Master Class: Platform Business Models

now let's talk about the last big technology sort of event or big wave that is happening now and that is really platform business models everyone wants to be a platform everyone dreams of being that Clearing House so let's discuss a little bit of what platform business models really mean what is their competitive positioning right you can read I mean they're always this in the magazines they always compare General Motors to eibar and Airbnb to marry it and they say well these platform models they have no assets they have nothing much but look at the market valuation is as big as their big legacy or all the economy type of competitors so let's explore this a little bit they of course many many types of platform business models as you can see so it starts with a very simple one like search like Google write communications here like whatsapp or Skype or WeChat then there's of course social media like Facebook LinkedIn Twitter there's matching platforms like like tinder TaskRabbit a harmony right there content and review platforms like YouTube there are booking aggregators like booking.com Expedia pagoda there are retail platforms Amazon Etsy eBay yeah Alibaba I guess and then there are payment platforms Ali pay PayPal Visa crowdsourcing crowdfunding and of course development platforms so there are platforms they all are summer at the center of a business ecosystem right and if you look at financial markets these high valuations were given why because they thought platforms have immense network effects that almost isolates them from competition and so they're so big Facebook is so big and nobody can compete with Facebook why because they have over a billion users every day and that gives them all that reach they need for the advertising right but if you look closer that number one they're different types of network effects the first is called primary network effects this is what people always focused on primary network effect means as service becomes more valuable to me the more people are on this network so it means if I'm the only guy on Facebook or on a social media platform it's pretty useless right but the minute my wife and my kids are on the same platform already is more useful because I can communicate with more people right and of course the bigger it becomes I mean for example I use LinkedIn a lot I can almost find everyone on LinkedIn and yeah and I can search my contacts and everything so there's a ton of value for me and this is what I call primary Network effect but you think about let's say for Google for such platform actually there is no primary Network effect because what I want is what search result so if you give me a new search engine that is better than Google why don't I switch I can write it's very easy there's no network effect here and in fact there's a start-up in Singapore that actually they're quite funny what they do is great a great search engine but what they say is look every user on Google generates about a hundred and ten hundred and twenty US dollars advertising revenue for Google so by you using Google Google earns a hundred / US dollars advertising revenue on your panel so what does new website did is the new search engine that they say I share this revenue with you so you use me and I pay you half of whatever advertising revenue you generate fuyi searches and what you do and who your clicks and so on right so I mean there's no primary Network if somebody else comes in with a better solution a better value proposition Google is out because of course they can also evolve but it's not like Facebook Facebook is a lot harder to dislodge because even if I develop a better Facebook unless I get everyone on my platform this is useless so this is the the primary network effects they're really only in communications why I need to talk to everyone they're really only in social media because I need to I want to connect to everyone but let's say for a sharing economy that's not the big topic right sharing economy did the Airbnb uber lyft these are all sharing economy platforms and they have billions of dollars of valuations and the ideas network effects but again they are not primary network effects we're talking about now something we call secondary network effects and I'll give an example if I'm a customer on uber or Diddy so for example sometimes I take one of these companies to work so if you have a party at night I don't want to drive right so I take a I take here in Singapore a grab taxi or 1-hour grab its car and so I chatted with the driver I was quite interesting he only does two trips a day he goes from home to work and from work to home and I'm either trip you always matches to one passenger so he only makes two paid trips a day and supplements his income and he says these two trips almost pay for his car so what he has to offer on this platform is a trip which is close to my home his home right and then close to where I work where he works at Science Park which is next door to the University that's his product so how many customers do him does he need he actually only needs one right he only needs to find one guy or one lady here who rests the similar trip in the morning meaning same pickup location or similar pickup locations similar drop-off location at the same time and the same for the reverse trip so the minute a network is big enough that this matching quality because this matching quality so this is of the attributes right pickup drop-off and time these three variables here if I can find one other customer here who fits that capacity and that offer the matching quality is good enough meaning having then more customers or more drivers on the platform at zero value so we call this critical mass so this platform that you only have a protection of these net secondary network effects as long as competitors have not reached this critical mass and this critical mass is a lot lower than people think and you can buy it so the I mean we wrote in my text book I wrote this case study diddy against uber and already be when uber was still in China we predicted there and a hard time not because did he got sort of regulatory help and so on but much more than ever innovated too slowly did he was a lot more innovative in China he did a lot more things for the Chinese market uber didn't do and again booba lost in China they also lost in Southeast Asia so they folded up and sold everything to grab and the minute uber was gone a new company entered in Singapore so if you believe in network effects why does a new company enter yes so it's if you have enough money to fund the initial growth to build the initial network size you can compete and what we have seen in America and many other markets even in Singapore here is if an America we call this multihoming meaning driver and passenger they both have multiple services on their phones so in America a driver can work for uber and for lyft so the driver takes which company whichever has the better trip in the better margin right so I as a driver I take the better trip the better more profitable trip as a customer there are some multihoming they have you been left on their handphone they look at both one is such pricing the other dozens of who does the Custer one has a car ride away the other doesn't have a car ride away so again the customer picks the more convenient car at the lower price and the driver picks the more convenient customer at the higher price so what gets squeezed in between is the margin of the platform so if you think there's no competition and platforms it is not true multi-homing means direct price competition very very quickly so that's I think this is to keep in mind here when you think platform is sort of the key way to sidestep competition it is a much less safe a competitive position than most companies think so if you ask me even four platforms customer user experience onboarding booking processes payment processes conflict resolution all of these services topics are really that differentiate a platform and that make customers loyal to a platform it's not so much the network effects now of course