Google, Facebook, Uber and Airbnb: four companies, which became dominant market players in their segment in a very short time. Uber, for example, grew in seven years to the world’s biggest logistics company. Platform-expert Martijn Arets unravels the success formula of these services.
1. Facilitation in stead of control
During the industrial revolution the trend was to centralize both people and resources. To the effect that maximum efficiency could be reached. It used to be he ideal formula, as at the time most products and services where produced by the dozen. Or like Henry Ford stated, “Any customer can have a car painted any color that he wants, so long as it is black.”
The downside of this decentralization was a lack of flexibility; changing existing processes went slow and was burdened by big inventorial investments. When we look at a platform like Airbnb, we see the opposite. Airbnb as a company itself doesn’t invest in property, though connects (private) owners of existing property (which may be rented out for leisure purposes) to people who see the need to rent it. The platform works as an intermediary with a client base, which may grow exponentially, through a (relatively) non-capital-intensive strategy. Facebook, Airbnb, Booking.com and Martkplaats.nl work all in the same way.
The great challenge of a platform is the need for two sides: the demand and the supply. The art of starting a platform is to realize a healthy balance between them. Uber does a smart job. The taxi platform governs the deployment of drivers by using dynamic tariffs. When the demand outgrows the supply, fares are raised. This motivates drivers to get their car started and demotivates the clients to task for a taxi right now. Thus, the supply increases and the the demand decreases, which immediately restores the balance.
Key learning point: Go back to the core of your company and see how you may set up your service as a platform.
2. The innovation process upside down
A second obstacle to platforms is their way to turn innovation processes upside down. Professor in Innovation Studies, Koen Frenken, calls this ‘reverse technology assessment’. He explains, “Normally speaking, an innovation is first studied scientifically, second a public discussion about its desirability takes place, then politics come up with regulations, and finally an innovation is marketed.”
This is process in place with new medicine, airplanes, food or farming methods: first research, then safety tests, next regulations, and finally market introduction. Though with the sharing economy the process is reverted. Companies launch their new platforms first, which will consequently be follow by a normative discussion, and only then scientific research.
The problem is that platforms, by doing so, knowingly violate laws and regulations. Uber knew that UberPop, a gypsy cab service, was illegal. By applying the reversed innovation process, Uber created a satisfied market first, by which it was much harder for public institutions to prohibit the service.
Key learning point: Some impertinence from time to time doesn’t hurt. And sometimes it’s better to ask for forgiveness after the event, than permission up front.
3. Use the newest technology optimally
Many activities we perform by using platforms nowadays, aren’t new. Sharing has always existed. Platforms only lower the thresholds. For example, transaction costs are lowered, and strangers may be trusted, thanks to reviews and reputation scores. The added convenience fosters a rapid increase in usage.
Let’s take uber as an example. Where it used to be troublesome to get a cab, nowadays it can be done with 3 ‘taps’ on your smartphone. The fact that both the driver and you own a smartphone, makes it possible that many operations are automated. The algorithm matches you with the closest driver. At the end of the ride you rate the driver and the driver rates you. This reputation system filters out bad performing drivers and asocial clients in no time. Linking your credit card ensures you that you don’t have to give the payment process a second thought.
Key learning point: Use technology and algorithms to simplify processes and make them self-managing.
4. Extreme focus on creating convenience
One of the key agenda points in the development of online platforms is to create convenience for both the client and the supplier. Processes are becoming simpler and more and more services are being integrated in existing apps. It is even possible to directly order an Uber from Google Maps and also KLM has integrated the Uber API connection into its website.
The next step is to look ahead to the future. The now Uber app links to your agenda and registers your daily rhythm. This in order to give you the right suggestion to order a taxi at the right time.
A Mayor point of interest in this development is of course privacy. To what extent would you be able to trust a commercial party with your personal data? That is something about which start-ups can learn a lot and where existent companies are absolutely well ahead.
Key learning point: See how you may use technology to find ways to serve your clients proactively.
5. Think in categories, not in niche markets
Uber isn’t a taxi company, but a logistics platform, and Airbnb isn’t a renting out accommodations, yet offers “unique (local) experiences”. Though many people talk about Uber as if it is a taxi company, in the mean time they’ve started to deliver food (UberEats) and are developing the platform for self-driving trucks and cars. Airbnb is aiming at the complete travel experience and not only at accommodation; hence the platform newly offers tours. This way platforms embrace the opportunity to become the all-in-one solution in their category, and that doesn’t leave much space for competition.
Key learning point: Think outside your own niche market, but think of all-in-one solutions.