g. WhatsApp, Snapchat, WeChat
- Knowledge platforms e.g. Quora
- Job boards e.g. Monster, Indeed, Reed
- Users pay for products or services aggregated by platform
- Gig/Job platforms e.g. Uber, Fiver, Rated People, TaskRabbit
- Travel/Experience marketplaces: e.g. Airbnb, Viagogo, Festicket
- Product marketplaces: e.g. Amazon Marketplace, eBay, Etsy
- Investment platforms: e.g. Lending Club, Zopa, Funding Xchange
- Price comparison websites (PCWs): e.g. MoneySuperMarket, comparethemarket.com, Comparison Technologies, BoilerJuice, Love Energy Savings
Fairgrove experience
Fairgrove has worked with a wide variety of different platform models. Key elements that drive value in businesses, includes the size of the available market, the economics of the business (e.g. cost of customer acquisition, nature of repeat use and profitability of each transaction), and the importance of the marketplace to the functioning of its ecosystem.
Examples of sub-sectors where Fairgrove has experience within digital platforms include:
- Price Comparison Websites
- Investment Platforms
- Product Marketplaces
- Job Boards
- Travel / Experience Marketplaces