a platform has not only two sides we can talk about platform ecosystems so then any players right you have the platform you have the provider like the driver you have the customer like the rider here but then they are also complement us so a platform can contain many many players if you're a B & B it may include restaurants to a guides local transport there may be any many other translators so there many other services that can be part on part of that ecosystem and platform and the more you have the more sticky the platform becomes the harder it is to copy the platform and then of course you have many adjacent people and players to worry about like policy society income and other actors and their competitors and you're never you are never playing in an isolated field there my thinking was if you look at companies like Marriott companies like taxi companies they were stunned and surprised when platforms happened but guess what they all recovered in Singapore if you are a customer the taxi app and the right sharing apps they're equally convenient I can see on the tech see where the taxi is I can call the driver I can pay via whatever payment mechanism so from a customer angle now between the taxi company and between grab or any of these other providers there's no difference from the journey perspective actually for me I now for any important trip I switched back to the car taxi company why they don't cancel on me they say they're here 8 o'clock they are here at 8 o'clock now they're more reliable yes so you can see there the the the difference there is becoming less so what you what you will see us initially all the big legacy companies were very surprised but now at least the customer interface in the platform part they integrate this into their own business models and you can see here we look at platforms they are is there something physical involved so is it is it something you sell something or you just get an experience so I buy something on Amazon there's a delivery of a good but I take a ride there's no selling of anything I do deliver a performance you deliver a service then the other big difference on this platform is that service or asset pier provided or as a platform provider it's a big difference let's say diddy uber air B&B the assets appear provided meaning a driver logs onto the website a somebody who has a flat or room locks onto the website lists that's there that means Airbnb doesn't have to do any rent or doesn't have to get any hotel rooms or nothing so scaling growth is very very fast right on the other hand if it's a platform where the assets are owned or controlled by the provider like we work like Zipcar that means they have the assets they have the risk they have the control and the only difference between legacy providers that say you have Zipcar and you have a Vasseur hurts so what's the difference between hurts and Zipcar the only difference was hurts I have to go to a particular station pick up the car I have to rent it for at least a day and I have to drop it off again at a certain location right Zipcar the difference is this cars parked anywhere in the city I can look on my phone where is the next available car I can reserve the car I use it for 20 minutes and I drop it anywhere again I'm charged by the minute but the car is still owned by Zipcar or controlled by Zipcar right so the difference was much more in terms of the flexibility and the in touch interaction on the app so they have the current of the more traditional bit and they have the Zipcar yeah okay so you can see Pierre provided market are provided so what's happening here now is we have all of the legacy companies moving in two platforms a core is the world's largest hotel company outside the US they launched one fine stay there's a pier provided a platform of high-end shared accommodation Mariette is going into platforms so they're all and the nice thing is they all put this in part of their book engines their websites the advantage they have is that say if I collect points on business travel and Marriott or in in a call I can use these loyalty points to redeem a platform sharing a house for example we as on Airbnb I don't have that right I don't collect points on business that so you can see the legacy providers here have actually nice competitive advantage in certain areas moving into platforms why the F distribution they have brands their variety programs they have boots on the ground so if I want to put certain capacity into a city I already have people working there right so I I can offer sort of a mix between running a hotel and running a shared facility and then even adding peer provided services right also you buy a being me they go into you like you but everyone is speculating when will autonomous cars be good enough so that I can offer taxi services without drivers the minute that is possible so uber is already experimenting with it I'm sure Diddy is experimenting with it the minuteness is possible uber and Diddy and and all these companies will own or control these cars and they're not Pia provided anymore Airbnb is the same thing Airbnb moves into controlling certain apartments now in New York in San Francisco it's not Pia provided anymore is Airbnb owned and likewise here there's no reason why someone like we we work there building further now but and there will be badly and trouble now with a crisis yeah but there is no reason why we were can't use its platform and say no currently we were grants the offices why can't they allow a business that has spare office capaz to list it on their website right they could go into this model so what you can see is here this whole space of platforms is really shifting and everyone moves into everyone else's space my prediction is that in three to five years what you will have like a company like Marriott or like Airbnb will play simultaneously in all of these spaces and the outcome will be that for capacity you know you have a very high utilization a very high load factor a very high occupancy rate you will control control and own that capacity why that is cheaper than using peer provided capacity so if I if I'm in New York and I know I can rent out this room for 340 days a year I own it for peer provided I will go for stuff that a sort of shoulder season and low season Oktoberfest in Munich every room is booked out so I will not build capacity for the Oktoberfest or for exhibition or something this will be pure provided so this is I think where we will be going so even for platforms I hope you understand there is a lot more to the eye right now I think valuations for platforms are completely overdone so if ever a choice between buying Marriott stock versus Airbnb stock account valuations there it is the safer bet because they will be on platforms as air being Airbnb will be in hotels as well you can see it so these are the different paths that are happening here good so what I would like to do is I mean do you think for your own business platforms will be important in the industry are there players that are developing platforms and I know for example GE try to develop platforms Zeman's is trying to develop platforms but not too successfully because customers are afraid of being locked in right but there's so much value having a platform for everyone so is there something happening in your industry so let's let's discuss this in your in your groups briefing so do you think platforms are not important somewhat important or can be very important in the next two to four years so let's do the voting so two minutes and then we do the voting okay and then we break here and then now given the voting what we have just discussed do you think you should in your industry or your business also develop a platform is there something you want to do and can do you

Channel: Professor Jochen Wirtz

Views: 16,260

Rating: 4.9511003 out of 5

Keywords: Service, Customer Service, Services Marketing, Service Management, Platform, Platforms, Sharing Economy, P2P Platforms, Uber, Airbnb, Marriott, Accor, Network, Network Effects

Id: A_G91QynhVk

Length: 21min 16sec (1276 seconds)

Published: Wed Apr 22 2020